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.

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.