About Government Refinance and Home Purchase Programs

Kenneth Harney, a columnist over at the Washington Post, put up this interesting piece recently:

The term “mortgage meltdown” has become so common — on TV, in headlines and in casual conversations — that you might assume that this is a tough time to get a mortgage.

But the reality is starkly different: Mortgage money is plentiful; the majority of mortgage products remain relatively unaffected by troubles in the subprime segment; and interest rates for 30-year, fixed-rate loans remain in the low 6 percent range for people with reasonably good — not necessarily perfect — credit records.

Even interest rates on jumbo loans — those for more than $417,000 — have fallen after spiking this summer.

Jim Buchta over at the Star Tribune in Minnesota recently wrote an interesting article on FHA loans and buying foreclosed houses:

A low-cost Federal Housing Administration mortgage and a bargain-priced foreclosure in St. Paul seemed like the perfect combination for first-time buyer Damon Kelly, but an FHA rule aimed at preventing property flipping nearly derailed the sale.

That rule says that the FHA will not approve a mortgage on a property if titled ownership of that property has changed within 90 days prior to the signing of the purchase agreement.

Confusion about the true ownership of the house raised questions about whether Kelly’s house met those requirements and, just a couple of days before closing, Kelly was forced to extend the lease on his apartment an extra month.

“It was quite confusing,” he said. “And extending our rent out another month didn’t help our pocketbooks.”

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Matthew Mogul, Associate Editor at The Kiplinger Letter recently put up this excellent analysis of the current mortgage climate and the things the government can or can’t do:

Expect only limited help from the government as the subprime mortgage mess continues to take a heavy toll. Foreclosures are approaching record levels, and we expect more than 2 million families to lose their homes over the course of this year and the next as interest rates on adjustable rate mortgages reset higher and push the monthly payments out of reach.

That’s not to say regulators and government agencies won’t try. Though no big bailouts are on the way — for either homeowners or lenders holding troubled mortgage loans — government officials in Washington and at the state and local levels are pushing initiatives that will help stanch some of the bleeding.

John Toscano at the Queens Gazette recently wrote this summary of the recent legislation changes regarding goverment refinance assistance:

Recently enacted legislation intended to remedy the present home ownership crisis in the United States will help struggling homeowners to refinance their mortgages to more affordable government-backed loans which will help them to remain in their homes, Congressmember Carolyn Maloney declared last week.

Maloney, chair of the Financial Institutions and Consumer Credit Subcommittee, addressed the present effort to help homeowners following House passage of the bill entitled, “Expanding American Homeownership Act of 2007”, which was approved by a 348-72 vote.

“Affordable housing is crucial to strong families, strong communities and a strong economy,” Maloney declared. “Unfortunately, an alarming increase in foreclosures and the collapse of the subprime mortgage market have spawned a homeownership crisis in our country. Millions of American families are currently at risk of losing their homes and many more have been priced out of the market.”

Here is a Reuters story (via the LA Times) on the bill going through the House of Representatives to help provide mortgage relief to US homeowners:

WASHINGTON — — The U.S. House of Representatives voted Tuesday to overhaul the Federal Housing Administration and allow the mortgage insurance program to help more homeowners in danger of losing their homes.

The FHA, set up in 1934 during the Depression, was designed to help first-time home buyers win favorable loan terms by guaranteeing mortgage payments to lenders.

The new legislation would broaden underwriting standards so that current homeowners could refinance before they lose their homes.

Lawmakers passed it by a vote of 348 to 72. The Senate Banking Committee is due to vote today on its version of the legislation.

Brad Zimmerman over at NuWire Investor recently wrote this:

As far back as the Great Depression, Federal Housing Administration (FHA) loans have been helping Americans with poor credit buy homes. Recently lost in the shuffle of skyrocketing housing prices and a wave of subprime loans, the FHA loan is back.

The late 1990s and early 2000s were not good to the FHA loan, as its stringent guidelines and mortgage limits were pushed aside by the easier-to-obtain subprime loan. The subprime loans offered lax qualifications such as higher debt-to-income (DTI) ratios and no-money-down options. In addition, subprime loans did not have as many strings attached to them such as the strict appraisal process. For most people, the subprime loan was clearly the more attractive choice, and the FHA loan began to fade into oblivion.

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Not everyone in the country is thrilled with the new plans by the government to help provide morgage relief to homeowners. (The good news for struggling homeowners is that opinions like this cannot stop us from helping you out!) Here is an opinion piece in the Wall Street Journal on the subject:

Saturday, September 22, 2007 12:01 a.m. EDT

This week the House of Representatives overwhelmingly approved a plan to erase billions of dollars of subprime loan defaults in the private mortgage industry. How? By making taxpayers responsible for future losses.

The Bush Administration recently announced support for a similar plan, and the housing industry is in full lobbying mode. One of the lone skeptics is Alabama Senator Richard Shelby, who warns that this could be one of the most expensive federal bailouts since the savings and loan crisis of the late 1980s. He’s on to something.

