About Government Refinance and Home Purchase Programs

President Bush and his cabinet proposed a major overhaul of the US financial regulatory system today. See here for more details. The Democrats complained that it is not enough government intervention and that it does not address to mortgage crisis in the short run.

There is a lot a brainstorming going on in Washington as congress looks for ways to help homeowners avoid foreclosure. The FHA a central piece of one prominent plan. Here is an excerpt from a recent AP article on the subject:

A broader housing overhaul proposed by Dodd and Rep. Barney Frank, chairman of the House Financial Services Committee, faces an uncertain road.

Frank and Dodd want the Federal Housing Administration, the Depression-era agency that insures mortgages, to guarantee $300 billion to $400 billion in refinanced loans to troubled borrowers. Lenders would first have to agree to take a loss on the mortgages; borrowers would have to show they could afford to make payments on the new loans.

The plan would insert the government into the maelstrom of the subprime mortgage mess, with public money at risk should homeowners default. But it would rescue hundreds of thousands of borrowers from foreclosure and insure that lenders get something from their mortgages. That, in turn, could boost investor confidence in the value of mortgage-related investments.

Despite the fact that the FHA has no official credit score requirements more and more banks have recently decided to “just say no” to FHA applicants with FICO scores below 580. That means it is more crucial than ever that potential borrowers stay current on debts and obligations.

In some cases work must be done to improve credit scores. We provide some advice on how to do that and work with experts on the subject as well. Contact us if you have questions about that.

An interesting (though not completely accurate) article about FHA loans came out in the LA Times the other day. Here is an excerpt related to FHA accepting low credit scores:

The agency takes your credit history into account but is willing to consider “cry letters” explaining the negatives on your credit report, Lazerson said. If your credit woes were caused by reasonable, one-time events — such as a divorce, medical problem or a temporary job loss — it won’t necessarily disqualify a borrower, he said. However, people with recent bankruptcies or who can’t verify their incomes are unlikely to qualify for an FHA loan.

There was a good article on the current troubles the US economy is having over in the Wall Street Journal the other day. It said this about the role FHA could play in the future:

Another proposed Bush administration regulatory change involves the Federal Housing Administration. The FHA, which insures mortgages, is developing a plan to allow more distressed homeowners to qualify for government-backed loans. That’s important because many borrowers are having a hard time refinancing amid lender worry about potential losses. Government insurance may give lenders more confidence to refinance financially troubled borrowers.

There was a good article in the San Diego Union Tribune recently on the resurgence of the FHA in the wake of the subprime mortgage meltdown. Here is an excerpt:

Lenders say the Federal Housing Administration is poised to resume its role as a major player in the U.S. mortgage market by coming to the aid of tens of thousands of distressed borrowers who could face foreclosure in the months ahead.

That’s because new lending limits approved by Congress will allow FHA-insured loans to be issued in high-cost markets such as San Diego at favorable terms, said Allen Jones, Bank of America’s government lending executive.

“From Bank of America’s perspective, we are very excited about the prospects of a renaissance for the FHA,” he said. “(The) FHA is a port in the storm for lenders, without a doubt.”

Recent, widespread loan failures have made credit so tight that many distressed borrowers are unable to refinance their loans. An estimated 1.8 million adjustable subprime mortgages are expected to reset at higher rates nationwide through 2009.

Jones said the FHA is coming to the rescue by bringing liquidity to lending institutions.

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Here is an interesting excerpt from a recent article over a MSNBC.com:

Bove said he believes Rep. Barney Frank [D-Mass.] is on the right track by proposing that the government set aside $15 billion to $20 billion to purchase whole loan mortgages from banks off their balance sheets and have those loans held temporarily by agencies such as the FHA. That would allow the government to refinance the borrower into a fixed-rate FHA loan or something similar.

If you want to resolve this issue, you need to keep people in their houses, which you cant do by giving them a rule, Bove said.

