Rep. Barney Frank Addresses the Mortgage Bankers Association in Boston Monday.
Barney Frank has put the mortgage industry on notice.
If mortgage holders don’t participate in a voluntary write-down program, “what you will face next year will be much tougher rules regarding the mortgage industry in general,” said Frank, D-Mass., chairman of the House Financial Services Committee.
Frank made the remarks while speaking at the Mortgage Bankers Association’s National Secondary Market Conference & Expo in Boston on Monday.
The bad loans at the root of the mortgage meltdown have taken the national economy hostage, and now the federal government is just trying to minimize the ransom payout, he said.
When one program attendee accused the Federal Reserve Board of fueling the mortgage crisis five to six years ago by creating too much liquidity in the market, Frank responded, “That’s like saying I’m an alcoholic because there’s too much liquor in the stores. No one made you make bad loans.”
The write-down program is one part of a housing bill that Frank said should pass the House this week. He hopes Senate approval will come by the end of June.
Introduced by Frank in March, the write-down program is designed to rescue borrowers with mortgages worth more than their homes. The program would enable the Federal Housing Administration to provide up to $300 million in new loan guarantees that would be used to refinance borrowers into more affordable loans.
In exchange for voluntarily accepting a substantial write-down of principal, the mortgage holder would receive a short payment from the new FHA loan. While accepting such a deal does mean accepting a loss, Frank said it should appeal to lenders because “you will not face the prospect of further loss.”
The average cost of foreclosing on a single-family property is $50,000, according to MBA estimates. One study of Frank’s write-down program pegged the cost at $5,000 per foreclosure averted, Frank said.
“I think that’s about as good of a deal as America is going to get at this point,” Frank said.
Not everyone, however, is convinced of that – at least not at this point.
David G. Kittle, MBA’s chairman-elect, and Steve O’Connor, MBA’s senior vice president of government affairs, said the program likely would have to be tested first, before gaining widespread approval.
Lenders and mortgage holders will be weighing the cost of the write-down versus the other options, O’Connor said.
Likewise, Kittle said he does not anticipate an initial rush of participants.
While the industry may be relieved that the program is voluntary, Frank noted that other groups have criticized the plan as not being effective, because it is voluntary.
“We are trying what I think is a very cooperative approach,” Frank said.
