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Aristotle
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Legislative Status of H.R. 600
PostPosted: Fri Feb 27, 2009 7:35 pm Reply with quoteBack to top

I checked the Congressional bill status website on 2/27/09, to see what is going on with the bill. See: http://thomas.loc.gov/

On 1/16/09 H.R. 600 was referred to the House Committee on Financial Services, where Barney Frank is the chairman. The Committee's website is: http://financialservices.house.gov/ The website wouldn't tell me when hearings are scheduled on that bill. It appears that there is no Committee Report on H.R. 600 yet.

Defeating H.R. 600 (or neutering it so that downpayment assistance can only be given on purchases of FHA, FNMA & FHLMC foreclosed homes) is best accomplished in this committee.

I regularly send Chairman Frank commentary on banking legislation, using the Committee's email comment form.
See: http://financialservices.house.gov/contact.html

Today, his comment form was shut down, so I am hoping that it gets fixed soon. For those who don't know, because of massive time delays in snail mail screening, you cannot send a paper letter to a congressman any more, if you want it to get there before a vote on a bill. Congressmen also have rigged their office email systems so that only constituents can send them an email. As a result, it's not going to be easy sending Chairman Frank comments on H.R. 600.

Rep. Spencer Bachus is the ranking (senior) minority (Republican) member of the committee. There is no committee web link to communicate with him, and you can't send him an email through his office's e-comment form, because its use is limited to its constituents.

H.R. 600 is now sponsored by Rep. Al Green [TX-9] and has now picked up 15 co-sponsors. Conveniently, the legislative website doesn't bother to say who are Dems or Reps. Here are the current co-sponsors:

Rep Bishop, Sanford D., Jr. [GA-2] - 2/9/2009
Rep Clarke, Yvette D. [NY-11] - 2/25/2009
Rep Connolly, Gerald E. "Gerry" [VA-11] - 2/25/2009
Rep Costa, Jim [CA-20] - 2/9/2009
Rep Gordon, Bart [TN-6] - 2/9/2009
Rep Johnson, Eddie Bernice [TX-30] - 2/9/2009
Rep Johnson, Henry C. "Hank," Jr. [GA-4] - 2/9/2009
Rep Lee, Barbara [CA-9] - 2/25/2009
Rep Miller, Gary G. [CA-42] - 1/16/2009
Rep Sires, Albio [NJ-13] - 2/9/2009
Rep Thompson, Bennie G. [MS-2] - 2/25/2009
Rep Wasserman Schultz, Debbie [FL-20] - 2/9/2009
Rep Waters, Maxine [CA-35] - 1/16/2009
Rep Wexler, Robert [FL-19] - 2/9/2009
Rep Wilson, Charles A. [OH-6] - 2/9/2009

From the point of view of defeating this bill, the addition of this many co-sponsors makes it hard to attack as being entirely campaign contribution driven.

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McFly
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Joined: 28 Nov 2007
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Re: Legislative Status of H.R. 600
PostPosted: Sat Feb 28, 2009 6:27 am Reply with quoteBack to top

I saw your post and wanted to add a resource for info on this bill.

Check out www.opencongress.org is a huge source of info from viewing full text of bills to comparing which representative and senator mostly votes with and info on which bills they are sponsoring etc. Very interesting.

For info on HR 600, check out this link:

http://www.opencongress.org/bill/111-h600/show

WARNING: Reading this site will open your eyes to some of the stupidity in our government, so be ready to choose either the Red pill or the Blue pill before clicking the link......
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Do_the_math
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Re: Legislative Status of H.R. 600
PostPosted: Mon Mar 02, 2009 5:54 pm Reply with quoteBack to top

In case anyone does not know what H.R. 600 is about, it is to reinstate seller-funded down payment grants on FHA loans.

This legislation is being pushed by the "nonprofit" providers in an attempt to preserve their business model that generates millions.

As seller-funded down payment grant usage has increased, so has the delinquency and default rate on FHA loans. The FHA delinquency rate has risen dramatically since the late 90's and is now at just over 19%. The combined delinquency/default rate is just over 20%. That is 1 in 5 borrowers! Last year it was 1 in 6.

Aside from increased home prices, increased delinquencies, and nonprofit abuses, the SFDPA have negatively impacted borrower opportunities by lobbying AGAINST responsible FHA 100% pilot programs for first time homebuyers.