Despite Congressman Franks best efforts to figure out a way to provide a bailout that doesnt cost the government a load of money, Bove said he doesnt see any way to avoid that.

Franks is one of a handful of proposals for dealing with the crisis. The plan introduced by Senator Christopher Dodd [D-Conn.], chairman of the Senate Banking Committee, resembles a program used during the Great Depression that allows for a government facility to buy loans from banks once their value has been written down to an FHA qualifying level, and, in return, issuing a government-insured bond that would correspond to the homes appraised value.

Congressmen Frank and Dodd have a plan to use FHA to further help distressed homeowners. Here is an excerpt from a recent Reuters article on the subject:

Under the proposed program, a lender or mortgage holder which agrees to reduce the principal of a troubled loan could get a payment from the proceeds of a new FHA-insured loan, if the restructured loan would result in terms the borrower could reasonably be expected to pay, Frank said.

The original lender or mortgage holder would get a cash payment and no further exposure to the borrower, he said.

Borrowers or loan servicers could contact an FHA-approved lender, which would determine the size of a loan that would fit the program and the borrower’s ability to repay.

“If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage,” he said.

A recent story from the AP reported that the number of homes becoming delinquent on mortgage payments in February was up dramatically when compared to the same period last year. In addition, home repossessions more than double year on year. Here is an excerpt:

LOS ANGELES (AP) — Nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year, with Nevada, California and Florida showing the highest foreclosure rates, a research firm said.

A total of 223,651 homes across the nation received at least one notice from lenders last month related to overdue payments, up 59.8 percent from 139,922 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc.

Nearly half of the homes on the most recent list had slipped into default for the first time.

Contact one of our counselors to learn more about government-backed foreclosure prevention options.

CNNMoney is reporting that the FHA reform bill that has been kicking around Congress since last fall might be ready to pass the senate and House by April. This would make permanent some of the FHA reforms that the economic stimuls package put into place through the end of 2008. Here is some of that article:

NEW YORK (CNNMoney.com) — By early April, both chambers of Congress are likely to tie the bow on a bill that would expand the reach of the Federal Housing Administration (FHA), which aims to provide safe loan alternatives to subprime mortgages and make homeownership more accessible.

Different versions of the FHA modernization bill passed in the House and the Senate last year, and both Senate Banking Committee Chairman Christopher Dodd (D-Conn.) and House Financial Services Chairman Barney Frank (D-Mass.) said last week that the differences between the chambers could be resolved in short order.

“I think we are fairly close to having an FHA reform bill that we will be able to adopt very quickly,” said Dodd on the Senate floor last week.

The FHA program is intended for mortgage borrowers with weak credit or little or no cash who may not be able to get an affordable mortgage elsewhere.

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See here to check the loan limits in your county.

Ben Bernanke continues to beat the FHA reform drum. Here are some excerpts from an AP article recapping recent comments he made is Florida:

WASHINGTON – Federal Reserve Chairman Ben Bernanke called Tuesday for additional action to prevent more distressed homeowners from falling into foreclosure.

“This situation calls for a vigorous response,” Bernanke said in a speech to a banking group meeting in Orlando, Fla.

Even with some relief efforts under way by industry and government, foreclosures and late payments on home mortgages are likely to rise “for a while longer,” Bernanke warned.

Rising foreclosures threaten to worsen the problems in the housing market and for the national economy, which many fear is on the verge of a recession or in one already.

“Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole,” Bernanke said. “Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should, be done,” the Fed chief said.

On Capitol Hill, a number of measures have been offered to help stressed homeowners.

Overhauling the Depression-era Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, could help, Bernanke said. He also called for strengthened supervision of mortgage giants Fannie Mae and Freddie Mac.

Bernanke, who last week signaled that the Fed stands ready to lower a key interest rate again, did not talk interest rate policy in his speech or in a brief question-and-answer session afterward. The Fed, which has been slicing rates since September to help the economy, is expect to reduce them again on March 18, the Fed’s next meeting.