In the last few months San Diego foreclosures have shown a drop in their numbers. After almost two arduous years of foreclosures, finally there is a sigh of

via San Diego foreclosures are plummeting, showing a positive sign..

Here are the 5 things you need to know about these changes:

1. Changes are effective for case numbers assigned on or after April 15th, 2010.
2. New upfront mortgage insurance premium (UFMIP) will be 2.25% for all purchase and refinance loans. The premium for H4H and HECM is 2.0%.
3. This change applies to all standard FHA Single Family Programs except the following: Title I, Section 247-Hawaiian Homelands, Section 248-Indian Reservations, Section 223e-Declining Neighborhoods or Section 238c-Military Impact areas in Georgia and New York
4. Annual premiums will not change at this time
5. There will be no discount on the UFMIP for first-time homebuyers with pre-purchase counseling.

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By now we’ve all had a chance to read, listen and watch the economists, gurus, and professors for some of the most prestigious academic institutions in the world analyze the economy.   I know I have grown tired of listening to speculative predictions that swing from utopia to apocolypse.  In this post, I will do my best to narrow down the items that should interest the masses the most:  jobs; home prices; and interest rates.

My biggest disclaimer is that although I have read outlooks from people all over the county,  I am a firm believer that what happens in your state, county, and community stays there.   For example, if  solar energy becomes all the rage in San Diego in 2010 through rebates and incentives, we cannot assume that in Seattle, Washington, which only has a fraction of the sunny days that San Diego has, will benefit by a similar job creation in that field.

1. Jobs. Yes, I do believe that solar energy will be a major catalyst for job creation in Southern California.  2009 was a year in which the prices for gas, and energy in general went up, so if you ask any solar panel installer, they had a pretty busy year. What prevented this industry from exploding and creating thousand of desperately needed jobs?  The lack of connection between someone like me =) who can readily finance these projects, and the solar energy installers.  Bridging this gap will take some time since consumers are not yet educated on how to obtain financing for such a project.   San Diego is a county rich in biotechnology research.  With the reduction of innovative life saving medications from the Pharmaceutical sector, Biotech represents the bulk of hope for the future of healthcare as well as local job creation.  If we widen our scope outside of San Diego, a very different picture materializes, depending on where you look.  Each county in each state represents its own micro-capsule of the job market, and therefore its own unique challenges and opportunities.
2. Home prices.  Unfortunately this is a “hangover” that will take time and a lot of bitter pills to get over.  Wall Street had a TREMENDOUS hunger, and paid originators top dollars for putting borrowers into risky loans.  It was not the Mortgage Broker that created the bubble.  I worked for a direct lender during the 2004-2007 years and the phone rang off the hook asking for the “1% percent payment”.  Lenders compensated handsomely for being top producing branches in closing these adjustable and sub-prime loans.  As a member of the management team I made it my mission to explain every detail of negative amortization consequences.  At that time, the consumer did not care.  The party ended eventually but most of these toxic assets, in my opinion, have been flushed out, and the affordability ratios are starting to make sense again.  Back in 2006 only 11% of the median household in Southern California could afford to make payments on median-priced homes.  Today this percentage has gone above 40%.  Keeping in mind that the national home ownership percentage is about 64%, this represents a significant improvement and the trend will continue through the first half of the year as long as interest rates stay low.  We will see a surge in purchases through June due to the now-expanded tax credit.
3. Interest Rates. One of the minds that I respect tremendously, Barry Habib, claims that this is the easiest prediction:  ”rates will reach at least 6-7% by the end of 2010″.  Barry makes several good points as to why this will happen.  Although the fed had announced that it will stop buying Mortgage-Backed Securities, what many believe is the single biggest factor for keeping rates at bay, in my opinion Bernanke has left the door ajar to the possibility of continuing to purchase these securities.  The amounts of mortgages that have been bought are massive, $1.13 trillion.  This accounts for, depending who you ask, anywhere between 70-90% of all mortgages since the program started in 2009.  But let’s face it, these are massively problematic times, and the Fed Chairman and Secretary Geithner have committed to not make the same mistakes made during the Great Depression (acting prematurely in easing their economy-saving strategies).  In my opinion, this is not such an easy one to predict.  If rates go up, the real estate market could come to a halt and we know this is the single worst blow the economy would suffer. I don’t think rates will go higher than 6%.

All in all, we all have important responsibilities.  We must embrace our communities as micro-economies that if nurtured and supported, will flourish.  As each city, county, state begins to heal economically, then naturally the national economy will heal as a whole.  In addition, we can all make a difference in our communities by aggressively networking to support local businesses and entrepreneurs, and enjoying the simpler things in life, especially the ones you love.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

If solar energy affordability is a goal for you please contact me.  There is an excellent chance that you can start saving hundreds of dollars a month almost immediately.

For the last 6 weeks I have attended several webinars, live classes and spent countless hours reading the changes coming on 1/1/2010 with regards to the new lending disclosures. I did it because I had to. I know that once my first set of disclosures go out EVERYBODY related to the transaction will get a call  from the consumer asking for an explanation of the credits and debits.

