From the Boston Globe:
Panel: Expand FHA role in subprime lending
US House panel voted to expand a federal agency’s powers to help low-income borrowers at risk of losing their homes as Congress pushes legislative fixes for the subprime mortgage crisis.
The House Financial Services Committee approved legislation yesterday to let the Federal Housing Administration refinance more subprime mortgages. The panel’s 45-19 vote in Washington sends the legislation to the full House.
The agency “has a very useful role to play in supplementing the market,” Representative Barney Frank, the Massachusetts Democrat who chairs the committee, said during the panel’s consideration of the measure. “If we can get people into the FHA rather than to some of the other kinds of loans they have, everybody will be better off.”
Congressional lawmakers have expressed concern in a series of hearings this year that rising default and foreclosure rates among borrowers with weak credit will force thousands of people out of their homes. The House legislation is one of the first formal steps in Washington to address the problem.
The proposal would direct the FHA to underwrite mortgages for people with higher credit risk who would otherwise be driven to subprime loans and expand access to FHA protection by increasing qualifying loan limits in high-cost areas. The legislation was introduced in March by Frank and Representative Maxine Waters, a California Democrat.
The Washington-based FHA, an agency within the US Department of Housing and Urban Development, insures loans made by private lenders to low-income, minority, and first-time homebuyers. The mortgages generally have interest rates 3 to 4 percentage points lower than subprime loans, the agency said.
Hovnanian Posts Loss, Says Subprime Is Curbing Sales (Update2)
By Peter Woodifield
http://www.bloomberg.com/apps/news?pid=20601103&sid=a8jPHAtaQXLU&refer=news
May 4 (Bloomberg) — Hovnanian Enterprises Inc., the sixth- largest U.S. homebuilder, reported a wider second-quarter loss than earlier forecast and said the subprime mortgage crisis is exacerbating weakness in the home sales market.
The loss excluding land charges for the three months ended April 30 was about 30 cents a share, the Red Bank, New Jersey- based company said today in a statement. It had predicted a loss of 5 cents to 20 cents a share. Including the charge, the loss may be 45 cents to 50 cents. Analysts in a Bloomberg survey project a loss, excluding items, of 22 cents on average.
Hovnanian said today it will have a pretax expense of as much as $20 million to cut the value of its property and walk away from deposits on parcels of land it doesn’t plan to buy. The company delivered 30 percent fewer homes last quarter than a year ago and saw “exceptionally high cancellations” in the Fort Myers-Cape Coral area of Florida.
“The adverse publicity surrounding the subprime market has further damaged home buyers’ psychology, resulting in decreased demand and leading to continued use of sales incentives,” Hovnanian said in the preliminary earnings statement.
At least 50 mortgage lenders have halted operations, gone out of business or sought buyers in the last year amid rising borrower defaults. The crisis has led to tighter lending standards just as home prices are falling and made it more difficult for many buyers to enter the market.
Home Sales Sink
Hovnanian delivered 3,196 homes during the quarter, compared with 4,555 a year earlier. Cancellations in the second quarter fell to 32 percent from 36 percent in the first quarter, the company said.
Net contracts for the quarter declined 21 percent to 3,116. Excluding Fort Myers-Cape Coral, the company’s cancellation rate was 30 percent and net contracts dropped 17 percent.
Homebuilders’ profit is falling as demand for new property has waned. Existing-home sales tumbled 8.4 percent in March. While the Commerce Department said March new home sales rose, builders have called the spring selling season disappointing.
Shares of Hovnanian gained 27 cents, or 1.1 percent, to $24.57 in New York Stock Exchange composite trading yesterday. The stock has declined 30 percent in the past year. A Standard & Poor’s measure of 16 homebuilders slid 18 percent in the same period.
Hovnanian will report second-quarter earnings on May 31.
I have to wonder haw many people this will actually help.
First …How many people will actually be able to afford this “help”? Lets say you got into a $500k I/O mortgage with a 5% 1 year – adjustable rate. Your payments were $2,088/month. Now you are offered a below market (for subprime) 30 year fixed at 6%. Your new payment is almost $1,000 higher.
Second…Out of the people FHA could help, how many will take the help? How motivated will people be pay even more to live in a house that is worth less than when they paid for it?