Has the Treasury Secretary lied to the people in need of a bailout?

You decide.

November 12, 2008

In a statement made on national television the The Treasury Secretary, Hank Paulson, claims “ I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world we have already seen signs of improvement“. Have you seen or felt the improvement?. Just days before every major financial agency was scrambling and announcing major measures to streamline the Loan Modification process.

With unemployment rising at levels not seen since the great depression, and with the major automakers at the brink of bankruptcy, the Treasury Secretary has decided that the focus needs to be shifted into the consumer loans, IE. Credit Card loans, instead of the previous focus of fixing the mortgage market.

What does this mean to you?

Simply put, load up your credit cards, get into more debt and forget about ever repaying anything. Hopefully you will be able to declare bankruptcy, wipe out your debt that is not secured by your home and ruin your credit. Not a solution in my book but a good way to get more money out of the tax payer and pour salt on an open wound. Secretary Paulson made it clear that he does not have to apologize to anybody because has the ability to change policies as he sees fit.

Now the really good news

In the last couple of weeks, it was announced that more lenders are jumping into a “Streamline Loan Modification System”. What this means to the homeowner in need is that more consumers that can prove significant hardship will be able to stay in their homes if they can prove that they make enough money to afford the new reduced payment terms. I have heard a number of complaints from the “responsible” homeowners that claim it is not fair for their neighbors to get better terms and why it should not be rolled out to EVERYBODY that owes more than their home is worth. My answer to that one is:

1) Would you rather see a foreclosure sign or a property in disrepair next to your property?

2) Are you willing to see your credit suffer the same way that it gets hit to the people that are in financial distress?

America is under tremendous financial stress due to a deteriorating home values. It is not a time to be greedy.

 

By mmekler | Permalink | Tagged |

October 1st is right around the corner and the impacts of the reform are already making an impact in the mortgage business. Hopefully it will help more people achieve the dream of owning a home. That is, once the media stops focusing on the doom and gloom of the Lehman failure and the bailouts that are going on almost every week. Yesterday was an incredible opportunity for many borrowers to lock into FHA fixed loans for 30 years at 5.375%. FHA loans currently have climbed from less than 5% early last year, 2007, to close to 50% of all loans being writen today. The fact is that October 1st should represent the opening of gates for MANY consumers that otherwise would have fallen into an adjustable rate or subprime loan into a loan that provides numerous benefits both short and long term.

For the consumer in need to refinance to save their home, this also represents a tremendous oportunity on many fronts. With the large number of foreclosures, lenders are eager to work out new terms with the homeowners to keep them in the home. The biggest challenge is that the homeowners psychology, once they have become late on their mortgage, is one that hits them so hard that they lose all hope and diminishes any motivation to get into a long and painful road filled with red tape and anxiety to save their home. The facts are that for those who find the energy and will to reach out for help will keep their homes. There are millions of bank owned properties. The lenders will do one of several things:

  1. Reduce the current interest rate significantly
  2. Reduce the principal balance or place that diference in a defered interest free non secured loan
  3. A combination of both

I have seen some loan reductions of 50% or higher allowing homeowners to preserve their credit without foreclosure and be able to have manageable monthly payments.

Unfortunately, there are still plenty of bad apples that claim to be experts in “Loan Modifications” and FHA lending. Most of these new companies are entering a business to capitalize on the already beaten up consumer charging money upfront and giving empty promises. In some cases the true experts, licensed and/or attorney’s will ask for a refundable fee to be placed in escrow.

By mmekler | Permalink |

* FHA Press Release *  

WASHINGTON  - Tens of thousands of families could be eligible this year to purchase or refinance their homes using affordable, government-backed mortgages, thanks to the economic growth package signed into law by President Bush.  The Economic Stimulus Act of 2008 will allow HUD’s Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country.  

“The Bush Administration is expanding the pool of eligible borrowers, enabling more American families to qualify for safe, affordable FHA-insured mortgage loans.  These temporarily higher loan limits are a shot in the arm for communities trying to sustain property values, bringing much-needed liquidity to the mortgage market, while helping many current homeowners who desperately need to refinance,” said HUD Secretary Alphonso Jackson at a forum on how to prevent foreclosure at the Operation Hope Center in Los Angeles and a Hope Now Alliance event in Anaheim.