The most challenging questions that all parties will be the following:

1. Why is my Loan Officer sending me a form asking me to shop for services that I don’t even understand, ie Title Insurance, Escrow, Appraisers etc.?
2. The last page of the Good Faith Estimate gives me a grid to compare the best rate and terms. It appears that when if I go through a Bank I don’t get any credits but when I go to a Mortgage Broker  I get thousands back. Why?
3. My loan officer has explained that this document is just an estimate, and he calculated all the fees on the high side so that he does not have to submit a whole new set of disclosures if there are changes. How can I trust this is true?

The bottom line is that the creation of new disclosures will create enough confusion to make one heads spin. In a world where the excellent Loan Officers just survives, you need to be extraordinary to do well. This of course means that as you are making your business plans for 2010 you must account for most of your time being in front of the Real Estate agents and consumers with extremely simple and easy to understand language for EVERY line item in the new Good Faith Estimate. At least for the first quarter of 2010 or until the dust settles a bit. Of course by then there will be a whole new set of rules.

Over the last 12 months we have heard the saying numerous times “You don’t really know who is swimming naked until the tide goes out”. As a trusted professional in the business my approach has been, and will continue to be, to try to figure out the science behind how the tides work.

I would love to share my experience and presentations that have already helped many Realtors and consumers in the last several years to simplify and take the stress away from the home buying transactions.

mmekler@fhaexpert.net

The answer is simple: from one Fed Chairman’s term to the next.

 It was not that long ago when the Pay Option ARM, also known as Negative Amortization Loans, where offered attractively by all major lenders such as Washington Mutual, Countrywide, Downey Savings, and World Savings (formerly Bank of The West).  Wall Street’s hunger for these products was insatiable.  As a direct lender based in California, the pressure from major investors in New York to offer these products before any Fannie, Freddie or other Alt-A products was tremendous.  In 2004, Fed Chairman Alan Greenspan began calling these products “exotic mortgages”.  Ironically, rumors were flying around the lending community that several of his own properties had such mortgages.

Fast forward past the bubble, to Bernanke’s term and the beginning of 2007 when the downturn began to rear its ugly head.  Mass numbers of defaulted loans and the subsequent implosion of the aforementioned major lenders, and we now have “toxic assets”.  Wall Street has absolutely no interest in continuing to offer them, and “bailout” has become a household term.

Having lived in New York City for years I had a chance to gamble at times with Stock Options. We know that there are several hedge funds that are exclusively investing in Calls or Puts.  At times these options outperform every major index but there are probably just as many, or more, that go bankrupt.  Yet for whatever reason, these Hedge Funds are not called “toxic” (nor are any type of bailout by the government.  Well, not officially).

The validity of the comparison between Stock Options and the Pay Option Arm is not as outlandish as Barney Frank (D. Massachusetts) would argue.  The similarity lies in the risk factor and subsequent payoff.  The difference lies in the absence of regulation on behalf of Frank’s Finance Committee, until now of course that the real estate bubble has burst like a mushroom cloud.  

Everyone that’s ever bought Stock Options has had to sign additional disclosures acknowledging the fact that they understood the risks associated with these investments.  The Pay Option Arms were also targeted towards the investor that was bullish on the sustained and rapid appreciation of their investment: their most valuable material possession, their home.  However, the disclosures associated with these loans were free from the foreboding language of risk that the borrower was taking. To be fair, not many had the foresight to predict the severity of the current fall of the housing market, but the Finance Committee is supposed to do more then play Monday-morning quarterback with our economy, right?

So now all of these products are deemed toxic.   The Wall Street investor for these mortgages is now suffering for the lack of regulatory checks and balances for not only the Pay Option ARMS but the Sub-Prime and Alt-A, no-documentation home loans (no documentation!).  The Mortgage Broker is the subsequent fall guy, even though the lenders allowed the de-regulated system to run amuck.  Bailouts abound.  Party over.

As the current leadership fights for a recovery plan to stop the wave of foreclosures (no documentation!) the question remains:  Will some of the products that are currently toxic come back as the lending industry shows signs of life?  Or will we have to wait until the next Fed Chairman?

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.

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.

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.

* 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.

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

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

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.

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

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.

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

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

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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.”

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.

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

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

Jim Sahnger, mortgage consultant with Palm Beach Financial Network in

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

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.

On Aug. 31, while many of us were getting ready for a long holiday weekend, President Bush addressed the nation about the mounting concerns in the housing market. His speech took place exactly one month before we’ll see a record-breaking $50 billion in mortgages reset to a new rate.

That’s right, in the month of October alone, many homeowners will be forced to pay higher monthly mortgage payments than they can reasonably afford. And while this number is staggering, it’s not exactly new information — it’s been known for two years that the crisis was coming.

