FHA Book

HOPE NOW Update

An article on Inman News details new guidelines for HOPE NOW, the program for helping homeowners facing foreclosure. Two such guidelines set deadlines for how long servicers have to inform borrowers of their options:

The new HOPE NOW guidelines state that loan servicers should inform homeowners within 45 days whether their application for a workout — such as a repayment plan, loan modification or short sale — has been accepted or denied.

Servicers also agreed to re-subordinate second-lien loans if their position will not be worsened by a refinance or workout — potentially removing a major obstacle to preventing foreclosures in cases where borrowers have “piggyback” second loans. HOPE NOW servicers will also attempt to contact homeowners with subprime adjustable-rate mortgages (ARM) and other homeowners with ARMs that have a probable risk of default 120 days in advance of reset.

These new guidelines have been put in place to make HOPE NOW a more effective tool for distressed borrowers.

Problems with FHA Legislation

The more I learn about the Frank-Dodd plan, the less I like it. It focuses far too much on fixing past bad sub-prime loans and not enough on creating a plan to make FHA work for the future. Basically, they are forgiving those who made bad decisions and neglecting those who are trying to use the FHA program and practice in responsible lending and borrowing. An article by former House majority leader Dick Armey in today’s Wall Street Journal delves into these problems. There is strong opposition within FHA and some shocking facts that back up the sentiment:

On June 9, FHA Commissioner Brian Montgomery told reporters that he opposes the Dodd-Frank approach, saying that the FHA “is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans.” Last week the Congressional Budget Office (CBO) projected that banks will use the program to offload their “highest-risk loans” to the taxpayer, and that a stunning 35% of all of the loans refinanced through Dodd-Frank will eventually default on the FHA.

35%!! Wow, that could literally destroy the FHA. There has to be a better solution that does not reward irresponsible corporations and punish not only lenders, but potentially the FHA itself.

The Many Benefits of FHA

Although I primarily write about the standard FHA Home Loan, the FHA has a number of programs for helping out homeowners. One that I haven’t mentioned in awhile is the Reverse Mortgage. An article in yesterday’s Seattle P-I talked about the benefits of reverse mortgages and who they benefit most. Plus, the article details new changes that may allow more seniors to take out reverse mortgages:

Pending legislation may spur more senior homeowners to consider reverse mortgages. Those who have enough equity in their homes can qualify for loans of as much as $362,790 backed by the Federal Housing Administration. A housing bill in Congress includes a proposal to raise the payout to as much as $550,000 and eliminate the current limit of 275,000 reverse mortgages that the Department of Housing and Urban Development can insure.

As with any loan product, reverse mortgages aren’t for everyone; but if the circumstances are right, an FHA Reverse Mortgage could be a great choice for many Americans.

FHA Loans on the Upshot in DC

The Washington Post had an article the other day about the rise of FHA Loans in the DC area and across the country. It’s a great piece that covers the many benefits of FHA Loans that include:

Lower down payment than conventional loans

Allowance of a non-occupant co-signer

No prepayment penalties

It’s a great article with the personal stories of borrowers have been helped. One particularly interesting (and encouraging) tidbit is that FHA Loans were up 126% for the first quarter from last year.

DPA Organization Continues to Fight Ban

AmeriDream, Inc. issued a statement today that had one sentence in particular that bothered me. From a press release defending Down Payment Assistance:

“In addition to jeopardizing homeownership opportunities for qualified low to moderate income homebuyers, the Administration’s position does not comport with the facts…”

The above remark was made by the organization’s president, Ann Ashburn. The word I take issue was is “qualified.” To qualify for an FHA Loan, a potential borrower must be able to put down at least 3% on their new home. If a borrower does not have enough cash-at-hand to make the down payment, he or she is not a qualified borrower. So, technically, AmeriDream assists non-qualified borrowers. If FHA reform passes there could be a down payment as low as 0%. In that case, people who could not put money down would qualify and AmeriDream would have no customers.

Calculating Your FHA Loan

We all know the importance of being informed before taking out any loan, and as more and more people take out FHA Loans it’s critical to understand your obligations before starting the process. A simple way to do this is by using a mortgage calculator. One of these such tools can be found at the Mortgage Loan Place website. You plug in your information and the calculator provides an estimate of the loan amount you could be approved for and your monthly payments. The information to be plugged in includes:

Yearly Salary

Other Income

Property Tax

Hazard Insurance

Monthly Auto Payment

Credit Cards and Other Payments

The Calculator already has the Loan Term (30) and Interest Rate (6) plugged in, but these can be changed to fit your plans. Tools like this one are a great way of understanding what you can expect before starting the FHA lending process.

Mortgage Mess Goes Beyond Subprime

An interesting article appeared on the online magazine Slate last Thursday that pointed out a factor in the mortgage meltdown that most media are ignoring: stated-income loans. These loans, more commonly referred to as Liars’ Loans, allowed individuals to state their income without verification. The author, Mark Gimein, uses this great analogy to explain the situation:

Imagine a city center where running red lights isn’t something that the occasional drunken driver or road-rage victim does, but where everybody does it all the time. That’s a lot like the mortgage market in big swaths of the country one or two years ago.

He continues the analogy to describe the unbelievably high number of people (with relatively good credit) whose homes were going into foreclosure:

Think about that city center again. All those cars speeding through those red lights. And crashing.

I’ve written a lot about why I think FHA loans are, and always have been, a better alternative to sub-prime loans. The gross failure of stated-income loans shows that even when FHA was being ignored across the board, the system used to obtain an FHA Loan would have prevented this widespread practice. With FHA Loans, borrowers must prove to the lender that they have enough income to pay their loans and show that they have an employment history that is steady and they will, therefore, be more likely to continue to have such an income.

Though the FHA system clearly needs some updates (and fast), examples such as these show that the FHA process is, and always has been, much more sound than many of the popular mortgage practices used by so many over the past decade.

HUD Secretary Nominee Announced

President Bush has announced Steven C. Preston as his nominee for the new Secretary of the Department of Housing and Urban Development (HUD). Preston is currently the head of the Small Business Administration. According to Bloomberg News:

“Steve Preston is an experienced manager,” Bush said at the White House with Preston, 47, by his side. The housing department “requires strong leadership at a time when our housing market is experiencing a period of challenge and uncertainty.”

Let’s hope that Preston’s experience with the SBA will help him understand the pressing needs of HUD and the FHA.

Proposals Get Nothing Done

Last week a third plan was announced by the White House as a solution for FHA reform. According to Forbes.com:

As outlined by FHA Commissioner Brian Montgomery this morning, the White House proposal encourages lenders to reduce the principal on loans, in exchange for FHA insurance for the renegotiated loan. Sound familiar? It should to those following Washington’s fight over how best to help troubled homeowners.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee has the same provision in his bill, as does Sen. Chris Dodd, D-Conn., who proposed the Senate version. And a federal program called FHASecure already provides a limited version of this service, allowing homeowners who became unable to pay their mortgages after adjustable rates became to high, to refinance into an FHA-secured loan.

What does get lost in this plan is Representative Frank’s proposed “Refinance Program Oversight Board”, instead of refinancing large amounts of homes at a time, taking them on a case-by-case basis. I’ve said it before and I’ve said it again, there are a lot of proposed solutions out there, but proposals aren’t getting anything done. I recommend these committees be locked up in the Capitol building until they hammer something out. Anybody with me?

Geez, Al

Ever wondered where all that money for HUD is going, well Alphonso Jackson spent one-hundred grand on portraits - five of them. Hopefully our next HUD secretary will have different priorities when it comes to spending HUD funds.