Beginning tomorrow, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750.  Overall, the change in loan limits will help provide economic stability to America ’s communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.  The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as: Los Angeles County , San Francisco County , Orange County , and Santa Barbara County .  Previously, FHA’s loan limits in these very high-cost areas were capped at $362,790.

The Economic Stimulus Act of 2008 permits FHA to insure loans on amounts up to 125 percent of the area median house price, when that amount is between the national minimum ($271,050) and maximum ($729,750). The new minimum and maximum loan limits are based on 65 percent and 175 percent of the conforming loan limits for Government-Sponsored Enterprises in 2008, which is $417,000.  The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area.  The change in loan limits are applicable to all FHA-insured mortgage loans endorsed after HUD publishes the increased loan limits tomorrow, and it lasts until December 31, 2008 .  

By increasing loan limits nationwide, FHA will provide much needed liquidity and stability to housing markets across the country.  Already, as conventional sources of mortgage credit have been contracting, FHA has been filling the void. From September to December 2007, FHA facilitated more than $38 billion of much-needed mortgage activity in the housing market, more than $15 billion of which was through FHASecure, FHA’s refinancing product.  By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.

“This is not an easy crisis to address, and there is no silver-bullet, but I know that we can help hundreds of thousands of people keep their homes, and we can calm the waters,” said Jackson .

In January 2009, FHA’s maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill.  

“In January 2009 the loan limits will return to their previous setting,” Jackson said.  ”That is why we need to permanently raise the loan limits to an acceptable level that more accurately reflect housing prices nationwide.  We also need to make the minimum down payment more flexible and create a fairer insurance premium structure.  This will allow more families to use FHA.”  

FHA loan limits are based on the county in which the property is located.  However, for properties located in metropolitan or micropolitan statistical areas, the limit is set at that of the county with the highest limit within the metropolitan or micropolitan area.  

The new temporary FHA loan limits for California are attached below.  The full text of the Secretary’s remarks can be found on the HUD website.

By mmekler | Permalink |

Democratic leaders on Wednesday called on President Bush to appoint a “mortgage czar” to coordinate the federal response to the subprime mortgage crisis, saying the administration’s response so far has been inadequate. Senate Majority Leader Harry Reid, D-Nev., characterized the mortgage woes and the accompanying wave of foreclosures as a “national crisis” and said the administration had been slow to recognize the problem.The new special adviser would serve as a watchdog to monitor the markets for potential problems and work with regulators.Atop the Democrats’ agenda are proposals to overhaul the Federal Housing Administration (FHA) and increase the role of the mortgage finance giants Fannie Mae and Freddie Mac in boosting the markets.In more immediate action, the House is expected to vote Thursday on a measure (HR 3648) to help ease the tax burden on some homeowners facing foreclosure, and a House panel will mark up a bill (HR 3609) to modify certain bankruptcy rules to help people seeking to restructure home loans.Sen. Richard C. Shelby, R-Ala., ranking member of the Banking, Housing and Urban Affairs Committee, said the ideas being promoted by Democratic leaders were already under consideration.Shelby said officials at Treasury and the Federal Reserve are handling the subprime crisis and little would be gained by the addition of a new adviser. “Their efforts should continue unimpeded by another layer of bureaucracy,” he said.The House has passed a regulatory overhaul of Fannie Mae and Freddie Mac (HR 1427) and a bill to modernize the FHA (HR 1852).Christopher J. Dodd, D-Conn., who chairs the Senate Banking Committee, said his panel is “committed to working with the president to get FHA modernization legislation to his desk shortly.”Reaching a deal on Fannie and Freddie could prove more difficult. Democrats want the administration to further raise the investment portfolio caps on Fannie and Freddie, which together total about $1.5 trillion.Recently, Fannie and Freddie’s regulator said the government-sponsored enterprises (GSEs) could make relatively small increases in their portfolios. Lawmakers have said that the response is not enough.Sen. Charles E. Schumer, D-N.Y., plans to offer legislation to temporarily boost the portfolio caps by 10 percent. Fannie and Freddie would be required to use at least 80 percent of the money freed up by the change to help struggling subprime borrowers refinance loans.Meanwhile, discussions with the administration on steps that could be taken without legislation are progressing.The administration has suggested that any portfolio increases should be part of a broad overhaul of Fannie and Freddie. Both companies weathered major accounting scandals in recent years.Democrats are unlikely to tackle a broader overhaul and are leaning toward addressing the portfolio increase as a stand-alone issue. Barney Frank, D-Mass., who chairs the House Financial Services Committee, suggested that a temporary, subprime-focused portfolio increase could be acceptable.Schumer also called for action: “We should not wait for the full GSE reform to get the needed relief, because in the next three to six months things are going to get very bad.” About 2 million American homeowners are at risk of losing their homes to foreclosure. That includes many subprime borrowers who purchased mortgage products that are now resetting to much higher payment rates.Elsewhere, the House Judiciary Commercial and Administrative Law panel will mark up the bill that would allow bankruptcy courts to modify the terms of a home mortgage, a step not allowed under law.Rep. Brad Miller, D-N.C., said the changes could help keep as many as 600,000 people in their homes over the next two years by allowing them to restructure the terms of their loans. On the House floor, lawmakers are likely to approve the measure that would remove a tax quirk that can hit homeowners whose debt is forgiven through foreclosure, sale or loan restructuring. The bill is similar to an administration proposal, though the president prefers a temporary provision that would not be offset with new revenue