The Associated Press reports that, in all, 2 million homeowners have adjustable rate mortgages scheduled to reset by the end of 2008. Of those, the Federal Housing Administration (FHA) estimates that 500,000 could experience foreclosure.

Is Bush’s Proposal Enough?

In my opinion, the president’s proposal is an excellent start — but will it offer enough help to those half-million families at risk of losing their homes?

Bush isn’t proposing a direct bailout for homeowners who knowingly overextended themselves. Nor will the government be rescuing irresponsible lenders and speculative investors who bought homes to flip for a profit. As the president acknowledged, that would only encourage the problem to occur again.

Instead, Bush’s proposal strikes a balance by offering:

• Temporary tax relief to ensure that cancelled mortgage debt on a refinanced mortgage isn’t counted as income

• A foreclosure-avoidance initiative through homeowner education and outreach

• Ways to help responsible homeowners refinance through FHA loans offering a lower interest rate and lower monthly payments

Help for Those in Trouble

Among the president’s new initiatives is the immediate introduction of a refinancing product called FHASecure. This product will now be offered through the FHA and offers help to homeowners who are already in default of their primary residence mortgage loans. Previously, the FHA would not insure refinanced loans from borrowers delinquent or in default, so this is a significant change.

There are specific criteria that must be met in order to qualify:

1. First and foremost, you must have a history of on-time mortgage payments before your teaser rate expired — which means you must have a decent credit history.

2. Your interest rate must have reset after June 2005 but before December 2009.

3. You must have at least 3 percent cash or equity in your home.

4. You must have a sustained history of employment.

5. You must have sufficient income to make your mortgage payments.

Beefing Up the FHA

Since 1934, the FHA has helped more than 34 million people become homeowners — not by lending them money directly, but by guaranteeing their loans. This reassures lenders who might otherwise be reluctant to make loans to buyers who don’t have a lot of money. Borrowers have always paid a set price for this insurance.

The president’s proposal seeks to introduce risk-based pricing, which will give borrowers with weaker credit more access to FHA loans. Rather than being denied an FHA loan, underserved borrowers will instead pay a slightly higher fee. This will allow them to refinance at a lower interest rate with more affordable monthly payments.

President Bush is also asking Congress to pass new legislation that would modernize the FHA. These proposed changes — including lower down payment requirements and higher maximum loan limits — would also help borrowers with weaker credit and lower incomes. Hopefully, Congress will act quickly.

Can the Fed Help?

Echoing the sentiments of President Bush, Federal Reserve Chairman Ben Bernanke also weighed in on the situation on Aug. 31. He stated that it’s not the responsibility of the Fed to protect lenders and investors from the consequences of their actions.

However, he also acknowledged that developments in certain financial markets, including those currently emerging with mortgages, could have broad economic effects. As a result, the Federal Reserve will take those effects into account when determining policy.

Many believe the odds are growing that the Fed will cut the federal funds rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn’t lowered this rate in four years.

That could be good news if you currently have an adjustable rate mortgage. Even a mild rate cut of .25 percent might mean a slightly lower payment for you now. A cut of .75 percent would create significant breathing room for those on a tight budget, and could potentially send the stock market on a tear. My prediction is that the rate will get cut between 25 and 50 basis points.

Other encouraging news came on the Tuesday after Labor Day, when the Fed put added pressure on loan-servicing companies to modify loan terms or defer payments for borrowers having trouble making their mortgage payments and facing default.

MORTGAGEE LETTER 2007-11September 5, 2007 

TO:                 ALL APPROVED MORTGAGEES                        ALL FHA ROSTER APPRAISERS  SUBJECT:    The FHASecure Initiative and Guidance on Appraisal Practices in Declining Markets

 The Federal Housing Administration is pleased to announce an initiative that will enable homeowners to refinance various types of adjustable rate mortgages (ARMs) that have recently “reset.”  This mortgagee letter describes how lenders and homeowners may refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent.  The mortgagee letter also reiterates guidance to lenders about making objective decisions regarding the underlying collateral in declining markets. The FHASecure initiative, which is a temporary program designed to provide refinancing opportunities to homeowners and to increase liquidity in the mortgage market, requires that the loan application be signed no later than December 31, 2008.

Refinancing Non-FHA Adjustable Rate Mortgages Following Resets   

FHA is currently doing a significant business in refinancing non-FHA mortgages for borrowers who are current under their existing mortgage.  This mortgagee letter extends eligibility to borrowers who became delinquent under their current mortgage following the reset of the interest rate.   FHA recognizes that many lenders are engaged in a variety of loss mitigation activities to keep borrowers in their homes, and applauds these efforts.  This mortgagee letter explains credit policies for refinance transactions involving non-FHA adjustable rate mortgages where the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.  These instructions are designed to permit homeowners, who previous to their reset, demonstrated an ability to meet their mortgage obligations, an opportunity to refinance into a prime-rate FHA-insured mortgage.  In many cases homeowners may be permitted to include mortgage payment arrearages into the new loan amount, subject to existing geographical mortgage limits and the loan-to-value limit shown below.   

