Distress in the mortgage market is stirring up a wave of new relief bills on Capitol Hill, including one that would allow homeowners to tap into their retirement accounts penalty-free to bring their loans current or to refinance.
One major reform bill appears stuck in neutral, however. That's the Federal Housing Administration Modernization Act, which would raise loan limits in high-cost areas of California and the East Coast and cut down payments. It is considered a crucial relief measure for consumers who need to refinance out of adjustable-rate loans into lower-cost, fixed-rate mortgages. It was approved by the Senate Banking Committee on Sept. 19, and was the subject of bold promises for quick passage, but hasn't been heard of since.
The pension-tapping plan for delinquent homeowners was introduced Oct. 19 by Sen. Norm Coleman, R-Minn. Titled the Home Ownership Mortgage Emergency Act, the bill would allow certain borrowers who are 60 days or more behind on their payments to withdraw up to $100,000 penalty-free from their retirement accounts. The funds could be used to bring their loans current to avoid foreclosure, or refinance into a more affordable loan.
Borrowers would avoid the usual 10 percent federal tax penalties on early pension distributions as long as they paid back the withdrawn amounts within three years. The bill restricts this benefit to taxpayers with adjusted gross incomes of $166,000 for joint filers or $114,000 for single filers. The assistance plan would be temporary: It would terminate at the end of 2009. Only mortgages on owner-occupied principal residences would be eligible, thereby excluding investors and speculators.
The idea, according to Coleman, is "to provide relief to the folks most in need, middle- and lower-income homeowners" rather than to higher-income households who may have access to other resources to avoid foreclosure. Coleman's proposal drew immediate support from the lending industry. Jonathan L. Kempner, president and chief executive of the Mortgage Bankers Association, said, "This is the kind of flexible, creative solution that will help many delinquent borrowers," effectively enabling them to use their own financial resources to pull themselves out of mortgage trouble.
Another key piece of legislation introduced in mid-October also is aimed at fixing the mess in the mortgage market. Sponsored by Rep. Paul E. Kanjorski, D-Pa., the Escrow, Appraisal and Mortgage Servicing Improvements Act would ban all forms of lender or broker interference in appraisers' valuations and would require high-cost, subprime mortgages to carry escrow accounts to handle property tax and insurance payments.
The bill would impose penalties up to $20,000 per violation on anyone who intimidates, threatens, bribes or otherwise attempts to influence an appraiser's valuation of a home. It would also guarantee buyers access to all appraisals performed on the property in a purchase transaction, not just the highest one the loan officer uses to close the deal.
Kanjorski's bill is expected to be rolled into an omnibus anti-predatory lending bill introduced Oct. 22 by House Financial Services Committee Chairman Barney Frank, D-Mass., that would require all mortgage loan officers to be licensed and registered, and would require them to be certain that loan applicants have the financial ability to repay the amount they are borrowing.
Still another major housing-relief measure, the FHA Modernization Act, passed the full House and the Senate Banking Committee in September but has since dropped off the radar screen. That is in spite of strong promises by Banking Committee Chairman Chris Dodd of Connecticut to rush it to the Senate floor for quick action.
Dodd, who is running for the Democratic nomination for president and co-sponsored the FHA legislation, pledged Sept. 19 to "fight for (the bill's) swift passage so that homeowners can get the relief they deserve." But more than a month after committee passage by a 20-1 bipartisan vote, the Senate FHA bill doesn't even have a number and has not been sent to the majority leader's office for scheduling a floor vote.