By Admin | Permalink |

The Bush administration announced a new mortgage industry coalition on Wednesday aimed at helping homeowners avoid being trapped in a rising tide of foreclosures.

Treasury Secretary Henry M. Paulson Jr. said the initiative would help coordinate efforts by financial companies to help an estimated 2 million homeowners whose introductory mortgages with low rates are now resetting at much higher rates, greatly increasing the risk they will default on the loans.

“A combination of stagnant or falling house prices, low down payment mortgages and resetting adjustable-rate mortgage rates are creating real challenges for many American homeowners,” Mr. Paulson said in a statement.

He said that 11 of the largest mortgage service companies, representing 60 percent of all mortgages in the country, had agreed to join the new coalition. Other members will include mortgage counseling agencies, investors and large trade organizations.

“These leaders recognize that by working together, coordinating and scaling up their activities, they will be able to work toward the goal to help more homeowners,” Mr. Paulson said.

The initiative, which has been named Hope Now, follows an announcement by President Bush on Aug. 31 that the administration was making changes in the Federal Home Loan Administration insured-loan program so that more people could qualify for F.H.A.-insured loans.

Democrats, however, have criticized the administration, saying the actions so far have been too little and too late to significantly address a growing foreclosure crisis as homeowners struggle to deal with sharp increases in their adjustable mortgage payments.

The rising defaults, which started in the market for subprime mortgages — loans offered to people with weak credit histories — upset global financial markets in August, prompting the Federal Reserve to cut interest rates last month to make sure the country did not get pushed into a recession.

Mr. Paulson said the new coalition had put together an “aggressive plan to reach more homeowners and help them find a way to stay in their homes.”

He said that he was happy to see that the American Securitization Forum, which represents investors who buy mortgages that have been repackaged into securities, had agreed to join the alliance. He expressed hope that the group would grow to represent more than 60 percent of outstanding mortgages.

“We need greater participation if we are going to get to all those that need help as quickly as possible,” he said.

According to some estimates, mortgages converting from low teaser rates could mean an extra $250 to $300 in monthly payments on a typical $1,200 monthly mortgage payment.

By Admin | Permalink |

WASHINGTON - President George W. Bush today announced that HUD’s Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing.

In addition, FHA will implement risk-based premiums that match the borrower’s credit profile with the insurance premium they pay-i.e., riskier borrowers pay more. This common-sense, risk-based pricing structure will begin on January 1, 2008.

“Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled,” said HUD Secretary Alphonso Jackson. “FHASecure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.”

The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today’s cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market.

FHA has recently experienced a substantial increase in the number of conventional borrowers refinancing into FHA products. With FHASecure, it can help even more. The number of these refinancing transactions has tripled since the start of 2006. FHA’s transactions are projected to surpass 100,000 loans by the end of the fiscal year. To date, these figures do not include refinances for delinquent borrowers.