Eligibility Highlights of the FHASecure Initiative 

The mortgage being refinanced must be a non-FHA ARM that has reset.

The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments, i.e., the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.  

Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits. 

Mortgagees must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

Additional Information About the FHASecure Initiative  

• Maximum FHA loan-to-value ratios 

The maximum loan-to-value limits are shown below and are applied to the appraiser’s estimate of value, exclusive of any upfront mortgage insurance premium.   

Maximum Loan-to-Value Ratios  States with Average Closings Costs At or Below 2.1 Percent of Sales Price ·       98.75 percent:  For properties with appraised values equal to or less than $50,000.

·       97.65 percent:  For properties with appraised values in excess of $50,000 up to $125,000

·       97.15 percent:  For properties with appraised values in excess of $125,000. 

States with Average Closings Costs Above 2.1 Percent of Sales Price 

·       98.75 percent:  For properties with appraised values equal to or less than $50,000

·       97.75 percent:  For properties with appraised values in excess of $50,000 

• Calculating the Maximum FHA Mortgage Amount

The amount of the FHASecure mortgage may not exceed either the geographical maximum mortgage limits or the loan-to-value ratios shown above.  FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges.  FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount provided the arrearages arose after the reset.

• Subordinate  Financing Under the FHASecure Initiative

If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate non-FHA insured lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Borrowers need not yet have missed any mortgage payments to be eligible for this type of subordinate financing.

• Underwriting the Mortgage/Qualifying the Borrower

FHA encourages all approved lenders to use FHA’s TOTAL Mortgage Scorecard to obtain risk classifications on each mortgage originated under the FHASecure initiative.  If TOTAL renders an “accept/approve,” the mortgagee’s underwriter need not perform a personal review of the borrower’s credit history and capacity to repay.  However, in the more likely event that the risk class is a “refer,” the underwriter must:

1.     Determine that the homeowner has the capacity to make future mortgage payments as well as pay all other obligations.  The payment-to-income ratio and debt-to-income ratios remain 31 percent and 43 percent, respectively.  Compensating factors are to be provided by the underwriter when the ratios are exceeded.

2.     Analyze the homeowner’s overall credit history, especially payments on the existing mortgage.  The underwriter must determine that the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due and that other recurring obligations were paid on time.  If the borrower was offered partial forbearance after interest rate reset, the underwriter must determine that he/she has made payments under the forbearance agreement in a timely manner. 

3.     Provide comments in the “remarks” section of the mortgage credit analysis worksheet that he or she has determined that the cause of the borrower’s inability to make payments was directly related to the increased payment attributable to the reset and not due to a disregard for obligations.

• Tax consequences for a borrower when the note holder writes off a portion of the amount to pay off the first mortgage 

FHA recognizes that there may be tax consequences resulting from debt relief.  However, since FHA does not provide tax guidance, it recommends borrowers—and mortgage lenders—in such situations seek competent tax advice. 

• Other considerations of which the mortgagee must be aware when refinancing these mortgages.

The FHASecure initiative for refinancing borrowers harmed by non-FHA ARMs that have recently reset is not to be used to solicit homeowners to cease making timely mortgage payments;  FHA reserves the right to reject for insurance those mortgage applications where it appears that a loan officer or other mortgagee employee suggested that the homeowners could stop making their payments, refinance into a FHA insured mortgage, and keep, as cash, the amount of payments not made on time.   

Appraisal Practices in Declining Markets 

Historically, FHA has provided a counter-cyclical force in helping to stabilize declining housing markets and will continue to do so.  In fact, much of FHA’s business activity this year has been in those states (e.g., Ohio, Michigan,

Appraiser Responsibilities 

The purpose of the appraisal is to provide the lender/client with an accurate, and adequately supported, opinion of market value.   It is the appraiser’s responsibility to determine whether a property being appraised is located in a declining market.

The neighborhood section of each property specific appraisal form contains a housing trends section where the appraiser marks a box indicating property values are increasing, stable or declining.  Whichever box is selected, the appraiser is certifying that he/she has performed an objective analysis of quantifiable data supporting the observations made.

If a property is located in a declining market, the appraiser must provide an explanation in the “Market Conditions” section of the appraisal report that includes relevant information in support of the conclusions relating to trends in property values, demand/supply and marketing time.  The appraiser must also provide a description of the prevalence and impact of sales and financing concessions and/or down payment assistance in the subject’s market area.  Other areas of discussion may include days on market, list-to-sale price ratios, and/or financing availability.

Lender Responsibilities 

The mortgagee’s responsibility is to properly review the appraisal and determine that the appraised value used to support the mortgage is accurate and adequately supported. 
 

Sincerely,

        Brian D. Montgomery

Assistant Secretary for Housing

Federal Housing Commissioner

Word came late last week from both the Federal Reserve and the White House that the federal government does not intend to stand by and watch the housing and credit crisis drive the country into recession.

