The House Financial Services Committee completed action on the reform package yesterday when it approved a bill to set up a resolution process for “too big to fail” institutions.

The “systemic risk” bill also gives regulators the discretion to set risk retention requirements as high as 5% on Federal Housing Administration, Fannie Mae and Freddie Mac loans. The regulatory reform package also includes bills that create a Consumer Finance Protection Agency, regulates the trading of derivatives, and a bill (H.R. 1728) the House passed in May that curbs subprime lending practices.

The mortgage industry prefers the risk retention provisions in H.R. 1728, which totally exempts lenders and securitizers from retaining a portion of the credit risk on FHA and GSE loans.

Some industry lobbyists have been wondering how committee chairman Barney Frank, D-Mass., would deal with the different risk retention provisions. Rep. Frank told reporters he would drop the original provision in H.R. 1728. “The risk retention section of the subprime bill will conform to what we did in the systemic risk bill,” the chairman said.

The House of Representatives is slated to debate and vote on a massive regulatory reform package next week that includes several bills addressing abusive mortgage lending practices and risk retention on sales and securitizations of mortgages.

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There’s been a lot of chatter about Obama’s administrations Making Home Affordable Program.  This program announced in March of 2009 has two components to it:  1) the Home Affordable Refinance Program or HARP for short and 2) the Home Affordable Modification Program also known as the HAMP program.

The primary objective of the Making Home Affordable Program is to help stabilize housing prices.  By helping you to stay in your home that puts one less foreclosure on the marketplace that ends up selling at a lower than market price – which in turn helps to stabilize the value of everyone else’s home around you.   The government believes that by helping to stabilize the housing market and help to keep people in their homes it will help to stabilize the broader economy.

The HARP program (Home Affordable Refinance Program) is designed for mortgages owned by Freddie Mac and Fannie Mae in which the homeowner can afford their monthly payments but is unable to refinance because they currently owe more than their home is worth.  Under this program Fannie Mae and Freddie Mac will allow them to refinance up to 105% of the value of their home at today’s market interest rate.  In order to qualify for this program you must have a satisfactory credit rating.

Regarding the HAMP program (Home Affordable Modification Program) – this program is designed to help people who are in foreclosure or going to be in foreclosure to keep their homes.  This program is designed to assist people who have suffered some sort of financial hardship due to a reduction in income such as the loss of a job for your spouse or experienced an increase in the mortgage payment as in the case of an adjustable rate mortgage that adjusted up.  The household must still have income however credit is not a factor.

Under the guidelines of the HAMP program your interest rate can be lowered to as low as 2% for up to 5 years, the bank may also extend the repayment term up to 40 years, and a portion of the principle balance of your loan may be placed on forbearance –  A big word meaning its still hanging out there but you don’t have to pay interest on it for a certain period of time.  If you sell your home – you’ll still have to pay that money back.  All of these factors are designed to get your mortgage payment down to 31% of your gross household income.

For participating lenders in the HAMP program the Federal Government has sweetened the pot by giving them an incentive to modify an applicant’s loan.  For each of the first five years of the modification the Feds will pay your lender a certain amount per month for accepting the modification.  In addition, as a homeowner, if you make your new modified payment on time you may be eligible for $1,000 in principle reduction for every year you make your payments on time – up to 5 years.

It is up to your particular lender to determine how they want to modify your loan – they don’t always have your best interests at heart so be careful.  If you feel the new terms they are offering you are going to put you in a worse situation down the road you do have options.  You should consult your attorney or a reputable company that regularly deals in loan modification such as SureFast Loan Modification.com.   These competent professionals can help to make sure you get the best deal possible and don’t get taken advantage of by your bank.

Fannie does not disclose buyback information. However, Freddie Mac forced its seller/servicers to buy back $960 million in bad mortgages in third quarter. Ginnie Mae and Federal Housing Administration also require buybacks and indemnifications on bad loans.

In total Banks had to buy back $7.1 billion in defaulted single-family loans in the third quarter to reimburse mortgage investors, up from $1.9 billion in the previous quarter.

Federal Deposit Insurance Corp. Call Report information shows that most of the buyback demands fell on JPMorgan Chase and Bank of America. Chase repurchased $2.7 billion in defaulted loans and Bank of America repurchased $2.3 billion to satisfy investor demands. Both are on the hook for troubled loans they took control of when they purchased ailing mega-thrifts — Countrywide in the case of Bank of America and Washington Mutual by Chase.

The FDIC information also lists buybacks by Citibank $898 million, National City Bank $361.6 million, Wells Fargo Bank $266 million and SunTrust Bank $232.3 million.

Investors like Fannie Mae and Freddie Mac can require lenders to buy back defaulted loans that don’t comply with their underwriting requirements.

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The President’s Home Affordable Refinance Program, HARP, was introduced in March with the intention of assisting struggling homeowners facing the possibility of foreclosure. Like every other fix introduced for the real estate market’s condition, HARP is a band aid where a tourniquet is needed.

Some key problems with the program:

• The option of loaning up to 125% of the home value to lenders puts us very close to the lending practices that got us into the current state of things.
• Fannie Mae and Freddie Mac will begin accepting the HARP loans in September and October respectively. Both of these companies are struggling financially. Bringing them into the process does not hold up the idea that this is a long-term solution.
• For borrowers who took out loans in 2006 and 2007, as many 1/3 of them may not be able to refinance under the plans stipulations due to lowered incomes, misrepresented original income amounts at the time of their loans or a missing payment within the last 4 months.
• Worse yet, some original loans were based on no-doc loans, where borrowers weren’t required to document their income.

The theme is the same and the issues remain in the cyclic problems facing our mortgage industry.

The system has to be broken down to find the cracks letting the water into the leaky ship that is mortgage legislation. There simply cannot be any more quick fixes.

If you are a homeowner in financial trouble and facing the prospect of losing your home, there are several options available for you.

If you need urgent help, immediately contact the Homeowner’s HOPE™ Hotline: (888) 995-HOPE. Homeowner’s HOPE™ is a counseling service provided by the Homeownership Preservation Foundation that can work with you to help prevent a foreclosure. It is an independent nonprofit organization that provides HUD-approved counselors dedicated to helping homeowners. The help they offer is free.

With the global economy in recession, there are many homeowners that are in financial trouble. But there is hope. Through the United States Government’s Making Home Affordable Program funds are available for up to 9 million homeowners to refinance or modify their loans to a payment that may be more affordable. There are two elements to this government program – Home Affordable Refinance Program and Home Affordable Modifications Program.

Through the Home Affordable Refinance Program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they own or that they placed in mortgage backed securities.

Home Affordable Modifications program offers help to borrowers who are struggling to keep their loans current or who are already behind on their mortgage payments even if the loan is not owned or securitized by Fannie Mae or Freddie Mac.

More information available here.