Its time for the industry to stop backing nonsense Bills and programs for the sake of their own pocket books. It's time to be an industry shareholder that demands responsible programs and legislation.

Down payment shell games and money laundering cannot be solution.

I encourage everyone to learn about what SFDPA really is and the threat the program is to FHA. I also encourage those that understand the issue to help combat SFDPA providers "astroturfing" by providing accurate information on the issue when possible.

Members of Nehemiah posing as civilians recently posted several comments to my blog. I knew they comments came from Nehemiah via IP verification.

Please support ML on this issue.

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mortgageinsurance
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Re: Legislative Status of H.R. 600
PostPosted: Mon Mar 02, 2009 8:05 pm Reply with quoteBack to top

Fax them at their offices. Don't email them. Staffers say that faxing no matter where you are located always get their attention.
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McFly
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Re: Legislative Status of H.R. 600
PostPosted: Mon Mar 02, 2009 8:42 pm Reply with quoteBack to top

[quote="Do_the_math"]In case anyone does not know what H.R. 600 is about, it is to reinstate seller-funded down payment grants on FHA loans.


All due respect DTM, but that data that was used to testify in front of Congress last year was skewed with SFDP programs accepted by SUBPRIME LENDERS as well as HUD loans. The default rate on FHA loans cannot be magically cured by killing SFDP programs. I am not advocating this by any means, I just think your posts have always been more insightful and I find it hard to believe that any data could possibly reveal this with any reliability, since it's been less than 6 months since the program went away.

Also, FHA Streamlines are now defaulting (so I hear) an at alarming rate. Should we discontinue streamlines? I think the default rates are tied more to SFDP assistance. I think it is more tied to the fact that there is NO EQUITY. The now requied 3.5% down payment is a drop in the bucket considering how fast values are dropping. Bottom line: I believe people will walk away when getting upside down whether they have skin in the game or not. Upside down is upside down. Lost investment is lost investment.

Just my 2 cents.
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Do_the_math
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Re: Legislative Status of H.R. 600
PostPosted: Mon Mar 02, 2009 11:39 pm Reply with quoteBack to top

McFly, with all due respect, I disagree that the data provided to Congress included subprime programs. According to the resources provided, the data was for FHA loans and not subprime. Perhaps we are talking about different reports and testimony?

When I talk about delinquency rates, I track back several years and look at how delinquency rates on FHA reached double digits in 2001 as SFDPA was gaining momentum. The delinquency rates disconnected with VA and even USDA loans ever since. While the delinquency rates showed the impact of SFDPA, the real estate bubble concealed the default rate and minimized loss/claim severity. The problems with FHA delinquencies and SFDPA didn't just happen recently.

The fact that streamline refinances are also defaulting at an increased rate does not negate the high delinquency and default rate of loans involving SFDPA. However, it does go to show that streamline refis on loans acquired with SFDPA continue to have higher delinquencies. Wink

And no, I don't think its reasonable to do away with streamlines because of high delinquency rates- but then again, streamline refinances don't involve down payment shell games and money laundering. In fact, the whole point of fighting HR 600 and SFDPA is to preserve the program for bona fide borrowers and programs. If SFDPA is allowed to crash the fund, then all borrower eligibility is jeopardized. If sticking your hand on a hot stove burns your hand, remove your hand- but, don't stop cooking altogether.

The battle over SFDPA dates back to 1999 when HUD published its first rule to ban SFDPA. However, the SFDPA lobbying efforts and tactics have been relentless. In 2003 through 2005, Nehemiah and Ameridream lobbied against legislation to create a 100% FHA pilot program. Yes, you heard that right, the SFDPA providers paid lobbyists to defeat 100% legislation (see H.R. 3577 and 3043). Its funny how risky 100% financing becomes to the SFDPA providers when FHA offers competition.

I would much rather see H.R. 3043 dusted off and improved rather than allow "nonprofit" agencies abuse the public and FHA by continuing their down payment scams. Some of the improvements would be to limit DTI to 36%, require a residual income test, require a minimum of 2 months reserves, limit housing increase, apply higher MI premiums to all loans without the minimum down regardless of credit score, and make the loan recourse in regard to losses from claims. But, I digress.

