US House passes massive homeowner rescue plan...stay tuned

The House on Thursday passed a massive homeowner rescue plan to provide cheaper, government-backed mortgages to half a million debt-ridden borrowers and bolster an economy crippled by the housing crisis.Defying veto threats from President George W. Bush, the House approved the measure by a vote of 266-154, with 39 Republicans – mostly from areas suffering worst from housing woes – supporting it.It would let the Federal Housing Administration take on up to $300 billion in new mortgages so that financially strapped borrowers facing foreclosure could refinance.The plan by Rep. Barney Frank, a Democrat, is the centerpiece of a broader package of bills approved Thursday that Democrats say will prevent more foreclosures and help homeowners and communities deal with the fallout from the mortgage meltdown.“We are in a recession, and the major cause of that is the subprime crisis,” said Frank, the House Financial Services Committee chairman. “Diminishing the number of foreclosures is in the interest not simply of those who will avoid foreclosure, but people in their neighborhood, (in) the cities in which they are located, and the whole economy.”The measure is targeted at homeowners facing default, including many who owe more than their houses are worth.For instance, a homeowner who owes $290,000 on a house now worth $225,000 could refinance into an FHA-backed loan if the mortgage holder was willing to take a loss of about 36 percent. The borrower’s monthly mortgage payments would fall from $2,200 to about $1,200.Loan holders would have an incentive to participate, proponents believe, since the alternative would be costly foreclosures, which can involve losses of 50 percent or more.Supporters hope the package – which awaits action in the Senate – will serve as the basis for a broad bipartisan housing compromise that could satisfy both parties’ keen appetite for delivering election-year aid to anxious constituents.But Bush’s veto warnings, bolstered by staunch Republican opposition, are clouding its prospects.“House Democrats passed bills that they know will never become law. Most Americans understand that we shouldn’t create a taxpayer-funded bailout for lenders and speculators,” said Tony Fratto, a White House spokesman.Republicans argued the package reward lenders and irresponsible borrowers at the expense of homeowners and renters who made more prudent choices and are straining to cover their costs in a punishing economic climate.“The vast majority of Americans who find themselves struggling with mortgage payments, struggling with high gas prices, struggling with high food prices are now going to assume responsibility for ill-advised financial decisions and misjudgments of other people,” said Rep. Spencer Bachus, a Republican.Under Frank’s plan, homeowners currently considered too risky to qualify could refinance into FHA-backed loans if their lenders agreed to take substantial losses on the original mortgages. Borrowers would have to show they could afford to make payments on the new loans. They would have to share with FHA at least half of their proceeds if they profited from selling or refinancing again.The plan is projected to cost $2.7 billion over the next five years.Republican backers said they were putting aside their philosophical objections to a government-based rescue due to the severity of the housing crisis that has hit their constituents.“There are 500,000 real families with children out there who are going to be helped by this,” said Ric Keller, a Florida Republican. “It may not be a perfect bill, but good people in my home state of Florida need help, and in my view, this is the only train leaving the station.”Indeed, with a legislative schedule squeezed by the November elections, Congress has just a couple of months to come to terms with the White House on a housing package. Democratic Sen. Christopher J. Dodd, the Banking Committee chairman, has been searching for an elusive bipartisan deal on a similar measure, which he hopes his panel can vote on next week.The House on Thursday also passed, 239-188 a bill to send $15 billion to states to buy and fix up foreclosed property. Bush has also threatened to veto that measure, contending it rewards the very lenders who helped caused the housing chaos and could act as an incentive for them to foreclose rather than find ways to help struggling borrowers stay in their homes.Proponents say it will prevent blight in neighborhoods plagued by abandoned, foreclosed homes.

What is Foreclosure?

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:

1. The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure.
   


2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
   


3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
   


4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale forclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO (Real Estate Owned by the lender).