About Government Refinance and Home Purchase Programs

FHA mortgages have a few key advantages over conventional mortgages. First among those advantages is the ability to “streamline” an FHA loan. An FHA streamline refinance is basically an low-hassle, low-cost interest rate reduction refinance from one FHA loan to another. In times like these streamlines are especially useful because the borrower does not need to prove income levels or show that the home is still worth more than the loan to get a streamline refinance. So people with FHA loans who have experienced a reduction in in come or who owe more than the home is now worth due to property values dropping can easily refi. However, there are two things that will scuttle a borrower’s ability to get an FHA refi: 1) A 30+ day late mortgage payment in the last 12 months, and 2) a credit score below 620.

HUD says that about 15% of FHA loan holders do indeed have a late payment in the last year so this week the administration announced a loan modification plan for these FHA loan holders who can’t streamline their loans. Here is an excerpt from a recent Seattle PI article on this topic:

U.S. Housing and Urban Development Secretary Shaun Donovan announced Thursday that the Federal Housing Administration was bringing its mortgage modification program in line with the administration’s Making Home Affordable program, creating a new FHA-Home Affordable Modification Program. The agency has released a mortgagee letter and guidelines, and expects all servicers to implement the changes by Aug. 15.

“Today, we’re bringing another important tool to the table to help struggling families who are desperate to keep their homes,” Donovan said in a news release. “Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the administration’s Making Home Affordable program.”

Diane Golobay over at Housing Wire wrote a nice piece on the recently passed HR 2529 bill in congress. Here is an excerpt:

The House of Representatives this week passed a bill that would authorize federally-insured depository institutions and banks to lease real estate-owned homes for a limited period of time — up to five years.

The House approved HR 2529, the Neighborhood Preservation Act, in a voice vote Wednesday. The bill’s language allows banks covered through the Federal Deposit Insurance Corp. to lease back houses it owns through foreclosure.

By allowing these institutions to enter long-term leases with occupants of the foreclosed property or other parties to restrict the number of houses moving onto the market, the bill aims to keep unsold inventory down and in turn help stabilize home values and restore confidence in housing markets. It would also generate monthly payments and ultimately reduce the extent of the loss taken by the bank upon the property’s sale.

Of course the problem with this bill like many before it is that the program is voluntary for the banks. Who knows if the banks would prefer to be landlords rather than just unload the house.

Of course the bill would need to pass the Senate and the President to becomes law. It is not yet clear to us why a law would be needed to allow banks to use this plan in the first place. Perhaps there are rules now that preclude FDIC banks from renting out the homes they have foreclosed on. We’ll keep you posted on this.

There was an enlightening article in the Washington Post recently explaining that in may cases foreclosing on a homeowner is more profitable for a bank than offering a loan modification. This might shed some light on why convincing banks to modify loans can be so difficult at times. Here are some excerpts:

Modification makes economic sense for a bank or other lender only if the borrower can’t sustain payments without it yet will be able to keep up with new, more modest terms.

A second set are those who are likely to fall behind on their payments again even after receiving a modified loan and are likely to lose their homes one way or another. Lenders don’t want to help these borrowers because waiting to foreclose can be costly.

Finally, there are those delinquent borrowers who can somehow, even at great sacrifice, catch up without a modification. Lenders have little financial incentive to help them.

These financial calculations on the part of lenders pose a difficult challenge for President Obama’s ambitious efforts to address the mortgage crisis, which remains at the heart of the country’s economic troubles and continues to upend millions of lives. Senior officials at the Treasury Department and the Department of Housing and Urban Development have summoned industry executives to a meeting Tuesday to discuss how to step up the pace of loan relief. The administration is seeking to influence lenders’ calculus in part by offering them billions of dollars in incentives to modify home loans.

Over the next year, Fiserv forecasts that national home prices will drop another 11%, and bottom out in early 2010.

We get the above prediction from the folks at Fiserv as reported recently over at HousingWire.

The problem is that mortgage interest rates will probably be a lot higher in 2010 than they are now so if you still have any equity and want to refinance the time is now.

It may be due to June being a big month for home sales but but housing prices dropped less in June than they had for the previous 10 months. Here are some excerpts from a recent Bloomberg article on this subject:

U.S. home prices had the smallest annual drop in 10 months, signaling the free fall of property values is abating in the three-year housing slump at the center of a global recession.

Prices declined 5.6 percent in May from a year earlier and rose 0.9 from April, the Federal Housing Finance Agency in Washington said today. Economists expected a 0.2 percent drop for the month, according to the median of 16 estimates in a Bloomberg survey.

See the interview below from the folks over at Yahoo Tech Ticker. The researcher in the interview has anecdotal evidence that up to 25% of people foreclosing still have the ability to pay their mortgage but walk away anyway because the values of the home has dropped so much. He proposes a standardized solution to this problem as well. It is an interesting discussions at the very least.

