Titus urges loosening of rules for housing aid

By Lisa Mascaro

Tuesday, June 2, 2009 | 2 a.m.

One of the biggest complaints about the Obama administration’s housing rescue plan was that it would do little for owners of underwater homes in Southern Nevada.

Las Vegas leads the nation in homeowners who owe more than their houses are worth. Home values have nose-dived. Lenders are unlikely to refinance government-backed loans to today’s lower interest rates if borrowers are greatly upside down.

The Obama administration is now considering loosening equity requirements for government aid, and Democratic Rep. Dina Titus is urging the administration to do so.

“Every day, my offices receive phone calls from individuals who want to refinance,” Titus said in a letter to the Federal Housing Finance Agency. “By enabling more families to refinance their current mortgage, we will not only allow them to stay in their homes, we will take an important step toward ending the current housing crisis.”

“This change is of urgent need and should be made as soon as possible,” Titus wrote.

Under the Obama housing plan announced this year, homeowners who have been on time with their payments were no longer required to have 20 percent equity to refinance their Fannie Mae- or Freddie Mac-backed loans.

In fact, the Obama plan allowed borrowers whose homes were slightly underwater to qualify for refinancing. Those non-delinquent homeowners who owed less than 5 percent more than their homes’ worth could have their loans reworked. For example, a homeowner could qualify if he owed no more than $210,000 on a property valued at $200,000.

But in Las Vegas, many homeowners have so much negative equity they do not qualify. In at least one Clark County ZIP code last fall, homeowners owed 20 percent more on average than the houses were worth.

As Titus explains in her letter to agency director James Lockhart, some non-delinquent homeowners may walk away rather than continue paying on a home that has lost value. She notes that home prices have fallen by $110,000 in two years in Las Vegas.

“Due to no fault of their own, they are in negative equity,” Titus wrote. “They do not want to walk away from their mortgages but have serious concerns about the actual value of their homes.”

The Obama administration is considering lifting the equity requirements.

Lockhart, whose agency regulates Fannie and Freddie, told The Wall Street Journal last month: “It’s a question that we’re looking at.”

However, changing the equity requirements also comes with risks, and it is unclear how far the administration or lenders would be willing to go to help borrowers who are more deeply underwater.

Lenders are hesitant to refinance loans with negative equity because houses serve as collateral. If lenders refinance a loan for a home that is worth less than the mortgage and borrowers default, lenders stand to lose.

Also, because Fannie and Freddie are government-backed enterprises, taxpayers ultimately would be on the line, creating an argument with political implications.

Populist resentment has erupted as some homeowners oppose seeing their neighbors receive government help to get a lower mortgage payment.

“There are a lot of Americans who resent any sort of bailout,” said Richard Sylla, an economic historian at New York University’s Sloan School of Business. “The Obama administration is trying to hit some sort of middle ground.”

Scott Talbott, a lobbyist for the Financial Services Roundtable, which represents the nation’s big banks, said his group is working with the administration.

“The industry is working hard to implement the plan and is considering ways to help the program reach more Americans,” Talbott said. “What we’re trying to do is find the sweet spot and protect the taxpayer dollars.”

It should be noted that a second part of the Obama housing plan is for those homeowners at imminent risk of foreclosure.

Under that plan, homeowners who have missed payments and whose mortgages consume more than about one-third of their income could qualify for lower interest rates or other modifications worked out with the government and lenders.