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News: New law tackles US sub-prime fiasco

Thu, 28 Jun 07

8 out of 10 Americans support safe alternatives to high cost sub-prime mortgages...
 
Nearly 80 percent of Americans support legislation that would promote and protect the dream of homeownership by providing a safer, fairer and more affordable mortgage alternative to high-cost subprime loans, according to a new survey released by Wells Fargo today.

Speaking at the Wells Fargo Housing Symposium, U.S. Housing and Urban Development Secretary Alphonso Jackson said the survey demonstrates the urgent need for Congress to pass legislation that would modernize HUD's Federal Housing Administration (FHA) and help hundreds of thousands of borrowers find an exit strategy from their exotic subprime mortgage loans that could ultimately result in foreclosure.

"Americans want financially sound options...real choices," Jackson said during his speech highlighting the importance of National Homeownership Month. "Americans are in support of an FHA that could help even more first-time homebuyers and people with moderate incomes have access to safer mortgages. This survey demonstrates the urgent need for Congress to pass legislation that modernizes the FHA to help both promote and protect homeownership."

Jackson added that he believes the housing market is making a needed correction and will have a bright future. "The housing market can, and will, continue to grow. After all, homeownership stands near the all time high...at historic levels.

“Nearly 70 percent of all American families own a home. We should view that fact with pride. But there is work to be done. If we are going to stimulate growth in the housing market we will have to wisely engineer some important changes" - including a modernized FHA, Jackson said.

Headed for trouble

Borrowers who took out subprime loans in 2005 and 2006 have begun to experience increased payments. An estimated 80 percent of subprime loans are sound, but the other 20 percent may be headed for trouble. Many of these borrowers are having, or will have, difficulty affording their new higher payments.

The National Association of Realtors reported that last year 43 percent of first-time homebuyers purchased their homes with no down-payment. Traditionally, first time homebuyers have sufficient income to make the mortgage payment, but may lack sufficient funds for a down-payment.

By eliminating the current three percent down-payment requirement for an FHA-insured loan and instead offering low down-payment options, the legislation would allow FHA to help more first time borrowers reach their goal of homeownership.

"I hope Congress will listen to these Americans. With Congress's support, we could help hundreds of thousands of people and we could do so without exposing the taxpayers to extraordinary risk. Through refinancing with FHA, tens of thousands of families with subprime difficulties could be helped," Jackson added.

Source: US Department of Housing

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