President George W. Bush announced a series of proposals intended to help homeowners faced with mortgage defaults and Federal Reserve Chairman Ben Bernanke told a group of bankers in Jackson Hole, Wyoming that, while the Feds were not about to rescue Wall Street or shield investors from self-inflicted loses, the committee will monitor the situation and act as needed to limit the damages to the broader economy that may grow out of disruptions in the financial markets.

There is wide speculation that the Fed will cut its rate for overnight federal funds by at least a quarter point at its next meeting in mid-September and Bernanke’s remarks were interpreted as further signaling such a move.

The President announced his program while insisting that the U.S. economy was healthy and that subprime market problems were affecting only a small part of the overall economy.

The President called on Congress to pass Federal Housing Administration (FHA) Modernization Legislation which would permit lower down payments, allow FHA to insure bigger loans, and give it more pricing flexibility. These reforms, the President said, would allow FHA to help more families buy homes and offer more options to homeowners looking to refinance existing mortgages.

The administration will also launch a new FHA Initiative Called “FHA-Secure” designed to help people with good credit but who have not made all of their payments on time because of rising mortgage payments. FHA would be able to offer many of these homeowners an option to refinance existing mortgages so they can make their payments and keep their homes. FHA will also charge mortgage insurance premiums based on the individual risk of each loan, using traditional underwriting standards, so it can expand access and help even more families.

Bush asked Congress to change a provision of the federal tax code that counts cancelled mortgage debt on primary residences as taxable income. In the event of a short sale or a foreclosure, if the mortgage company recoups less than it is owed and that amount is forgiven, present tax code treats it as taxable income. The President proposes temporary relief to ensure that cancelled mortgage debt on a primary residence is not counted as income.

The President said he had asked Housing and Urban Development Secretary Alphonso Jackson and Treasury Secretary Henry Paulson to reach out to groups that offer foreclosure counseling and refinancing – community organizations like NeighborWorks, mortgage lenders and loan servicers, FHA, and Government-Sponsored Enterprises like Fannie Mae and Freddie Mac – with the goal of expanding mortgage financing options, identifying homeowners before they face hardships, and helping them understand their financing options and find an appropriate mortgage product.

Bush also cited other programs that the federal government is initiating or backing:

• Improving disclosure requirements so homeowners receive complete, accurate, and understandable information about their mortgages.
• Strengthening mortgage lending standards.
• Reforming the Real Estate Settlement Procedures Act (RESPA) to promote comparative shopping by consumers for the best loan terms, provide clearer disclosures, limit settlement cost increases, and require fee disclosure.
• Supporting state-based efforts to toward comprehensive mortgage broker registration.
• Pursuing wrongdoers and predatory lenders to ensure they are punished. HUD, the Department of Justice, the Federal Trade Commission, and others, are aggressively pursuing this program.
• Encouraging financial literacy with the help of leading private sector individuals.
• Inclusion in the president’s Budget of $120 million for NeighborWorks, which provides foreclosure workshops and counseling to borrowers and $50 million for HUD’s housing counseling program.
• The President’s Working Group On Financial Markets, led by Treasury Secretary Paulson and representatives of the Federal Reserve, Securities and Exchange Commission, and the Commodity Futures Trading Commission is examining some of the broader market issues underlying the recent mortgage problems including the role of credit rating agencies and how their ratings are used in lending procedures, and how securitization, the repackaging and selling of assets, has changed the mortgage industry and related business practices.

Bush will apparently propose reforms to the Federal Housing Administration (FHA) which would allow the FHA to insure 80,000 more loans, a 50% increase in FHA-insured loans. Assuming an $200,000 loan size for subprime loans originated in 2005-2006, with roughly $30 billion in resets per month over the next year, this works out to around 5% — possibly less — of the subprime ARMs that will reset over the coming year. Relief would occur through a combination of risk-based pricing (premiums are currently set at a flat rate) that would allow FHA to insure riskier loans, and an increase in the FHA loan limit (the maximum is currently $362,000 in high priced areas but is significantly less in many areas. Legislation similar to what he’s discussing is likely to pass out of the Senate Banking Committee this month, and has already passed the comparable House Financial Services Committee. The bills could pass even more quickly with Bush endorsement. Although FHA reform would help some struggling borrowers, it is important to note that FHA is fairly small (it has had low-single digit market share for the last several years, though this is likely to rise). It is also self-financed, and FHA relief is not intended to shift billions of dollars in losses from homeowners or the private sector to the government. We’ve long pointed out that FHA will be a part of the solution, but won’t be the single answer.

· A change in IRS rules — to allow homeowners whose lenders have cancelled a portion of their debt to avoid tax liability on the value of the relief they receive — should encounter minimal resistance and may not even cost too much (under congressional budget scoring conventions) since most people wouldn’t have been able to pay the large tax bill they receive as part of the workout process in any case, and this may be taken into account. Legislation has already been introduced by Democrats in the House and Senate, and has some Republican support. On the margin, the proposal is likely to help a few homeowners avoid foreclosure but looks unlikely to prevent losses broadly.

