FHA Mortgage Guide

Usually when the Chairman of the Federal Reserve speaks just about everyone listens, in part because it’s tough to get a straight answer or to find a simple sentence.

Speaking before the Senate Banking, Housing and Urban Affairs Committee, Fed Chairman Ben Bernanke offered the following comments regarding FHA reform according to a transcript from Knowledgeplex.com, comments which hardly represent a strong endorsement of modernization.

“There’s clearly less reliance on the FHA than in the past,” said Bernanke. “My sense is that part of the problem is lack of flexibility — the costs of dealing with the FHA, lack of diversity of products, and so on. So I think that modernizing the FHA — trying to make it more responsive, easier for ultimate lenders to work with, and so on, might reverse this trend. It might give the FHA a larger share in the market, which could be a positive thing.

“I guess I would point out that the FHA does have, I think - if I remember correctly, I think it still has a fairly high delinquency and default rate and it doesn’t - it hasn’t solved the problem of, you know, delinquencies, and so on. And so as those changes get made, I would suggest moving with some caution to make sure that we don’t create yet another source of problems in terms of inappropriate loans for specific borrowers. So I do see a case for trying to make the FHA more modern and to expand its role but I would, you know, urge some caution and go slow on that.”

The solution to defaults under modernization, of course, is simply to get rid of risky borrowers — the GAO says that 20 percent of today’s borrowers would not qualify under the modernization program.

But if the FHA is not going to take a chance on risky borrowers, then why do we need a federal mortgage program? The private sector can churn out mortgages to low-risk borrowers — though given recent foreclosure headlines a lot of private lenders have obviously been insufficiently cautious.

Bernanke, of course, can be quoted as being for modernization (”I do see a case for trying to make the FHA more modern and to expand its role”) and against modernization (”I would, you know, urge some caution and go slow”).

As a result of such clear and crisp thinking it will never be possible to say that Mr. Bernanke gave incorrect advice.

With support across the board from lenders and HUD officials, you might think that FHA modernization is a slam dunk.
Actually, that’s not the case.
First, FHA modernization, H.R. 1852, was passed by the House last year — but not the Senate. This time around, passage in the Senate remains uncertain.
Any large government program will offend someone for some […] read more

It makes you wonder….
In it’s announcement that it would begin to allow the use of LIBOR indexes in August, HUD said that it had first asked for public comments. What response did it get for a major change to one of the largest mortgage programs in America?
The comment period for the proposed rule, says HUD, […] read more

There was an interesting, if somewhat bleak, op-ed piece in the New York Times that makes interesting reading,
According to Joshua Rosner, “The subprime crisis has not been averted. In fact, it is still largely ahead of us. The downgrades represent only a small fraction — about 2 percent of the mortgage-backed securities rated for the […] read more

The FHA mortgage program will change as of August 20th. Lenders will be allowed to offer 3-, 5-, 7- and 10-year FHA ARM products that use the LIBOR index instead of the one-year Constant Maturity Treasury (CMT) index.
If you have an interest in an FHA ARM be sure to look at both the index and […] read more

Figures from the end of June show that the market for FHA loan products is booming.
*Applications maintained a strong annual rate — 820,700. That’s up 21.4 percent over last year.
*Loan originations are up 5.8 percent over last year.
*A lot of people applying for FHA loans are not qualifying — on an annualized basis, there […] read more

If you’re running a car company, hot dog stand or goat farm then market share is a fair issue: You want more of the market to increase profits and push out competitors.
But is market share an important issue for federal programs?
A report by the Government Accountability Office says the FHA program has lost market share: […] read more

I get a lot of mail, regular mail, from folks who want to lend me money. Sometimes I get fabulous offers of low rates that remain in place for a whole month! Or second loans for more than $100,000 — you know, above the point where mortgage interest is usually deductible. Or, offers that […] read more

There seems to be no shortage of foreclosure stories, and that’s a shame because some could surely be avoided by switiching to FHA mortgage financing before the first payment is missed.
What can the FHA do? By switching to an FHA loan borrowers are effectively restructuring their debt.
How?
As HUD Secretary Alphonso Jackson has explained, the FHA […] read more

With all the news about foreclosures, it’s good to know that FHA mortgage borrowers can often avoid the court house steps.
HUD says that the FHA mitigation program has saved 230,000 borrowers from foreclosure in just the past three fiscal years. (The government year begins each October 1st.)
Loss mitigation techniques under the FHA loan program include:
Special […] read more

Under the FHA program borrowers pay an insurance fee for FHA converage equal to 1.5 percent of the loan balance at closing plus .5 percent (divided by 12) on the remaining loan balance for each month the loan is outstanding.
But how would insurance fees look if you bought with private mortgage insurance (MI)? There’s now […] read more

Deep within the federal government is something known as the Office of Federal Housing Enterprise Oversight (OFHEO). No, this is not a secret entity or part of the CIA. Instead, it’s an agency which oversees Fannie Mae and Freddie Mac.
One of the functions that Fannie Mae and Freddie Mac perform each year is to establish […] read more

How much do borrowers know about their loans?
According to a June study by the Federal Trade Commission, a lot of folks don’t have a clue. The study found that:
*About 20 percent could not identify the APR, the cash due at closing or the monthly payment.
*Almost 25 percent did not know how much they paid for […] read more

For years, whenever I have written about mortgage modifications I have gotten emails from offended loan officers explaining that there was no such thing as a loan modification.
Such claims, of course, are patently untrue. An ARM — by definition — is a loan which is automatically modified according to evolving market conditions. No less important, […] read more

Published reports have recently stated that the FHA monthly insurance premium (MIP) cannot be cancelled and that it lasts the life of the loan. This old cancellation policy does not apply to FHA loans made after January 2001.
According to HUD Mortgagee Letter 00-38:
“In the past, some FHA borrowers have paid annual […] read more

Forbes magazine — that pillar of capitalism — has come out with a rave review for the FHA.
And what is it that makes the FHA program so great? According to Mortgage Lending’s Benevolent Bureaucracy, “both taxpayers and borrowers should now be grateful for the FHA’s stodgy ways.”
A report by the Government Accountability Office, says Forbes, […] read more

While much of the mortgage market is in shatters, the FHA program is booming.
Figures for the first half of June show amazing growth:
*Seasonally adjusted, the annual rate for applications was 867,500 — a 12.4 percent jump from the prior period and the best rate since March 15, 2000 — that’s 7 years ago.
*Actual applications received […] read more

A really good reason to reform the FHA program would be to lower insurance claims to assure that the system is self-supporting.
A new report from the Government Accountability Office (GAO) shows that if FHA reforms are passed then costs to Uncle Sam would decline significantly. As taxpayers we want a program that is self-sustaining instead […] read more

There’s been a lot of agitation in favor of FHA reform, basically steps such as zero-down loan programs which supporters say will make the program more competitive.
One important idea under FHA reform is to change the insurance system from the current plan — where everyone pays the same fee, 1.5 percent up front plus .5 […] read more

The big buzz in the world of real estate financing are the just-issued new loan guidelines by federal regulators.
This is important stuff because it will impact the ability of millions of people to finance and refinance their homes.
The new guidelines, entitled Statement on Subprime Mortgage Lending, give the FHA a pass. While critical of many […] read more