The FHASecure initiative will operate under the same safe guidelines as the FHA’s existing mortgage insurance program without affecting FHA’s financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA’s insurance fund at no cost to the taxpayer.

The risk-based insurance premium structure will further expand FHA’s reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA’s overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.

FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.

To qualify for FHASecure, eligible homeowners must meet the following five criteria:

  1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
  2. Interest rates must have or will reset between June 2005 and December 2008;
  3. Three percent cash or equity in the home;
  4. A sustained history of employment; and
  5. Sufficient income to make the mortgage payment.

“FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates,” said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery. “These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund and ultimately prevent risk to the taxpayer.”

FHASecure will also bring much-needed liquidity to the mortgage market. FHA anticipates more lenders will offer FHA-insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. This guarantee makes Ginnie Mae’s mortgage-backed securities the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.

Since its inception in 1934, FHA has helped almost 35 million people become homeowners, making it the largest insurer of mortgages in the world. The 109th Congress introduced the Expanding American Homeownership Act in June 2006 which would enable FHA to be a safe option for more underserved low- and moderate-income and minority families so they can achieve the American Dream of homeownership. Today, President Bush also urged Congress to quickly pass the Administration’s FHA modernization proposal to help more families in need.

For more information about FHASecure and other FHA products, please call 1-800-CALL-FHA or visit www.fha.gov or www.hud.gov. For a list of your local homeownership center or a HUD-approved housing counseling center, go to www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

By Admin | Permalink |

WASHINGTON

House lawmakers are planning to vote Tuesday on an overhaul of a federal agency that insures mortgages against default in an effort to help struggling homeowners avoid foreclosure.

The plan of leading House Democrats to expand the role of the Federal Housing Administration goes further than the Bush administration’s plan to ease some of the mortgage market troubles that have rattled the economy.

Both House lawmakers and the Bush administration want to allow the FHA, which insures mortgages for low- and middle-income borrowers, to back refinanced loans for borrowers who are delinquent on payments because their mortgages have reset to higher rates from low initial levels.

But the administration objects to a plan by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, to raise the limit on the size of mortgages FHA can insure to $500,000 in high-cost areas of the country from the current $362,000.

The White House said in a statement Monday that the program “should remain targeted to traditionally underserved homebuyers, such as low- and moderate-income families.” The administration wants the FHA loan limits to be raised to $417,000 in high-cost areas.

In the Senate, meanwhile, legislation by Senate Banking Committee Chairman Christopher Dodd, D-Conn., and the panel’s senior Republican, Sen. Richard Shelby of Alabama, would raise the limit to $417,000.

While FHA loans are insured by the government in the event of default, the mortgages themselves are made by major lenders such as Bank of America Corp. and Wells Fargo & Co., and are typically offered to investors as mortgage-backed securities by federal housing finance agency Ginnie Mae. The FHA currently insures 3.7 million loans.

By Admin | Permalink |

U.S. Representative says GSE amendment would make loan cap $500,000

 

Last Update: 2:01 PM ET Sep 11, 2007

   (Updates to add details)

By Damian Paletta

Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)–U.S. House Financial Services Committee Chairman Barney Frank said Tuesday an amendment he plans to offer next week would raise the limit on the size of loans that could be insured by the U.S. Federal Housing Administration, with a provision that would allow more growth based on market conditions.

The amendment, which would likely pass, would be attached to a broad reform bill that aims to give the Federal Housing Administration more flexibility to insure riskier mortgages. FHA is a division of the U.S. Department of Housing and Urban Development.

Frank, D-Mass., said the amendment would raise the size of loans that could be insured by FHA “to $500,000 - that would be the base, and in addition to that it would give the HUD secretary the ability to raise it” if market conditions require such a adjustment.

Frank’s comments came during a meeting with reporters after his speech to the National Association of Federal Credit Unions.

Frank on Tuesday also urged Senate lawmakers to pass broad reform of the supervision of Fannie Mae and Freddie Mac. The House passed a bill earlier this year, and Frank said that stronger regulatory oversight for the companies might make the White House more comfortable with allowing the companies to buy larger mortgages and increase the size of their portfolios beyond strict limits.