Since the market is declining (adjusting), and people who are upside down are more likely to walk away (including those who made an investment), why enable the weakest consumers (dumb money) to purchase homes in declining markets via FHA financing? Using ill-prepared buyers to artificially prop up the market via SFDPA doesn't benefit the borrowers, market, economy and FHA fund. Consider that the whole concept of taking a borrower who cannot accrue savings and increasing their monthly obligations and financial obligations is problematic in any environment.

Its time for reasonable people to recognize SFDPA for what it really is- down payment laundering. Just say "NO" to H.R. 600.

McFly wrote:
Do_the_math wrote:
In case anyone does not know what H.R. 600 is about, it is to reinstate seller-funded down payment grants on FHA loans.


All due respect DTM, but that data that was used to testify in front of Congress last year was skewed with SFDP programs accepted by SUBPRIME LENDERS as well as HUD loans. The default rate on FHA loans cannot be magically cured by killing SFDP programs. I am not advocating this by any means, I just think your posts have always been more insightful and I find it hard to believe that any data could possibly reveal this with any reliability, since it's been less than 6 months since the program went away.

Also, FHA Streamlines are now defaulting (so I hear) an at alarming rate. Should we discontinue streamlines? I think the default rates are tied more to SFDP assistance. I think it is more tied to the fact that there is NO EQUITY. The now requied 3.5% down payment is a drop in the bucket considering how fast values are dropping. Bottom line: I believe people will walk away when getting upside down whether they have skin in the game or not. Upside down is upside down. Lost investment is lost investment.

Just my 2 cents.

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thetruthfromNC
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It's not the product, it's the accounting behind the product
PostPosted: Tue Mar 03, 2009 12:16 am Reply with quoteBack to top

You can debate whether SFDPA or sub-prime or stated loans are good or bad, but that's not why we're in the mess we in.

ANY type of loan program will work as long as the reserves are held for loses.

They say SFDPA (or 100%) FHA loans are bad because the defaults are twice regular FHA loans. It doesn't take a math genius to know that if you double the MI on those types of loans, problem solved. The problem is FHA has always charged the same for a 700 beacon and a 550 beacon. They can't get the same rate/payment for a car or a TV and they never should have for a home.

One more thought,if average FHA defaults are 3-3.5% and SFDPA is 6-7%, then I would like someone in Congress to show me another federal assistance program that has 93% SUCCESS!

Are 93% of our schools at grade level? Do 93% of addicts kick their habits, are we getting 93% out of public housing, are 93% leaving welfare.

Yes they need to adjust the MI to cover loses, but we would all be dancing in the streets if all government programs had the same "defaults."
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Do_the_math
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Re: It's not the product, it's the accounting behind the pro
PostPosted: Tue Mar 03, 2009 12:38 am Reply with quoteBack to top

Assessing mortgage risk solely on credit score is one of the big reasons we are in the mess. Risk is based on a combination of factors, and encompasses the 5 "C"s of underwriting risk.

A borrower with a 700 credit score who has excessive debt, high DTI, no liquid reserves, a large increase to housing, and no savings history can be greater risk than a 600 borrower with minimal or no debt, conservative credit use, low DTI, savings history, minimal increase to housing, and liquid reserves. To penalize the low risk borrower because of the lower score (that is only partially based on credit history) is unconscionable.

Considering that H.R. 600 completely exempts borrowers with credit scores at or over 680 is ridiculous and borders on inane. Especially when one understands that prime loans to borrowers with higher score are defaulting en masse. Recent studies from Fed Economists indicates that credit scores are not effective.

Taking one failed practice (credit scoring) to justify another failed (SFDPA)
is an exercise in futility. Throw in resorting to subprime policies (excess charges to offset unacceptable risk), and you have the ultimate trifecta of defective lending practices.

This still doesn't change the fact that SFDPA is a scam that involves laundering down payment grants.

Again, why not support legislation that authorizes FHA to create a bona fide pilot program for first time homebuyers instead of bogus down payment shell games?

thetruthfromNC wrote:
You can debate whether SFDPA or sub-prime or stated loans are good or bad, but that's not why we're in the mess we in.

ANY type of loan program will work as long as the reserves are held for loses.

