FHA Book

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.

Just When Things Are Looking Up

Once again, FHA is facing a set back. Alphonson Jackson, the secretary of HUD and a man who is no longer my “friend,” has resigned amid scandal. The FBI is currently investigating whether he gave housing contracts to friends and political allies. At first I thought that this is a major setback, considering that HUD and the FHA are in dire need of leadership right now. But if the president quickly appoints a new, strong leader there is hope that this new individual will signal a new beginning for FHA and start getting things done ASAP.

Quagmire.

The title above is the only word I could think of to describe the current mortgage situation and the tangle of proposed solutions. Although I have always been a supporter of FHA reform, David C. John at Heritage.org makes some very good points about the very serious problems with the Frank-Dodd FHA Refinance Plan. His list of shortcomings include the poor precedent it will set, the unfair aspects, and its inability to help the amount people it proposes to help in a reasonable amount of time. Another point he makes is:

Frank-Dodd will not stop foreclosures, even for many who qualify. During the time it would take to refinance mortgages, mortgages servicers will be legally bound to follow the terms of the existing contract in case the refinancing falls through, including steps toward foreclosure.

Although I still believe that the bill will be able to do a great deal of good, it’s always important to look at both sides of an issue and consider solutions for these problems.

HUD May Owe You Money!

According to SignOnSanDiego.com, getting a refund for paying off your FHA Loan early, might not be as easy as HUD makes it sound. The article tells of two California homeowners who didn’t have the best of luck. As a result of the scant details provided by HUD, one homeowner assumed it was a scam. The other sent in the proper paperwork and never heard a thing. The roadblocks to getting a refund are numerous:

HUD says lenders must notify the department when an FHA-backed loan is paid off and must tell borrowers how to get a refund. The agency said that when it hears of an FHA loan being paid off, it mails a refund check in seven to 10 business days. HUD says it mailed 200,000 refunds last year totaling $110 million.

But even that can be problematic. While HUD claims that lenders typically provide new mailing addresses for those owed refunds, a review of HUD policies shows that the agency sends refunds to a homeowner’s last known address, which is often the house he or she just sold and moved from.

To find out if HUD owes you a refund, visit the searchable database on the department’s website.

Hurry It Up, Already

According to the Mortgage Meltdown section on CNN Money, comprehensive FHA reform should be here by early April. The article makes this sound like a “Hooray!” situation, but I see it more as a “It’s about damn time” situation. The sub-prime crisis has been in full swing for quite some time now and lawmakers had plenty of time before they knew things would get even worse - which they did back in the fall. One of the problems…

Different versions of the FHA modernization bill passed in the House and the Senate last year, and both Senate Banking Committee Chairman Christopher Dodd, D-Conn., and House Financial Services Chairman Barney Frank, D-Mass., said last week that the differences between the chambers could be resolved in short order.

The differences in the bills - which probably could have been prevented - have REALLY slowed things down. If someone could provide me with Congress’s definition of “short order” I would love to hear it.

Things Are Looking up in Ohio

As I reported waaaayyy back in June, Ohio had the lead in foreclosures nationwide. In an article last week, the Columbus Dispatch detailed just how FHA can help Ohioans get back on track. According to the article, 1,400 Ohioans refianced to FHA Loans last month. In total, FHA has helped 4,400 Ohio citizens refinance since the program was introduced.

Alphonso Jackson also made an encouraging visit to Columbus:

More struggling homeowners need to take advantage of that program or others offered to prevent foreclosure, Jackson said. Too many avoid calling their lenders for help and end up losing their homes instead of being offered the chance to tap an FHA program.

“We are committed to finding solutions that can sustain families through times of uncertainty as we push toward renewed economic vibrancy,” he said. “That means giving them an avenue to refinance from subprimes into safe, affordable mortgages.”

The article also details the Project Lifeline program in a sidebar.

What I Like to Hear

There is a great post over on the Utah Home Experts’ Blog about why FHA Loans are great not only for first time home buyers, but for ALL buyers as well. The post also examines why selling a home to an FHA financed borrower can be a great benefit, especially because FHA home restrictions are looser than they once were.

The post also addressess a misconception about FHA Loans:

There is a misconception among many buyers that once they have had a FHA loan they can no longer apply for one again. There is no restriction for the number of FHA loans that one buyer may have so long as they only have one at a time and they have not had a foreclosure that caused a loss to FHA.

Check it out!