“Beyond that, I do think the (Bush) administration would fight hard against raising the jumbo (limit) and increasing the portfolio in the context of the current regulation,” Frank said. “The best thing that would happen would be for the Senate to take up the whole (GSE reform) bill.”

By Admin | Permalink |

FHA saddles up to help delinquent borrowers

As millions of homeowners lie bleeding in the Subprime Corral, the feds ride in on an old mare to rescue a few borrowers suffering from scratches.The bailout plan, called FHASecure, is designed to prevent foreclosures among homeowners who fell behind because the rates went up on their adjustable-rate mortgages. About 60,000 “delinquent-yet-creditworthy” mortgage borrowers will be able to refinance into FHA-insured home loans in the next year or so, an official with the Federal Housing Administration says.It’s a triage operation, with the FHA aiding the delinquent borrowers who are easiest to patch up. The rescued borrowers will be dwarfed by the number of struggling homeowners who won’t qualify for FHA refinances. “Unfortunately, we think there will be some families that we won’t be able to help,” the FHA official says.People who refinance under the FHASecure program will end up with fixed-rate mortgages, which are quite popular nowadays among people who were burned by rising rates on ARMs. The FHA doesn’t lend money; it insures mortgages made by lenders.
Key factors of the FHA bailout plan:
• FHASecure is geared toward the homeowner with an ARM who was paying on time until the rate was reset and the monthly payment went up.
• There are loan-size limits that make these mortgages unworkable for high-cost markets, such as most of

California.
• Borrowers will need at least 3 percent equity, the FHA won’t help people who owe more than their houses are worth.
• The application deadline is the end of 2008.

Is it déjà vu all over again?
The FHA is a 73-year-old packhorse that was foaled during the Great Depression. In 1934, foreclosures were skyrocketing, house values were plummeting, and house sales and construction were at a standstill. In those days, people got balloon mortgages that lasted for five years, and then they were expected to refinance at a new rate. In that respect, those home loans were somewhat similar to today’s adjustable-rate mortgages. Like today, many homeowners back then had trouble making their payments and they couldn’t find refinancing. “The housing industry was still flat on its face with mortgage money frozen, 2 million men unemployed in the construction industry and properties falling apart for lack of money to pay for repairs,” says the FHA’s self-published history of its first 25 years. The FHA was created to insure mortgages, reducing the risk to lenders and making them more likely to lend. The agency carried a lot of cargo during the decades after the Depression. But after the 1980s, the FHA grew feeble. As recently as the mid-’90s, more than one-tenth of mortgages were FHA-insured; this year, its share is around one-fiftieth. As the FHA shed its burden, piggyback loans and uninsured subprime mortgages took it up.Some critics wondered publicly whether the FHA should be humanely destroyed. But then came this year’s subprime meltdown. Most subprime borrowers have adjustable-rate mortgages, and at the end of June, one in six subprime ARM borrowers was at least a month past due on the payments, according to the Mortgage Bankers Association. About two in 25 subprime ARMs were in foreclosure. The delinquency and foreclosure rates were rising.In light of the subprime delinquency and foreclosure epidemic, the FHA believes it is relevant again. Federal housing officials intend to saddle up FHA and make it carry a bigger load. FHASecure constitutes the first of those efforts. It’s intended to help ARM borrowers who can’t make their payments after rate reset and who have trouble finding conventional lenders that are willing to lend at affordable rates.“FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates,” FHA commissioner Brian Montgomery says.It’s hard to estimate the size of that market. The Center for Responsible Lending estimates that 2.2 million subprime loans will go into foreclosure over the next several years. Christopher Cagan, director of research and analytics for First American CoreLogic, has estimated that 1.1 million foreclosures will result from rate resets through the end of 2012, affecting both prime and subprime borrowers.The FHA estimates that it can help 60,000 ARM borrowers refinance in the next fiscal year. FHA officials say the agency isn’t going to solve the foreclosure problem all by itself, and that’s not the intent.“FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates.” Who qualifies for assistance?
According to FHA guidelines that were sent last week to lenders, the FHASecure refinance program is available only to borrowers who made all their payments on time during the six months before the ARM rate was adjusted upward. (In practice, “on time” means less than 30 days late, so making a few payments two weeks late won’t disqualify borrowers.)Borrowers can get FHASecure loans even if they are up to six months behind on the payments on their non-FHA ARMs. But borrowers have to prove that they fell behind because of the rate reset and not for another reason, such as a job layoff.“The FHASecure initiative … is not to be used to solicit homeowners to cease making timely mortgage payments,” the agency admonishes in its letter to lenders. So don’t let anyone talk you into making late payments on purpose.Borrowers can roll the unpaid payments into the new loan.FHA-insured loans have maximum amounts that vary depending on how expensive a housing market is. In the continental

