By Margaret Chadbourn
WASHINGTON, Sept 10 (Reuters) - Two leading Democrats on theSenate Banking Committee on Tuesday pressed the U.S.government's mortgage insurer to revise one of its housing aidprograms to ensure it reaches a larger pool of distressedborrowers.
A new requirement to verify employment for thoseparticipating in the Federal Housing Administration's loanmodification program shuts out eligible borrowers who wouldotherwise benefit from the government's assistance, SenateBanking Chairman Tim Johnson and fellow Democrat ElizabethWarren said in a letter to the FHA's chief.
"There is no good justification for restricting access tothe loan modification program based on the source of one'sincome," the senators wrote to FHA's Commissioner Carol Galante.
The new requirement, which went into effect on March 15,limits some seniors, veterans, and single parents with othersources of income outside of monthly paychecks, the lawmakersstated.
Many homeowners draw funds from other sources, includingpersonal retirement accounts, alimony or child support, andfederal benefit programs, such as Social Security DisabilityInsurance. The senators want the clause "currently employed"that was inserted into the FHA's guidelines for the government'sloan modification program to be removed to allow those who relyon various income sources to be eligible for aid.
The Federal Housing Administration made the changes earlierthis year as part of its improved loss mitigation efforts,including a revised set of alternatives to foreclosure in orderto reduce the number of claims against the agency's insurancefund. The FHA, which insures about a third of U.S. mortgages,faces a projected shortfall of $16.3 billion due in part todefaults on mortgages it guaranteed from 2007 to 2009 as thehousing bubble deflated.
It could be forced to turn to the Treasury Department for abailout at the end of September.
"The 'currently employed' provision is bad for homeownersand also bad for FHA, which can benefit from a more effectiveloss mitigation program," the senators wrote.
The FHA does not actually lend money to home buyers butinstead insures the home loans made by private lenders. Inexchange for this protection, the FHA charges certain fees andthe cost of which is passed on to borrowers. The governmentmortgage insurer plays a key role in helping those with low andmodest incomes obtain access to credit to purchase a home.
- Politics & Government
- Federal Housing Administration