March 14, 2011 (Chris Moore)
The House of Representatives voted 256 to 171 to kill the Federal Housing Administration’s (FHA) Short-Refi program. The $8 billion dollar program was launched in September but came under heavy Republican criticism as an example of wasteful government programs that spend more to save a single borrower than it costs to buy a home.
The Obama Administration originally estimated this program would help between 500,000 and 1.5 million homeowners. However, only 44 mortgages have been refinanced through the program as of mid-February and only 245 applications have been submitted.
“The FHA Refinance Program was wrong for homeowners, wrong for taxpaying American families, and wrong for our future generations,” said Rep. Robert Dold (R-IL). “I’m very pleased that my bill to end this ineffective and harmful government program passed on a bi-partisan basis. Democrats and Republicans alike know that we must stop wasting money on ineffective government programs and instead focus on improving the conditions for jobs and income growth.”
The FHA Refinance Program enables lenders to transfer their mortgage risk onto the taxpayer. To be eligible for the new loan, the homeowner must be underwater but still current on the mortgage, which cannot be already insured by the FHA. A credit score of 500 or better is required. The new refinanced loan is then insured by the FHA and must have a loan-to-value ratio of no more than 97.75%. As a result, a non-FHA loan is transferred to the FHA which becomes the responsibility of the taxpayers if the borrower defaults.
“The money from this program doesn’t go to the homeowner, it goes to the lender, it goes to the banks. And who pays for it? The taxpayers and ultimately our children and grandchildren because the federal government borrows 42 cents of every dollar it spends,” said Financial Services Committee Chairman Rep. Spencer Bachus. “This program is already allocated $50 million and has helped only 44 people. Do the math.”
Tags: FHA, Short-Refi program, mortgages, refinance, homeowners, harmful government program, mortgage risk, refinanced loan