United States, the loan limit tops out at $362,790 for a single-family house in the priciest markets. That would be the limit in, say,

Los Angeles. In a less expensive market –

Toledo, Ohio, for example — the limit is $200,160. The FHA’s Web site has a loan limit guide. If they need more than the FHA maximum, borrowers will be permitted to get uninsured piggyback loans for the difference — if the FHA determines that they can afford the combined monthly payments. Total house payments can’t exceed 31 percent of monthly income before income taxes.

FHA to adopt ‘risk-based pricing’
The FHA requires refinancers to have at least 3 percent equity. That’s a problem for people whose homes have lost value, so that they owe more than the house is worth. That’s the case with a lot of homeowners in formerly blistering housing markets, such as

South Florida, where people got mortgages for 95 percent or more of their homes’ values, only to watch those values plunge when the markets went cold.

Jim Sahnger, mortgage consultant with Palm Beach Financial Network in

Stuart, Fla., says customers have called to ask him about FHASecure, and he has to break the news that it won’t help. “One problem is that so many people in this area are upside down,” he says. “You’ve got to have something in it to make it worthwhile.”

The FHA suggests that some lenders might be willing to partially forgive debts so delinquent borrowers can meet the 3 percent threshold and refinance their loans. While it might sound unlikely that lenders would let borrowers off the hook like that, writing off partial debts could be cheaper than foreclosing.“Foreclosures are usually in bad shape,” says Paul Halpern, a partner with Chrysalis Capital Partners, a private equity fund. “It makes those assets tough to sell, relatively.” And lenders might choose to forgive partial debts rather than sell foreclosed houses in declining markets.The deadline for applying under the FHASecure program will be the last day of 2008. An extension is possible, but not a sure thing.In the meantime, FHA insurance premiums will rise for some new borrowers, because the agency plans to adopt “risk-based pricing” — in essence, making riskier borrowers pay more for insurance. The FHA has talked for years about adopting risk-based pricing. Last year, the Congressional Budget Office reported that “developing and maintaining the appropriate systems for managing a risk-based pricing structure would take FHA several years to implement.” But the FHA says it can do the job in four months and offer risk-based pricing at the beginning of 2008.Michael Moskowitz, president of Equity Now, a New York-based mortgage lender, says “it’s not such a big deal” to move to risk-based pricing with today’s technology. “It’s a simple thing to do, really,” he says — especially if the FHA were to buy the technology from a company such as Fannie Mae or Freddie Mac.Anthony Sanders, professor of finance and real estate at

Arizona

State

University, isn’t nearly so sanguine. He points to this year’s subprime meltdown, which burned a lot of sophisticated money managers on Wall Street. “Does the Bush administration really believe that the FHA can perform risk analysis better than Wall Street, particularly when the FHA has not done risk-based pricing in the past?” he says.It’s difficult to sort out the “good” from the “bad” subprime borrowers, Sanders says — “That is, someone with poor credit who had a rash of illnesses and medical bills versus someone that is just an irresponsible borrower. … And we are supposed to believe that the FHA is up for this game when all others have failed?”The FHA intends to gallop in for the rescue, despite the odds. 

By Admin | Permalink |

And potentially some tax help, too. Here are breaks that borrowers in a pickle may receive in the next few months.

By Jeanne Sahadi, CNNMoney.com senior writer

September 12 2007: 1:52 PM EDT


NEW YORK (CNNMoney.com) — Hundreds of thousands of homeowners who may struggle to make mortgage payments are likely to get some relief in coming months, including more options to refinance into lower-cost, fixed-rate loans and tax relief if they do face foreclosure.