There was a good interview today over at Yahoo news. See below:

We get this from a recent Washington Post article:

A top Treasury Department official told a Senate panel yesterday that the government is considering a proposal to allow homeowners to stay in their home as renters after a foreclosure.

The article continued with this:

The new proposal comes as increasing numbers of borrowers are facing foreclosure as they lose their jobs and fall behind on payments. RealtyTrac reported that foreclosure filings, which can range from default notices to bank repossessions, were up 15 percent during the first half of the year compared with the corresponding period in 2008.

The administration is considering initiatives to help unemployed workers get help with their mortgages, said William Apgar, senior adviser for mortgage finance at the Department of Housing and Urban Development. “The current very high level of unemployment is making the already difficult task of helping families struggling to meet their mortgage payments even harder,” he said.

Under the federal program known as Making Home Affordable, lenders are paid to lower borrowers’ mortgage payments. About 160,000 loans have been modified into lower-cost loans so far. The administration has said the federal effort has already been more successful than previous programs. But officials are also prodding lenders to hire more staff and better train employees.

It is “disgraceful” that borrowers are still struggling to get help more than two years into the housing crisis, said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Committee on Banking, Housing and Urban Affairs. “Why am I still reading about lost files, understaffed and undertrained servicers, and hours spent on hold?”

As ever, it takes a lot of tries to find a plan that actually works. While some things have worked pretty well the rising tide of foreclosures continues to overwhelm all attempts to stem it.

There has been some talk this week of some early brainstorming the administration has been doing to see if there is any way to help unemployed people avoid foreclosure. It sounds like they have not figured out any good way to do that yet but the fact that they are mulling the concept over is worth noting. Here is a Reuters article on the subject and some excerpts from the piece:

The official told Reuters it was reasonable for policymakers to consider options for loan forbearance — allowing borrowers to delay, defer or skip payments — that are more effective than those currently available in the private sector.

The number of failing home loans has been climbing for three years as risky borrowers have defaulted on their easy-to-get loans, property values have sunk and the unemployment rate has climbed.

But the official said the idea, which is still evolving, was difficult from a policy perspective and carries potential hazards. It could help more people struggling with economic difficulty, but it also could create perverse incentives that distort the housing market, said the official, who did not want to speak on the record about internal administration debates.

If you are among the many people who can’t currently qualify for a refinance a loan modification is likely you only alternative. The problem is that getting banks to modify loans is still very difficult. For that reason the Fed is calling an all-hands meeting to apply more pressure on banks to modify more loans. See a recent NYT article on the subject here. And here are a few highlights:

The subject of the meeting is going to be loan modifications. Specifically, the government is going to be asking — in none-too-friendly fashion — why the nation’s big servicers aren’t doing more to modify loans for homeowners who are in danger of defaulting on their mortgages.

…

And yet, five months later — and two years into the housing bust — the rising tide of foreclosures remains the single biggest threat to economic recovery. In 2005, at the height of the bubble, there were some 800,000 foreclosures. This year, sadly, we are on pace to see 3.5 million foreclosures, with no end in sight. “On Main Street, the recovery will begin when foreclosures stop,” said Senator Jack Reed of Rhode Island, who has been pushing the Treasury Department to get mortgage relief more quickly to homeowners at risk of foreclosure.

A new report from PMI Mortgage Insurance Co. is predicting that for as much as 85% of the country housing prices will be lower in 2011 than they were at the start of 2009. See an article on the subject over at Housing Wire. Here is a quote from an economist at PMI:

“Rapidly rising foreclosure and unemployment rates, continuing declines in house prices, and weakening consumer demand all worked to increase risk in the general economy, and the housing market specifically,” Berson says in a statement today. “As a result of the continued weakness in prices, and the relatively low level of interest rates, improvements in affordability across the nation’s MSAs will continue to incentivize repeat and first-time homebuyers back into the market.”

If you still have equity in your home and need to refinance out of a bad loan or need cash out to pay off other debts it may be wise to contact us now before housing prices drop further.

The good news is that there are new regulations coming around the corner on credit card companies that will preclude them from raking consumers over the coals on rates. The bad news is that those regulations don’t kick in until February of 2010. So in the meantime don’t be surprised if your credit card rates skyrocket to the 20% to 30% range as credit card companies scramble to make as much profit as they can from consumers.

If you have equity in your home and are saddled with too much credit card debt now might be a very good time to look at a cash out refinance to consolidate that credit card debt. Rates are still in the mid 5’s on government backed mortgages and you can get cash out refinances up to 85% of the current value of your home.

Contact us in the sidebar if this situation applies to you.