Personally, I have pretty much given up on FHASecure. If I find someone who miraculously actually qualifies for the program, their second mortgage holder often insanely refuses to resubordinate their lien.
It is my opinion, though, that the substantial publicity for this loan program has caused more people to look into using the FHA program after they thought they had no way to refinance their mortgage due to falling home values. There has been a real value to that. The standard FHA program already provides a solution for many. They had no other choice but FHA, but they never would have tried FHA without the publicity.
Amusingly, as often occurs in government bureaucracies headed by political appointees, HUD has seemed to be chasing their tail lately trying to put the best spin on the FHASecure program. Now, according to an article by Peter G. Miller in Realty Times, they have come up with the claim that the term FHASecure really applies to any conventional to FHA refinance! Huh? I know what I heard in the conference calls and read in the mortgagee letter, and this is definitely not what it started out as.
I almost can’t believe what I just read in Reuters. I’ve picked up on it a little bit as loan officers on the street are telling me that FHASecure isn’t worth the effort, and it looks like this is showing up in the actual numbers of closed loans. According to an article by Reuters Washington correspondent Patrick Rucker on Monday, only 266 FHASecure loans have been originated to date!
Will the FHA modernization legislation ever be passed? I watched the President’s press conference today and the thing that really stuck out to me was that the FHA Modernization bill which has been around since April of 2006 and is still sitting - in it’s second incarnation - in the Senate with no action.
The FHASecure program was officially announced in September 2007, however it was not until the last few weeks that a “pool” was created for the mortgage backed securities necessary to raise the money to fund loans made under the program. In spite of that delay, FHA Commissioner Brian Montgomery announced before a Congressional hearing on Friday, November 2, 2007 that 540 lenders are officially offering the program and more than 70,000 conventional borrowers have applied for FHA loans under the program!
This afternoon the U.S. District Court for the District of Columbia has issued an injunction on behalf of Partners in Charity Inc., Futures Home Assistance Program, Sovereign Grant Alliance, Genesis Foundation, Home Down Payment Gift Foundation, Freedom Home Baptist Church, Inc. and the Dove Foundation, Inc. against the HUD rule to eliminate seller funded down payment assistance programs. This injunction opens the door for sellers to continue use of down payment assistance programs until a final resolution on the rule is determined.
We’ve been talking a lot lately about FHASecure. FHASecure was a first step toward making FHA mortgages a solution for more borrowers, but it was the part of the solution that could be implemented with no change in the law. Now there is a bill working its way through Congress that takes a big step forward from FHASecure.
Over the years the percentage of mortgages closed under FHA’s insurance program has slowly dwindled down because the FHA loan limits are below normal loan amounts in many areas. In addition, FHA’s 3 percent downpayment requirement and strange fee structure have not made FHA mortgages a competitive program in the marketplace. Had FHA loans been a more competitive product, many of the borrowers who have risky subprime mortgages would have used FHA instead.
A bill (H.R. 1852), has been introduced that would increase the FHA loan limits nationwide and in high cost areas, eliminate the 3% downpayment requirement on FHA loans for first time homebuyers, extend the loan term to 40 years, allow FHA to risk-based price their products, eliminate the cap on the number of reverse mortgages that FHA can insure, and streamline usage of the FHA condominium loan program. It would also allow excess FHA funds to be put into an affordable housing fund, rather than go to the US Treasury. Reciting the list all at once leaves you out of breath. Good grief! That’s more real change to the FHA loan program in one bill than has happened since the 1930’s all combined.
The crystal ball is a little murky on this issue. Many of the high loan to value subprime adjustable rate mortgages issued over the last few years were those referred to as “80/20’s”. This means a combination of a first mortgage for 80 percent of the sales price or home value and a second mortgage for the remaining 20 percent. The second mortgage was most often a fixed rate mortgage with a balloon payment at 15 or 20 years.
From the HUD Mortgagee Letter (with some extra highlighting):
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:
Total Mortgage Scorecard is FHA’s automated underwriting system. It analyzes all the factors of the loan and either approves it or refers it to an underwriter for manual analysis. Borrowers with upcoming rate adjustments should move heaven and earth to keep their credit clean during the time before their ARM adjusts. Total Mortgage Scorecard has been known to approve mortgages with debt ratios that substantially exceed the standard guidelines when the credit is clean for the past 12 months.
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.
If borrowers do not take the time to clean up their credit ahead of time, the underwriter will be very reluctant to allow those debt ratios to be exceeded.
We’ve been talking a lot lately about FHASecure. FHASecure was a first step toward making FHA mortgages a solution for more borrowers, but it was the part of the solution that could be implemented with no change in the law. Now there is a bill working its way through Congress that takes a big step forward from FHASecure.
The crystal ball is a little murky on this issue. Many of the high loan to value subprime adjustable rate mortgages issued over the last few years were those referred to as “80/20’s”. This means a combination of a first mortgage for 80 percent of the sales price or home value and a second mortgage for the remaining 20 percent. The second mortgage was most often a fixed rate mortgage with a balloon payment at 15 or 20 years.