About 240,000 borrowers of the estimated 2 million with adjustable-rate loans scheduled to reset in the next year already are eligible to refinance into a loan insured by the Federal Housing Administration (FHA) - roughly 80,000 of them are eligible because of the newly created FHASecure Act, which loosens FHA’s criteria for refinancing. And more changes are likely, with the possibility of helping tens of thousands more.

The FHA program has been geared toward home buyers and homeowners with weak credit. Lenders may be more willing to lend to a buyer with shaky credit when the FHA is insuring the loan.

Borrowers with FHA-insured loans - which they get from private lenders as they would any other mortgage - pay a small premium to the FHA every month. The FHA, in turn, uses those premiums to cover the lender in the event of foreclosure and requires lenders to pursue viable ways to help borrowers avoid foreclosure if they become delinquent.

If you are behind on payments by at least four months but no more than 12, the FHA may even make a one-time interest-free loan to you to make your account current with your lender.

It used to be you couldn’t refinance into an FHA loan if you’d been delinquent in your payments for any reason. But with the FHASecure Act, delinquent homeowners qualify for an FHA-insured refi if they have:

  • A history of on-time payments for at least six months before their loans reset to higher rates
  • Interest rates scheduled to reset between June 2005 and December 2009
  • 3 percent equity in their home, or the cash equivalent
  • A sustained history of employment
  • Sufficient income to make their FHA-insured mortgage payment and all other obligations

The FHA will still insist that lenders verify borrowers’ income and ensure that their total debt payments don’t exceed 43 percent of their income or that their mortgage payment won’t exceed 31 percent of income. If those ratios are exceeded, the lender must explain how the homeowner can compensate for that.

For borrowers who qualify, an FHA refi can save them money. Even with the premiums FHA charges, an FHA-insured loan could save a borrower $100 or more a month for every $100,000 borrowed compared to the payments they’d owe under an adjustable-rate mortgage that readjusts upward by 3 percentage points.

And if the homeowner has an FHA-insured loan for five years and has built up 22 percent equity in the home, the borrower no longer needs to pay the premium.

FHA requirements may get even more liberal

Lawmakers also are considering legislation to modernize FHA guidelines, which could make FHA refis available to another 60,000 troubled mortgage borrowers, and open the door to another 140,000 new home buyers who today wouldn’t qualify for an FHA-insured loan, according to FHA estimates.

Jaret Seiberg, a financial services analyst at policy research firm Stanford Group, expects lawmakers will pass the FHA legislation, noting that it has broad support in both parties. “FHA reform is the lowest hanging fruit. It’s the easiest thing to do.”

That legislation would further liberalize FHA loan requirements. Among its key provisions, it would:

Raise loan limits. Today the FHA won’t insure loans above $362,790 for single-family homes, and even less in lower-cost areas. Under the bill before the House, which is expected to vote next week, that ceiling would increase to 100 percent of the conforming loan limit for mortgages backed by Fannie Mae and Freddie Mac, currently $417,000.

But Barney Frank, chairman of the House Financial Services Committee, plans to propose an amendment that would boost that new limit to $500,000, and give the FHA commissioner discretion to raise that limit further during mortgage crises.

Reduce down payment requirements. Homeowners would no longer be required to have 3 percent equity or the cash equivalent. They could get an FHA-insured loan with 0 percent down.

Reduce complexity. Reform also would “clear away a bunch of burdensome rules that make FHA difficult to use,” Seiberg said.

Foreclosed borrowers may get tax break

For homeowners whose situations can’t be remedied with a refi, they may get tax relief if they end up facing foreclosure.

Currently, if you foreclose on your home and the bank forgives a portion of your mortgage debt which isn’t recovered by the sale of your home, that forgiven debt is treated as taxable income to you. President Bush has asked lawmakers to provide a temporary exemption from that rule.

Both Seiberg and Clint Stretch, managing principal of tax policy at Deloitte Tax LLP, think it’s likely lawmakers will pass that exemption this fall and make it retroactive so that homeowners who foreclosed in 2007 would be covered.

By Admin | Permalink |

© 2006 - 2008 Liberty First Capital Inc.•Contact Us•Privacy Policy•About Us

Call Toll Free  888-218-0094