mortgage

Mortgage bankers respond to Obama plan

Where the garbage is

According to the MBA, there's another flaw in the refinancing program. Under HASP, only mortgages guaranteed or owned by Fannie Mae or Freddie Mac would be eligible for these refinances. Millions of people have mortgages that are not owned by Fannie or Freddie. They would not qualify for refinancing under HASP, and thus less likely to be able to get more-favorable rates.

"MBA believes otherwise eligible borrowers should not be denied a refinance simply because Fannie Mae and Freddie Mac do not own or guarantee their loans," the letter says.

There's another problem with helping only people with Fannie and Freddie loans, the MBA says: It excludes homeowners with jumbo loans, and might exclude those with the jumbo conforming loans that were introduced about a year ago. HASP's refinancing program should include loans above the conforming limit, the MBA says.

The problem, says one observer who asked not to be identified, is that non-Fannie and Freddie loans are "where the real garbage is -- and the taxpayers shouldn't get involved. Yes, homeowners had no control over where their loans went, but that can't be solved now."

Patience, please

The MBA makes an understated plea for the administration to use its bully pulpit to tell borrowers to be patient. As millions of people request modifications or refinances, waiting times will get long. "This process will necessarily be manual," the MBA says, adding that the association "wants the government and borrowers to have realistic expectations of how quickly all of the loans eligible under the program can be identified and processed."

Finally, the MBA wants the feds to increase the availability of money. When you get a mortgage, the lender usually gets the money from a "warehouse line of credit" that acts like a multimillion-dollar credit card. Then the lender sells the loan (maybe to Fannie or Freddie) and pays back the warehouse lender. Then the lender can borrow again from the warehouse line to make another mortgage, and so on and so on.

MBA officials are telling members that warehouse lines of credit have shrunk by 90 percent over the last two years, from a nationwide total capacity of $250 billion to $300 billion in early 2007 to $25 billion to $30 billion today. This has several effects. One of them is that jumbo mortgages are hard to find and have high rates.

The MBA reportedly has asked the federal government to guarantee warehouse lines -- a move that almost certainly would make more loans available. Another option would be for Fannie and Freddie to provide warehouse lines of credit themselves.

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