They say SFDPA (or 100%) FHA loans are bad because the defaults are twice regular FHA loans. It doesn't take a math genius to know that if you double the MI on those types of loans, problem solved. The problem is FHA has always charged the same for a 700 beacon and a 550 beacon. They can't get the same rate/payment for a car or a TV and they never should have for a home.

One more thought,if average FHA defaults are 3-3.5% and SFDPA is 6-7%, then I would like someone in Congress to show me another federal assistance program that has 93% SUCCESS!

Are 93% of our schools at grade level? Do 93% of addicts kick their habits, are we getting 93% out of public housing, are 93% leaving welfare.

Yes they need to adjust the MI to cover loses, but we would all be dancing in the streets if all government programs had the same "defaults."

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Last edited by Do_the_math on Tue Mar 03, 2009 2:57 pm; edited 3 times in total
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SteveP
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Re: Legislative Status of H.R. 600
PostPosted: Tue Mar 03, 2009 7:46 am Reply with quoteBack to top

TRUTHfromNC, you stated “It doesn't take a math genius to know that if you double the MI on those types of loans, problem solved.” Well I hate to break it to you, it may not take a math genius to figure the required adjustment to MIP to offset the SFDPA risk, but it certainly takes someone with a greater understanding of mathematics than you possess.

Specifically, while you managed to recognize the double default rate on SFDPA loans, you failed to recognize there’s a greater loss severity on SFDPA defaults (due to their higher actual LTV’s).

For example on a 200K home purchased with a legitimate 96.5% FHA loan, the loan amount would be $193K. If the same 200K house was financed with a SFDPA loan, the seller would require the price to be increased to $207,000 in order to maintain the same seller net. At $207K, the loan amount would be $199750 which is $6,750 higher than the non-SFDPA loan if made on the same house. When you add to this $6,750 additional lost principal to the additional lost interest on the higher loan amount along with the lost higher MIP premiums which you advocate, I would estimate the loss severity on a 200K SFDPA loan to be about 15K higher.

Using the 15K higher loss severity above along with factoring the double default rate that you acknowledge, follow the numbers in two arbitrary pools of 100 loans with each loan in the pool being 200K each. The first pool of 100 loans are all legitimate FHA loans and the second pool is 100 kited contract SFDPA loans also at 200K each.

Pool #1) 100 legitimate FHA loans at 200K each with 3% default ratio with 30K loss severity each = $90K in total losses for the pool.

Pool #2) 100 SFDPA kited-contract loans also at 200K each but with a 7% default rate with 45K loss severity each = 315K in losses.

SFDPA losses of $315K is 3.5 times (350%) the $90K losses experienced on the standard FHA loans.

Therefore to follow your suggestion to just adjust the MIP premium to accommodate the additional expected losses associated with SFDPA loans, the FHA MIP imposed on SFDPA loans would have to be 3.5 times higher than the standard FHA MIP.

For the arbitrary 200K loans used in example above, a standard FHA loan would be required to pay monthly MIP of about $90 where as under your suggestion, the SFDPA borrower would have to pay a whopping $315 in monthly MIP!

As for the upfront MIP, the standard FHA loan would have about an additional $3400 added to the loan amount where as the SFDPA loan would have about astronomical $11900 upfront MIP added to the loan amount! (which further increases the actual LTV and loss severity on these SFDPA loans!)

Adding further pressure to the SFDPA premium up charge is the fact that the with such a high monthly MIP premium, SFDPA loans would experience a higher prepay speed which would mean the quality borrowers would refinance as quickly as possible leaving a smaller pool of remaining loans that would have to shoulder the anticipated defaults.

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thetruthfromNC
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Missing the point
PostPosted: Tue Mar 03, 2009 3:25 pm Reply with quoteBack to top

I agree with some of what's said and I really don't like SFDPA. What FHA should do is offer 100% financing.

The requirement should be higher (i.e. credit, DTI) than normal FHA and MI would have to be increased to cover additional loses.

If you don't believe this would work then you need to be calling your congressman and telling them to shut down VA and USDA.

To SteveP

your math isn't right, the only addition loss to FHA is 6,750, not 15,000. The sales price has no bearing on loses, only the loan amount. So Pool 2 loss is $263,550 or about 2.5 times normal. And since the upfront would be higher (say 2.50 vs 1.50) the monthly would only need to be about .75 instead of .50.
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