HUD plan tackles crisis

The Bush administration is considering a radical approach to alleviate the foreclosure crisis by helping homeowners refinance homes that have fallen in value while protecting the government against losses on the loans.

Home prices already have fallen 10 percent on average nationwide from their 2006 peak, and are down much more in cities like Miami and Las Vegas. Housing and Urban Development Secretary Alphonso R. Jackson said a proposal he sent to the White House would enable the Federal Housing Administration (FHA) to insure 80 percent of a loan’s face value in markets where home prices are falling, instead of providing the usual 100 percent guarantee.

Homes generally cannot be refinanced when their market price falls below the face value of the loans, and that has become a major reason why thousands of people are choosing to abandon their homes. An estimated one in 10 Americans now live in homes that are “under water.”

The HUD secretary said yesterday he understood how some homeowners facing foreclosure might not have been aware of all the terms of their mortgage loans, telling reporters and editors of The Washington Times that “I’ve had eight houses and I didn’t read all that mess.”

His proposal might open up an avenue of recourse for the first time for homeowners in over their heads who would like to refinance and stay in their homes.

“I just made a proposal this morning to the White House for those loans that are under water. We will insure 80 to 85 percent of the loan — give ourselves some leeway even if it falls a little more,” he said.

Mr. Jackson said he thinks the steep drop in home prices may be close to bottoming out, but his proposal shows that the administration, like many in the private sector, is preparing for the worst.

The proposal has not been approved by the White House but might be “soon,” said HUD spokeswoman DJ Nordquist. “We’d like to get those loans right-sized up” and “use the FHA where we can” to alleviate the foreclosure crisis, she said.

Mr. Jackson said he can sympathize with people who are caught off-guard by sudden surges in their monthly mortgage payment because they didn’t read the fine print in their contracts.

Many people with homes in foreclosure say they didn’t understand what they were getting into when they took out their loans, but the administration until recently has taken a hard line, insisting that people must take responsibility for their financial decisions.

“I’m an attorney, and I’ve had eight houses and I didn’t read all that mess. If I didn’t read it — and I doubt anyone around this table read it — then we can’t hold people responsible for not reading every line when they were closing their loan,” Mr. Jackson said.

Mr. Jackson said he was particularly concerned about people who got loans from mortgage brokers who were not regulated by the federal government and therefore did not have to comply with strict disclosure and anti-predatory lending rules. Many of those brokers told people they were getting safe fixed-rate loans when they actually got risky adjustable-rate mortgages, he said.

“Let me tell you about blacks and Hispanics in the market,” he said. “We operate by friend to friend, mouth to mouth,” and many did not realize their brokers could not be trusted, he said.

Mr. Jackson had little sympathy, however, for people with high incomes and education who knowingly took out risky loans with backloaded payments in a gamble to make quick money flipping houses during the housing boom. That is the reason the Bush administration is not offering such people assistance in avoiding foreclosure, he said.

“We’re talking about the yuppies. We’re not talking about a teacher, a fireman or policeman,” he said. “We had some people at HUD — very, very educated — they did that and they’re suffering at this point. We’re not going to help those people.”

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