Will FHASecure Be Modified?

by Peter G. Miller
January 29th, 2008

For weeks we have been disclosing the difference between what HUD has claimed regarding the FHASecure program. In essence, the FHA mortgage program was originally sold as a way to help delinquent conventional borrowers. While HUD says that “In only the first 4 months of FHASecure, more than 40,000 households have refinanced under the new housing insurance program to protect their families’ investment in the American Dream,” in fact fewer than 1,000 deliqent conventional borrowers have been helped by the program since August according to the Department’s internal reports.

HUD’s solution to the problem of failed numbers (and thus the problem of failed expections — remember it was President Bush who accounced the FHASecure program from the White House) has been to change the definition of the program to include every conventional borrower with a lung who uses FHA financing rather than only deliquent conventional borrowers. Conventional borrowers with good credit, of course, don’t need the FHASecure program.

The problem has been that while the FHASecure program has very liberal standards for those who miss or are late with mortgage payments, the standards for other forms of credit are much tougher. In other words, if someone misses a few mortgage payments then under FHASecure HUD doesn’t care. However, miss a few credit card bills at the same time and you won’t qualify for the program.

What would you do if the choice was between making bloated mortgage payments which result from toxic loan re-sets or making a credit card payment? You’d pay the mortgage until you couldn’t –at which point you would not qualify for the FHASecure plan because of the missed credit card payments.

Now Reuters is reporting that the American Securitization Forum, the mortgage securities investor group, has figured out that the FHASecure program cannot work under the present rules. Reuters reports that:

“The study circulated within the American Securitization Forum and obtained by Reuters says more than 600,000 troubled homeowners could win new mortgage terms after easing terms of the Federal Housing Administration.”

The report adds that the group “would open FHA Secure to borrowers who became delinquent for any reason and who made any six monthly payments since the loan was originated and three timely payments after the rate adjustment.”

This, of course, is and has been exactly our point.

Give ASF credit for wanting to expand the program. Every home that can be saved is good for families, good for lenders and good for neighborhoods.

For the full Reuters story, see: Mortgage group mulls federal loan program changes

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