Rep. Joe Heck, R-Nev., made headlines earlier this month when he voted against defunding a Federal Housing Administration program intended to help underwater homeowners.
He was the only House Republican to do so.
Eighteen Democrats voted with the majority GOP to kill the FHA Short Refinance Option, which was created last year with the goal of refinancing up to 1.5 million mortgages. At the time of the House vote, fewer than 50 such loans had been authorized by lenders — not even one for each state.
The program’s defenders have attributed its ineffectiveness to a lack of public awareness and lenders needing time to adopt its guidelines. Rep. Heck, in a Wednesday meeting with the Review-Journal’s editorial board, said he didn’t want to ax anything that could help the struggling homeowners of his district, which leads the country in foreclosures.
But a public-relations boost won’t help the Short Refinance Option. Its qualification requirements and local market realities make it virtually worthless to Southern Nevadans.
The program is supposed to let non-FHA borrowers who owe more than their homes are worth quickly convert their mortgages to FHA-backed loans, which usually offer below-market interest rates. Unlike other foreclosure-prevention programs, this one requires applicants to be current on the mortgage for their primary residence, and it does not require proof of financial hardship, such as unemployment.
We understand why Rep. Heck thinks the program might be worth saving. It’s administered by lenders, not the government. And about three-quarters of valley homeowners are underwater. If each of them could refinance to a lower interest rate, they could either spend that extra money at struggling businesses or more quickly pay down their principal.
But the Short Refinance Option stipulates that lenders must agree to forgive at least 10 percent of the unpaid principal on the non-FHA mortgage. As anyone in this housing hell knows, banks are neck-deep in foreclosures and won’t even consider offering relief until a borrower stops paying a mortgage — thus making the borrower ineligible for the Short Refinance Option. That’s quite a Catch-22.
Moreover, the lender must write down enough principal on a first mortgage to give the property owner a tiny sliver of equity — the new FHA mortgages have a maximum loan-to-value ratio of 97.75 percent. In many Southern Nevada neighborhoods, people owe between two and three times what their house is currently worth on the resale market. Good luck finding a lender who’ll forgive $100,000 in principal for someone who’s current on mortgage payments.
Clark County’s housing woes run so deep that no federal intervention can help. A lot of these refinanced mortgages would end up in foreclosure anyway. That’s been the lesson from every other poorly conceived housing rescue dreamed up by politicians. Taxpayers would be on the hook for some of those losses, and Washington is already broke and awash in debt.
The only cure for the housing market is private-sector job growth. Rep. Heck understands that, but he shouldn’t mourn this program’s demise. Southern Nevadans won’t miss something that never helped in the first place.