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DeMarco. “A sudden and sharp change in pay from these levels would certainly risk a substantial exodus of talent, the best leaving first in many instances. A significant increase in safety and soundness risks and in costly operational failures would, in my opinion, be highly likely.” The FHFA has also released a 2012 Conservatorship Scorecard, which provides the implementation roadmap for the new FHFA Strategic Plan announced in February 2012. The scorecard includes specific objectives and timetables for the government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—in support of the Strategic Plan. The 2012 compensation program, disclosed in the GSE’s SEC filings, was established by the FHFA in consultation with the boards of directors for both Enterprises and the U.S. Department of the Treasury, as required by the Senior Preferred Stock Purchase Agreements established at the time of conservatorship in September 2008.

FHA Takes Measures to Increase Its Capital Reserves As part of ongoing efforts to encourage the return of private capital in the residential mortgage market

and strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, Acting FHA Commissioner Carol Galante has announced a new premium structure for FHA-insured single family mortgage loans. FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent. These premium changes will impact new loans insured by the FHA beginning in April and June of 2012. “After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Galante. “These modest increases are one of several measures we are taking towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderateincome borrowers.” The Temporary Payroll Tax Cut Continuation Act of 2011 requires


FHA to increase the annual MIP it collects by 0.10 percent. This change is effective for case numbers assigned on or after April 1, 2012. FHA is also exercising its statutory authority to add an additional 0.25 percent to mortgages exceeding $625,500. This change is effective for case numbers assigned on or after June 1, 2012. The UFMIP will be increased from one percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or loan-to-value (LTV) ratio. FHA will continue to permit financing of this charge into the mortgage. This change is effective for case numbers assigned on or after April 1, 2012. FHA estimates that the increase to the upfront premium will cost new borrowers an average of approximately $5 more per month. These marginal increases are affordable for nearly all homebuyers who would qualify for a new mortgage loan. Borrowers already in an FHA-insured mortgage, Home Equity Conversion Mortgage (HECM), and special loan programs outlined in FHA’s forthcoming Mortgagee Letter will not be impacted by the pricing changes. Taken together, these premium changes will enable FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance (MMI) Fund, contributing more than $1 billion to the Fund, based on current volume projections through Fiscal Year 2013.

APRIL 2012 


Mortgage Industry Vet Barry Habib Submits Housing Initiative Proposal

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As the mortgage industry and the federal government struggle to find ways to stem foreclosures, Barry Habib, vice president and chief market strategist for Residential Finance Corporation (RFC), has submitted his proposal to prevent foreclosures and strategic defaults. The proposed plan also enables homeowners to quickly rebuild equity in their homes with a monthly housing expense lower than renting. Under the proposed Homeowners Equity and Liquidity Pathway (HELP) for Housing plan, homeowners build equity in their homes after just two years without a government bailout while contributing up to $450 billion in economic stimulus to the U.S. economy over five years. Key elements of the Homeowners Equity and Liquidity Pathway (HELP) for Housing plan include:  Eligible for borrowers who are current but trapped in their mortgage by not being able to refinance their mortgage or sell their home.  Existing mortgage would be divided into two parts: a first mortgage— representing 80 percent of the current value of the home—on a 20year fixed payment, which takes

advantage of the historically low market rates, and a second mortgage on the remaining balance, to be securitized and held on the Federal Reserve balance sheet, much like QE1, QE2 and Operation Twist.  Borrower is not be obligated to make monthly payments on the second mortgage; however, interest accrues and is payable upon the sale of the home.  Significantly lower monthly mortgage payments—resulting in a less expensive alternative to renting a similar home.  Borrower rebuilds equity within two years.  Borrower cannot sell the home for three years after entering the program.  Zero to minimal contribution from the federal government. While there are many loan programs and ideas that address the foreclosure problem, this proposal actually addresses borrowers’ current situation and underlying issues contributing to strategic defaults. For instance, with some programs, even if the borrower does refinance, he or she will end up paying more than they would for rent and still not be able to gain equity in their home. By building equity, HELP for Housing allows borrowers to see a light at the end of a tunnel of being upside down or loan trapped. The program shows them how they can create wealth in their home again by giving them “skin in the game” or a reason to continue to pay their mortgage as well as room to rebound financially. “This program would enable an average homeowner to save about $590 a month on their mortgage payment, which they would likely spend—creating enormous economic stimulus—save, or use to pay down their mortgage,” Habib said. “The bottom line is that homeowners will have a mortgage payment they can afford and once again build equity in their home while also having significant extra cash per month. This is not a bailout; there is no moral hazard; and the government benefits from significant economic stimulus without having to pay for it.” Homeowners would be required to pay back all of the loan(s) upon the sale of their home, which they would not be able to sell for three years, as a condition of the proposed program. The proposal has been submitted for consideration to the Mortgage Bankers Association (MBA), National Association of Realtors (NAR), the Consumer Financial Protection Bureau (CFPB), the House Financial Services Committee (HFSC), the U.S. Department of Housing & Urban Development (HUD) and several congressmen. continued on page 46



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