The House on Tuesday approved H.R. 1852 by a vote of 348-72. Now it’s on the way to the Senate. More info here: House passes plan to expand FHA’s role in mortgages
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.
Every day there is a constant barrage of headlines trumpeting the meltdown of the mortgage industry. Obtaining a conventional mortgage is becoming more difficult by the minute. Qualification guidelines are tighter than they have been in years.
This meltdown is occurring at the same time a record number of adjustable rate mortgages are set to begin their rate adjustments. Because these ARMs usually had initial teaser rates that were artificially low, if you have an adjustable rate mortgage there is a near 100% chance that your rate will be going up. Most of the time, this first rate adjustment will be several percentage points. It is not uncommon right now for a mortgage that has had an interest rate in the low 5’s to be adjusting up to the 8 or 8.5 percent range! If you have a subprime loan, this increase may be from 6.5 percent to 9.5 percent or more! Borrowers who are unprepared for this will have their mortgage end up as part of the delinquency rate statistics talked about on the evening news.
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