President Bush’s plan to help strapped homeowners avoid foreclosure could ease the mushrooming subprime mortgage problem, housing experts say. But they caution that the Bay Area stands to benefit significantly less than other sections of the nation because of the region’s off-the-charts home prices.

The key part of Bush’s initiative, unveiled Friday at the White House, is a new program to allow borrowers who can’t meet rising monthly mortgage payments to refinance into loans guaranteed by the Federal Housing Administration.

The program, called FHASecure, is limited to people with good credit records except for late payments after their adjustable mortgages switched from low teaser rates to higher permanent rates.

The issue for the Bay Area is that the FHA guarantees mortgages only up to $362,790. Bush is asking Congress to raise that limit to $417,000, equal to the largest loans accepted by Fannie Mae and Freddie Mac, the giant companies that buy mortgages from lenders.

In the Bay Area, where the median home price in June was $665,000, highest in the continental United States, fully 61.9 percent of mortgages taken out in the first half of 2007 were above the $417,000 level, making them ineligible for FHA guarantees even if the limit is raised, according to real estate information firm DataQuick.

Throw in borrowers who wouldn’t meet the Bush plan’s stringent credit standards - essentially a history of paying other debt on time - and only a small fraction of area homeowners facing foreclosure would be able to qualify.

“Based on the median home prices in the Bay Area, this FHASecure refinance program would not appear to be appropriate for most people,” said Rick Harper, director of housing services for Consumer Credit Counseling Service of San Francisco.

Mortgage problems are rising fast in the Bay Area. Between April and June, 2,206 homes in the nine-county region were lost to foreclosure, a ninefold increase from the comparable period in 2006. Another 7,696 Bay Area residents got notices that they were in default on mortgage payments, the first step in the foreclosure process.

Consumer Credit Counseling said its San Francisco caseload for mortgage default advice is up 300 percent since this time last year.

Nationwide, the Bush plan was applauded by Republicans and Democrats, mortgage lenders and low-income housing advocates.

“We welcome anything that gives us more ability to work with borrowers,” said Kurt Pfotenhauer, a senior lobbyist for the Mortgage Bankers Association.

At the same time, though, housing specialists stressed the limited nature of the program, pointing out that it will help only a small portion of Americans facing the loss of their homes as their once-low monthly mortgage payments catapult.

In the last few years, the mortgage industry aggressively pushed special subprime loans to people whose troubled credit histories disqualified them from conventional mortgages. These subprime loans typically featured low introductory interest rates that ballooned into much higher payments after a brief period.

Lenders made about 6 million subprime mortgages between 1998 and September 2006, according to the Center for Responsible Lending, a North Carolina advocacy group. Now, as teaser rates expire, about 2.2 million households are in danger of losing their homes, the center projects.

FHA estimates that 80,000 households will take advantage of the Bush program to switch into conventional government-guaranteed mortgages.

“That’s a lot, but not compared to those facing foreclosure,” said Jordan Ash, financial justice director of the nationwide fair-housing advocacy group ACORN, the Association of Community Organizations for Reform Now.

FHA doesn’t make loans itself, but it provides repayment insurance that encourages private lenders to offer home loans. Under the Bush plan, the agency will for the first time offer homeowners the option of refinancing existing mortgages, according to the White House.

The new program “is designed for families who are good borrowers, but were steered into loans with teaser rates,” said FHA Commissioner Brian Montgomery.

Bush described his program Friday as “a plan to help homeowners,” emphasizing “it’s not the government’s job to bail out speculators.”

He announced several other initiatives:

– The president called on the mortgage industry to adjust terms on existing loans to make it easier for borrowers in trouble to repay.

– The administration is imposing rules that will require lenders to disclose loan terms more clearly. And it will seek to punish lenders that lie to borrows or commit other kinds of fraud.

– The Department of Housing and Urban Development will step up its program to provide counseling to homeowners who face foreclosure.

– Bush will support legislation similar to a bill passed by the House of Representatives in 2006 that would let the FHA insure bigger loans.

– The White House will also back bipartisan legislation to remove on a one-time basis a provision of the tax code that forces homeowners to pay tax if lenders forgive mortgage debt.

Bush’s initiative comes as Democrats push an array of plans to help homeowners. For example, Democratic presidential front-runner Hillary Rodham Clinton has proposed setting aside $1 billion to fund state programs that help troubled borrowers keep their homes.

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/09/01/MN7MRTAH5.DTL&hw=real+estate&sn=004&sc=297