· The final piece is of the proposal will be a Treasury/HUD project to identify high-default-risk borrowers and encourage lenders/insurers to be flexible in dealing with these borrowers. Essentially, this will be an effort at jawboning the lenders to limit the extent of the credit crunch in this segment of the market. This might be effective, though Congress and federal regulators have already held various ‘lender summits’ to pressure lenders to facilitate loan modification and flexibility in servicing. That said, the Treasury and Department of Housing and Urban Development (HUD) have enforcement powers in other areas, and may be able to bring some indirect pressure to bear to help lenders cooperate.

This is a fairly small step and will provide only incremental relief in itself, but may be the first of several steps the government takes to intervene in the mortgage situation. Politically, this announcement may be intended to avoid the ‘fighting something with nothing’ problem the Bush Administration has faced. In recently denying Fannie Mae its request to raise the cap on its portfolio holdings, the Bush Administration came under increasing pressure to propose some type of alternative solution.

However, although this step is fairly incremental, it does not preclude further steps in the future. Most notably, we expect legislation to reform the housing-related government sponsored entities (GSEs, i.e. Fannie and Freddie) to pass out of the Senate Banking Committee in the next month or so. The GSEs could also become part of the recovery process, as we outlined a few weeks ago. We do not, however, see much chance of a large government sponsored bailout – the government’s role continues to look limited to facilitating liquidity, regulating, and providing limited insurance, but not to shift liability for losses to the government.

In terms of timing, it’s at least a month, and probably at least a couple, until anything could be sent to Bush to sign into law. How fast such reform proposals could move will depend on whether FHA gets wrapped up in a broader package — for instance, GSE and predatory lending legislation to restrict lending practices could also be included — or whether it passes alone. If it gets tangled up in broader matters it will complicate and slows the process but also increases the odds of more aggressive relief than what Bush proposes.

AP
Bush Outlines Aid for Mortgage Holders
Friday August 31, 1:27 pm ET
By Deb Riechmann, Associated Press Writer

Bush Outlines Proposals to Help Homeowners With Risky Mortgages Keep Their Homes

WASHINGTON (AP) — President Bush outlined ways the federal government can help troubled borrowers keep their homes Friday in an effort to address rising foreclosures fueled by the mortgage crisis.The administration’s first attempt at dealing with a wave of defaults is not aimed at bailing out lenders, however.

“It’s not the government’s job to bail out speculators or those who made the decision to buy a home they knew they could never afford,” Bush said in the Rose Garden. “Yet there are many American homeowners who could get through this difficult time with a little flexibility from their lenders or a little help from their government.”

The U.S. economy enjoyed a strong revival in the spring but since then has been threatened by the worst housing slump in 16 years and a widening credit crisis that has sent financial markets on a roller coaster ride.

The president insisted that the economy was strong and could weather turbulence in the markets.

He said the mortgage market, especially the subprime sector, has shown particular strain. One of the most troubling developments has been an increase in adjustable-rate mortgages, which start out with low interest rates, then reset to higher rates after a few years.

“This has led some homeowners to take out loans larger than they could afford based on overly optimistic assumptions about the future performance of the housing market,” Bush said. “Others may have been confused by the terms of their loan, or misled by irresponsible lenders. Whatever the reason they chose this kind of mortgage, some borrowers are now unable to make their monthly payments, or facing foreclosure.”

Foreclosure and late payments have spiked, especially for so-called subprime borrowers with blemished credit histories or low incomes. Higher interest rates and weak home values have made it impossible for some to pay or to keep up with their monthly mortgage payments. Some overstretched homeowners can’t afford to refinance or even sell their homes.

Mortgage foreclosures and late payments are expected to worsen. Some 2 million adjustable rate mortgages are to reset to higher rates this year and next. Steep penalties for prepaying mortgages have added to some homeowners’ headaches.

Bush said the Federal Housing Administration, a government agency that provides mortgage insurance to borrowers through lenders in the private sector, would launch in coming days a program called FHA Secure. The program would let homeowners who have good credit histories but can’t afford their current mortgage payments to refinance into mortgages insured by the FHA.

“This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes,” Bush said.

Bush also urged Congress to modernize and improve the FHA so more homeowners could qualify for the mortgage insurance provided by the agency. Last year the House passed legislation to modernize FHA, but Congress has not yet sent a bill to the White House. “I look forward to signing a bill as quickly as possible,” Bush said.

Bush also pledged to work with Congress to reform a key housing provision of the federal tax code, which will make it easier for homeowners to refinance their mortgages.

“Let’s say the value of your house declines by $20,000 and your adjustable rate mortgage payments have grown to a level you cannot afford,” Bush said. “If the bank modifies your mortgage and forgives $20,000 of your loan, the tax code treats that $20,000 as taxable income. When your home is losing value and your family is under financial stress, the last thing you need to do is to be hit with higher taxes.”

