About Government Refinance and Home Purchase Programs

Jim Woodward over at the Bend Weekly in Oregon recently gave this recap of the recent FHA reform developments:

FHA home mortgages – those insured by the Federal Housing Administration – may soon be a viable financing option for many more prospective borrowers. A current proposal, already passed by the House of Representatives, would raise the FHA loan limit to $417,000 in high-cost areas, reduce the minimum required down payment to 1.5 percent of the home’s purchase price, and extend the maximum amortization term to 40 years.

The new provisions are part of an FHA reform bill (H.R. 1852) working its way through Congress. The basic objective of the legislation, according to its text, is “to modernize and update the National Housing Act and enable the Federal Housing Administration to use risk-based pricing to more effectively reach undeserved borrowers, and for other purposes.”

It will give FHA the capability to be more effective in helping past borrowers of high-risk subprime mortgages. Some of those who are having difficulty in making their monthly payments, thus facing possible foreclosure proceedings, may have the opportunity to refinance into a friendlier FHA loan.

Here is an article that appeared recently in the Toms River Times on the pending FHA reforms:

WASHINGTON, D.C. – Now is a good day for housing, noted the National Association of REALTORS ®. On the same day that the Federal Reserve cut the discount rate by half a percentage point, the U.S. House of Representatives has passed the Expanding American Homeownership Act of 2007, H.R. 1852. The legislation will offer home buyers a safer alternative to risky mortgage products and help many homeowners who may be facing foreclosure, and the combination of efforts could have a positive impact on the housing market and consumer confidence.

“NAR appreciates the efforts of House Financial Services Committee Chairman Barney Frank, DMass., and Rep. Maxine Waters, D-Calif., for their leadership in protecting the interests of America’s homeowners and those who strive to own their own home,” said NAR President Pat V. Combs, of Grand Rapids, Mich., and vice president of Coldwell Banker-AJS-Schmidt. “While some homeowners are faced with mortgage payments they can no longer afford as their adjustable subprime loans reset, a reformed FHA is positioned to offer borrowers a safer mortgage alternative and help bring stability to local markets and local economies.”

“As the leading advocate for expanding homeownership opportunities, NAR has long supported FHA modernization legislation that increases loan limits, eliminates the statutory three percent minimum cash down payment and gives FHA the flexibility to provide risk-based pricing. NAR also supports the continued availability of FHA loss mitigation programs,” said Combs. “We are pleased this bill contains all of these important enhancements.”

Neil Roland over at Bloomberg put up this update today about the pending Senate FHA bill:

Oct. 3 (Bloomberg) — The U.S. Senate is likely to pass a bill to give home buyers an alternative to subprime loans by making it easier for them to get mortgage insurance from the government, Senator Charles Schumer said.

The bill, which passed the Senate Banking Committee last month, would raise loan limits for home buyers and lower their required down payments. The House passed a similar measure last month with more generous provisions for home buyers.

“Raising FHA limits is long overdue,” Schumer, 56, a New York Democrat who heads the Senate Banking subcommittee on housing, said in an interview today.

Congress and the Bush administration are trying to address the worst housing slump in 16 years by turning to the FHA to aid some of the more than 2 million homeowners who have fallen behind on mortgage payments.

Tim Westrich over at the Center For American Progress wondered today if the new FHA reforms will be enough. Here is an excerpt:

The Senate will soon take up legislation that would give low- and moderate-income homeowners who are struggling with their mortgage payments some much needed relief with the potential of being signed into law before the year’s end. Many families are dealing with adjustable-rate mortgages, and will likely face higher monthly payments when their rates reset over the next two years. These resets have the potential to drive even more homeowners into default and eventually into foreclosure in a very short period of time.

The Federal Housing Administration Modernization Act of 2007 would give the FHA more flexibility to insure mortgages for higher-risk borrowers and step up its role in solving the mortgage meltdown. And a valuable amendment added by Sen. Jack Reed (D-RI) will provide struggling borrowers with financial counseling to help them refinance if it’s included in the final draft of the bill.

Help for homeowners couldn’t come sooner. But while the bill and especially the Reed amendment are useful first steps, we can and should do much more to reduce the fallout from the subprime mortgage crisis and help preserve neighborhoods, communities, and the limited wealth of low- and moderate-income families.

Annette West recently published this interesting article on FHASecure over at the Las Cruces Sun-News:

FHA is a quasi-private agency regulated by the government whose purpose is to help low and moderate income Americans become homeowners. FHA does not make loans — it works with lenders to make it easier for you to get a loan.

The FHA has several popular programs. Using the 203(b) mortgage insurance program, you need only make a 3 percent down payment instead of 20 percent to purchase or refinance an owner-occupied residence.

What’s the catch?

You have to pay an upfront mortgage insurance premium of 1.5 percent of the original loan amount, which may be included in the loan amount. You also pay a monthly mortgage insurance premium of 0.5 percent of the original loan amount. You do that until you have a 78 percent loan-to-value ratio, or have built 22 percent equity in the property.

Now the FHA is adding a new refinancing program called FHASecure. Designed for people with good credit scores who have been paying their mortgage on time, the program is to help borrowers refinance their mortgage. This is expected to help an estimated 240,000 families avoid foreclosure.