The Dodd-Shelby Housing Bill: A Bad FHA Refinance Plan Hijacks Good GSE Reforms

Abstract:

The Senate Banking Committee's housing package contains some very important reforms and one very bad idea. Chairman Chris Dodd's (D-CT) version of legislation to use the Federal Housing Administration (FHA) to refinance at-risk mortgages at a lower interest rate in return for a cash fee is still as wrong a way to deal with the housing finance problems as the House-passed version. Dodd has improved his FHA refinancing language by including amendments by Senators Jim Bunning (R-KY) and Jon Tester (D-MT) that would limit the ability of those who have lied on their loan applications or otherwise abused the system to gain FHA-guaranteed refinancing of their mortgages. However, the overall concept remains bad policy that should not be approved.