Bush also said the administration would launch a new foreclosure avoidance initiative to help homeowners figure out a way to refinance. He said Housing Secretary Alphonso Jackson and Treasury Secretary Henry Paulson would reach out to groups that offer foreclosure counseling and refinancing assistance for homeowners.

And he said the federal government was taking actions to make the mortgage industry more transparent, more reliable and fair to reduce the likelihood of these lending problems happening again.

Sen. Charles Schumer, D-N.Y., said he was pleased to hear Bush and Federal Reserve Chairman Ben Bernanke address the escalating crisis in the mortgage market. “The current situation is simply out of hand. It’s bad and it’s getting worse,” he said.

He said Bush’s proposals — increasing FHA loans, reducing down payment requirements on loans to be insured by the FHA, eliminating tax liabilities for foreclosure victims — were all Democratic proposals.

Schumer said additional steps must be taken — increased funding for non-profits that help people facing foreclosure to refinance, allowing Freddie-Fannie to spend more, federal regulation of mortgage brokers.

John M. Robbins, chairman of the Mortgage Bankers Association, said the president’s attention to turmoil in the mortgage markets and the plight of homeowners facing foreclosure will help push Congress to reform FHA.

“It is essential that the Federal Housing Administration have the tools and flexibility to adjust its products and programs to meet the evolving needs of borrowers,” Robbins said.

The upfront MIP is determined by multiplying the base loan amount by the Upfront Premium factor.

• The annual MIP is determined by multiplying the base loan amount by the appropriate Annual Premium factor. Since the Annual MIP is collected in monthly installments, divide the resulting number by 12 to obtain the monthly premium. This figure is included in the proposed monthly housing expense and qualifying ratios.

• Upfront MIP Factor: 1.50%

• Annual MIP Factor:

• .500% for all loans with a mortgage term >15 years.

• .250% for all loans with a mortgage term of <=15 years and an LTV of 90% and up

• There will be no Annual MIP for loans with mortgage terms of 15 year or less and LTV’sof 89.99% and under.

• For mortgages >15 years, the annual MIP will be canceled when the LTV reaches 78%, provided the borrower has paid the annual MIP for at least 5 years.

• For mortgages <=15 years, the annual MIP will be canceled when the LTV reaches 78%.

Streamline Refinances

• Streamline refinances of mortgages closed before July 1, 1991 are subject to an Upfront MIP of 1.50%, but are not subject to the annual premium.

• Streamline refinances of mortgages closed on or after July 1, 1991, are subject to the 1.50% Upfront MIP plus the appropriate Annual MIP.

• The LTV on streamline refinances without an appraisal will be based on data regarding the mortgage being refinanced, including sales price and appraised value amounts residing in FHA’s Single Family Insurance System (SFIS). FHA will compute a new LTV by dividing the new loan amount, exclusive of any upfront MIP, by the lower of the sales price or appraised value amount. From this computed LTV, FHA will determine the 78% threshold is reached

based on the scheduled amortization. If the computed LTV is not possible, due to missing data or previous refinancing without an appraisal, the new LTV will default 89.9 percent.

• Cash-out refinances with a term of 30 years are subject to the 1.50% UFMIP and the .50%annual premium. For a 15-year term the UFMIP is 1.50% with no annual premium since the maximum LTV is 85%.

       What is an FHA mortgage loan?           

In 1965 the Department of Housing and Urban Development (HUD) was formed.  Within HUD operates the Federal Housing Administration (FHA), which has the primary responsibility for administering the government home loan insurance program. This program allows a first time home buyer  who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA who insures the loan for the lender.The most popular FHA home loan program for a first time home buyer is by far is the 203(b).  This is your standard fixed rate loan for 1-4 family owner occupied houses and only requires a minimum of 3% from the borrower.  This loan also permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.The main advantage to a FHA home loan is that the credit criteria for a first time borrower are not as strict as Conventional Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC). Someone who may have had a few credit problems or no traditional credit should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller or lender must pay for part of the “traditional” closing costs (called non-allowable costs) while a borrower’s allowable costs can partially be wrapped into the loan. The monthly mortgage insurance premium is cheaper for an FHA loan verses a conventional loan with 3% down.  Finally, FHA loans may may require less income to qualify as they will exceed the Conventional debt ratios of 28/36% as their standard is 29/41%.  To learn more about debt ratios, please see the income section.Many people make the mistake and assume that FHA loans are only available for first time home buyers.  This is not true.  FHA loans are available to anyone, whether your first or fifth home and can be used to purchase a home or refinance a home.  If refinancing a home the current loan DOES NOT have to be an FHA loan.

FHA adjustable rate mortgage (FHA 251)

FHA Hybrid Adjustable Rate Loans

FHA 2-1 buydown (FHA 203b, Not Allowed on FHA 251)

Energy Efficient Mortgages Program

Bush Backs Giving Agency
Flexibility to Offer Options
For Mortgage Refinancing

August 22, 2007; Page A4

WASHINGTON — As the subprime-mortgage crisis ripples through the broader housing market, the Bush administration is eyeing an often overlooked federal mortgage insurer to help low- and middle-income homeowners avoid foreclosure.