Bob Ivry recently wrote the following for Bloomberg:

Sept. 19 (Bloomberg) — As many as half of the 450,000 subprime borrowers whose mortgage payments increase in the next three months may lose their homes because they can’t sell, refinance or qualify for help from the U.S. government.

“Short of the cavalry riding in over the hill, a lot of these people are just stuck,” said Christopher Cagan, director of research and analytics at Santa Ana, California-based First American CoreLogic, the risk management unit of the biggest U.S. title insurer.

The number of borrowers whose mortgage payments jump in the next three months will be the second-highest ever for a quarter, according to Credit Suisse Group, Switzerland’s second-biggest bank. Twenty-seven percent have already missed a payment, said First American LoanPerformance, which owns the largest database of U.S. mortgages. That makes them ineligible for the Federal Housing Administration bailout proposed last month by President George W. Bush.

The following is an excerpt from the transcript of recent comments made by Fed Chairman Ben S. Bernanke before the Committee on Financial Services, U.S. House of Representatives. The entire transcript can be found here.

Beyond the actions underway at the regulatory agencies, I am aware that the Congress is considering statutory changes to help alleviate the problem of foreclosures. Modernizing the programs administered by the Federal Housing Administration (FHA) is one promising direction. The FHA has considerable experience in providing home financing for low- and moderate-income borrowers. It insures mortgages made to borrowers who meet certain underwriting criteria and who pay premiums into a reserve fund that is designated to cover the costs in the event of default. This insurance makes the loans less risky for lenders and investors, and it makes the loans eligible for securitization through the Government National Mortgage Association (Ginnie Mae).

Historically, the FHA has played an important role in the mortgage market, particularly for first-time home buyers. However, the FHA’s share of first-lien home purchase loans declined substantially, from about 16 percent in 2000 to about 5 percent in 2006, as borrowers who might have sought FHA backing instead were attracted to nontraditional products with more-flexible and quicker underwriting and processing. In addition, maximum loan values that the FHA will insure have failed to keep pace with rising home values in many areas of the country.

In modernizing FHA programs, Congress might wish to be guided by design principles that allow flexibility and risk-based pricing. To alleviate foreclosures, the FHA could be encouraged to collaborate with the private sector to expedite the refinancing of creditworthy subprime borrowers facing large resets. Other changes could allow the agency more flexibility to design new products that improve affordability through features such as variable maturities or shared appreciation. In addition, creating risk-based FHA insurance premiums that match insurance premiums with borrowers’ credit profiles would give more households access to refinancing options.

More updates on the new legislation aimed at helping Americans obtain Morgage relief from David Lightman of the Hartford Courant:

WASHINGTON – Both houses of Congress sent strong signals this week that help is on the way to lower- and middle-income homeowners, both current and prospective, as members took steps to refashion the Federal Housing Administration as a stronger, more consumer-sensitive agency.

The Senate Banking Committee, by a 20-1 vote Wednesday, agreed to lower the minimum down payment on FHA-backed loans and raise the loan amounts. On Tuesday, the House took similar action and endorsed even bigger loan limits by an overwhelming margin.

Both bills have much in common, notably their chief goal: To ease the subprime mortgage crisis and make the FHA, the New Deal agency that once helped so many lower- and middle-class homeowners for so long, a major player again.

The two houses have some disagreements, and unless those can be reconciled, the help may have to wait. But key players and experts were optimistic.

David Lightman, the Washington Bureau Chief for the Hartford Courant recently wrote this regarding the FHA Modernization Act of 2007:

WASHINGTON – The Senate Banking Committee today agreed on compromise legislation that will make it easier for consumers to get Federal Housing Administration-backed loans.

The “FHA Modernization Act of 2007,” considered one of Washington’s most important efforts to ease the subprime mortgage crisis, won easy approval and is headed to the Senate floor.

“We need to make sure that credit is available, including for subprime borrowers, on fair terms so that the people of this country have an opportunity to build wealth for the future,” Committee Chairman Christopher J. Dodd, D-Conn., told his colleagues.

Kathy M. Kristof, a Los Angeles Times Staff Writer recently wrote the following:

The Federal Housing Administration is coming to the rescue of at least some of the homeowners in peril across the country. The FHA, which has long helped low-income and credit-scarred borrowers get financing, has launched FHA Secure in an effort to stem the tide of foreclosures caused by the sub-prime mortgage crisis.

How will FHA Secure work and who might it help? Here are some answers.

What is FHA Secure?

It’s a new loan program aimed at helping borrowers refinance their adjustable-rate mortgages — even if they are currently in default. The Bush administration believes that some sub-prime borrowers didn’t understand the terms of their loans and have fallen or will fall into repayment trouble when their adjustable interest rates reset at higher levels.

FHA Secure loans will be made by private lenders at market interest rates and simply be insured by the FHA. What will be different is that underwriting standards will be loosened, allowing more borrowers to qualify. The FHA insurance premiums — usually the same for all loans — will be based on risk, declining for those with more equity and better credit.