Critics say the program — which allows underwater borrowers who are current on their loans to refinance into an FHA-insured mortgage if their lender agrees to write off at least 10 percent of their principal — has gotten off to a slow start. Taxpayers may be on the hook for up to $8 billion to reimburse lenders for a share of their potential losses on the loans, critics say.
Democrats who dissented from last week’s 33-22 vote to move the bill out of the Financial Services Committee for a floor vote said that while Troubled Asset Relief Program (TARP) funds for the program have been capped at $8 billion, actual expenditures will depend on program use.
Critics of the program "can’t have it both ways" by arguing that no one is using the program and that it will have a big price tag, Democrats said.
If the FHA ends up insuring only a few short refis, then shutting down the program now would have no or very limited cost savings, supporters of the program said.
If the short refi program gains traction and is more widely used, there may be a "modest cost," which supporters characterized as an "investment in reducing foreclosures, rightsizing homeowners’ payment obligations and underwater loan status, and complementing other federal programs which work to address our nation’s housing problems. Either way, shutting down the program at this time makes no sense."
FHA Commissioner David Stevens told the committee that while only 245 applications have been submitted and 44 loans approved since the program launched in September, 23 lenders were participating in the program.
The Obama administration said this week that it "strongly opposes" the bill and another approved by the Financial Services Committee last week, HR 836, which would eliminate the Department of Housing and Urban Development’s Emergency Homeowners Loan Program (EHLP).