President Bush has balked at allowing mortgage giants Fannie Mae and Freddie Mac to buy more mortgages for their portfolios to ease the credit crunch triggered by rising defaults on home loans to borrowers with poor credit. But he said earlier this month that he supports giving the Federal Housing Administration more flexibility to help those facing foreclosure refinance their homes.

•  What’s Happening: The Bush administration is eyeing the Federal Housing Administration, an often-overlooked federal mortgage insurer, to help low- and middle-income homeowners avoid foreclosure.

•  How It Would Work: The FHA could offer refinancing options to homeowners, including those who aren’t yet in default, but who risk falling behind on payments that jump when rates are reset.

•  What Needs to Happen First: The effort is likely to jump-start legislation in Congress to give the housing authority more tools to assist homeowners. Senate Banking Chairman Christopher Dodd said recently that FHA reform will be among his top priorities, and a bill passed by committee is set to head to the full House this fall.

Treasury Secretary Henry Paulson, meanwhile, has instructed staff to work with the Housing and Urban Development department, which oversees FHA, to find ways to help individuals caught in the fallout of the credit crunch.

The administration is looking to FHA to offer refinancing options to homeowners, including those who aren’t yet in default or foreclosure, but who are at risk of falling behind in their payments on mortgages that were structured to offer payments that were very low at first but then escalated.

The effort is likely to jump-start legislation in Congress to give the housing authority more tools to assist homeowners. Senate Banking Chairman Christopher Dodd (D., Conn.), said recently that FHA reform will be among his top priorities when Congress returns from its August recess. The House Financial Services Committee passed a bill in June that is expected to head to the full House this fall.

For decades, the New Deal-era agency was used by low- and middle-income home buyers who had little or poor credit and would have trouble getting a loan in the primary market. The FHA didn’t originate loans, but insured them against default by somewhat risky buyers, giving lenders an incentive to issue a mortgage.

In recent years, the agency lost market share as the market for subprime loans exploded and home buyers of all income levels were offered a range of exotic loan products, such as no-money-down mortgages and interest-only payments. While FHA-insured loans once accounted for roughly 15% of the mortgage market, that number has fallen below 5%.

But many buyers who got subprime loans are beginning to have trouble making their mortgage payments as the attractive initial “teaser” interest rates are reset at much higher levels. While many of those buyers believed they could refinance their loans, that has become much harder as mortgage lenders tighten their standards in the face of defaults and foreclosures. The Center for Responsible Lending estimates as many as 2.2 million loans will reset over the next two years.

FHA says it is constrained from doing more now because of limits on the size of the loans it can back and some requirements that borrowers must meet. While its refinancing business has picked up and the agency expects to refinance about 120,000 loans this year, FHA officials say they could easily double that amount if given greater flexibility.

Among the options being discussed in Congress is eliminating or reducing the required 3% down payment, raising the size of the loans FHA can insure to as much as $417,000 from $362,790, and being able to charge insurance premiums based on a borrower’s risk instead of a one-size-fits-all rate.

Federal Housing Commissioner Brian Montgomery said the current rules effectively prevent FHA from helping borrowers in high-cost states, such as California and New York. Most of the loans it insures are in places such as Texas and the Midwest.

For the Bush administration, backing FHA reform offers a way to straddle the growing calls for government assistance to those caught in the subprime mess without advocating a financial bailout.

Fannie and Freddie, backed by a host of Democratic lawmakers, have argued they could provide liquidity to the rattled housing market if allowed to grow their portfolios beyond strict limits. Their portfolios are capped in part because of accounting scandals at the government-sponsored entities and Mr. Bush has said Congress should pass long-awaited reforms that would tighten oversight of Fannie and Freddie before allowing them to grow.

Still, an administration official said the government is sensitive to the need to help minimize “collateral damage” from the subprime woes, such as massive foreclosures that could hit certain neighborhoods hard and affect property values broadly. To that end, Treasury and HUD are looking to find ways to assist borrowers who are creditworthy, but who got caught in a pinch and are facing higher mortgage payments than they can afford.

One challenge for the administration is trying to identify borrowers who are likely to get hit with a change in their loan payment — known as a reset — that could force them to default on their mortgage, and then figuring out ways to help them refinance. Among the possible options are for government agencies such as FHA or Fannie Mae and Freddie Mac to refinance some of those loans at a lower interest rate.

But not everyone is convinced, and FHA reform may run into trouble in the Senate. Alabama Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, has expressed concern about expanding FHA, saying it could ultimately hurt taxpayers.

“One lesson learned from the current pattern of defaults and delinquencies in the subprime market is that those borrowers with little or no equity in their home will be the most likely to fail,” he said at a hearing last month. “We must approach any attempt to expand the program or lower the program’s standards with great caution.”