FHA Mortgage Guide

Affordability Products?

You have to give the lending industry credit. When it comes to double talk, these folks would elate George Orwell.

“As home prices rose,” says FDIC Chairman Sheila C. Bair, “one way to keep the monthly payment in check, for a while anyway, was to take on an interest-only or payment-option mortgage. These so-called ‘affordability products’ permitted zero or negative amortization of principal in the early years. But that was followed by potentially large increases in the monthly payments once amortization kicked in (typically after five years).”

Give credit to Ms. Bair, at least she uses quotes. Others don’t. They actually call toxic loans “affordability products” with a straight face.

But the idea of calling toxic loans “affordability products” leads one to wonder what other, er, curious, phrases might be out there. For instance:

___With reverse mortgages, if someone drops dead that’s called a “maturity event.”

___The stock market never goes down. If prices fall, that’s “profit taking.”

___Or this, the wildly misnamed “Bankruptcy Abuse Prevention and Consumer Protection Act.”

“Congress,” said President Bush yesterday, “needs to act to help homeowners avoid foreclosure. Unfortunately, the Senate is considering legislation that would do more to bail out lenders and speculators than to help American families keep their homes. The Senate bill would actually prolong the time it takes for the housing market to adjust and recover and it would lead to higher interest rates. This would be unfair to the millions of homeowners who make the hard choices every month to pay their mortgage on time and it would be unfair to future home buyers.”

Right. The real issue here is that Congress now wants to allow bankruptcy courts to modify mortgage terms — just as courts were allowed before 1978. Mind you, bankruptcy courts never lost the right to modify the terms of a yacht loan or the mortgage on a second home, but under the 1978 legislation judges no longer could help homeowners.

In 1978, of course, there were no option ARMs, few if any stated-income loan applications, etc.

FHA mortgages, for the most-part, are fairly straight-forward. No prepayment penalties. No mega re-sets. No bizarre terms. Where’s the sport?

You can read about bankruptcy changes in 2005 — and how they increased foreclosures — by pressing here.

Also:

Do you have an “unusual” or “curious” term you want to share? Send it along, with interest rates rising we could all use a good laugh.

One of the largest home value studies is conducted regularly by the Office of Federal Housing Enterprise Oversight (OFHEO), the entity that oversees Fannie Mae and Freddie Mac.
Below are the results for the fourth quarter of 2007. For those who believe that the current housing mess is a by-product of “negative reporting,” the release below […] read more

Congress has still not approved legislation regarding FHA reform submitted by President Bush to Congress over two years ago. Given the length of time, and the dire need for reform in a turbulent real estate market, in a letter to Congress HUD Secretary Alphonso Jackson outlined certain provisions that he believes will better serve the […] read more

Interest rates last week took a sudden jump, news which is not helpful for borrowers, those refinancing or owners selling a home.
Why is this happening? Two thoughts: First, investors are not thrilled by the expanded 2008 loan limits for FHA mortgages and conventional loans. Second, the whiff of inflation worries contained in testimony from […] read more

The speech below was given by FDIC Chairman Sheila C. Bair before the Joint Venture Silicon Valley Network in San Jose last Friday. There is a lot of interesting analysis in this speech, something worth reading. (I have highlighted interesting points in bold.
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It is truly a sign of unusual economic times when a group of […] read more

An excellent site, Financial-Planning.com is reporting that HUD has begun to rethink the FHASecure mortgage program.
The program has certainly had vast claims of success. Speaking in Florida earlier this month, HUD Secretary Alphonso Jackson said “FHASecure, which refinances mortgages that are current or past due, has been able to assist over 76,000 Americans since last […] read more

A loan officer named JJ has posted with us and made a complex point that includes FHA mortgages and all forms of real estate lending.
“Simply put if you can’t afford a house on a regular 30 fully amortized term don’t buy it,” says JJ. “And if you’re a good LO (loan officer) you should explain […] read more

Testifying before the Senate’s Special Committee on Aging, attorney Rachel Dollar, a representative speaking for the Mortgage Bankers Association, made an interesting point:
“Fraud in the mortgage context can be divided into two broad categories: “fraud for property or housing” and “fraud for profit.” Fraud for property occurs, typically, when fraud is committed so that […] read more

One of the great debates of our time concerns the matter of who is “responsible” for the mortgage meltdown. Some blame lenders and “Wall Street,” some blame borrowers and some blame regulators. (I’m in the camp which says there’s a lot of blame to go around….)
Happily with FHA mortgages borrowers have a generally-good idea of […] read more

Speaking in Washington last week, Edward Lazear, Chairman of the President’s Council of Economic Advisers offered some interesting comments.
“This year’s most significant economic events revolved around housing and credit markets. An apparent under-pricing of risk was revealed first in mortgage markets, and later in a variety of credit markets. The President was quick to respond […] read more

Speaking before the Senate Committee on Banking, Housing and Urban Affairs, Treasury Secretary told the assembled salons that “the HOPE NOW effort is making progress.
“According to updated statistics, in the second half of 2007 the industry assisted 869,000 homeowners, including 545,000 subprime borrowers who received loan modifications and repayment plans. The progress rate is accelerating; […] read more

The Toledo Blade quotes Sen. George Voinovich (R-OH) as saying that “one of the reasons why so many people went to subprime is because FHA wasn’t doing their job.”
“FHA’s requirements were so stringent,” Voinovich told the paper. People “said they were leaving and these vultures knew that was the problem.”
The senator has reason to be […] read more

Speaking at the introduction of Project Lifeline, the new foreclosure prevention effort, HUD Secretary Alphonso Jackson has this to say about FHA mortgages:
“Several recent efforts have been extremely helpful, including the President’s actions with FHASecure. Since September, when President Bush announced FHASecure, the department has received applications to refinance more than 228,000 conventional loans into safe, affordable FHA products. […] read more

HUD has sent a letter to Capitol Hill once again seeking FHA mortgage “reform.”
Under the stimulus program just passed by Congress, the FHA loan limit has been raised from $362,790 to as much as $729,750 — but only for this year. HUD is now seeking to increase the limit on a permanent basis to increase […] read more

HUD sent out 280,000 copies of the letter below “urging homeowners to consider safer, more affordable FHA-backed mortgages.”
Is this a good idea? Sure. You can pretty bet that a lot of toxic-mortgage borrowers received lousy advice from lenders and did not see the FHA program as a plausible choice or were steered to loans that […] read more

Don walker asks “is this service an FHA information forum or your personal political blog. Please stick to the FHA information. We are smart enough to make our own political decisions.”
FHA mortgages inevitably involve political issues.
*On August 31st the President of the United States went on national television to introduce the FHASecure program. When last […] read more

The San Jose Mercury News reports that the stimulus package approved by Congress will increase the FHA mortgage limit in high cost areas for a single-family home to $729,750 from the current $362,790.
In effect, the FHA loan limit and the conventional loan limit – which was raised from $417,000 to $729,750 – will be the same for […] read more

Speaking before the Senate Banking, Housing and Urban Affairs Committee, James Lockhart, Director of the Office of Federal Housing Enterprise Oversight(OFHEO) explained in 20 detailed pages why raising conventional loan limits might adversely impact lending in general and the FHA mortgage program in particular. (OFHEO is the regulatory body that oversees Fannie Mae and Freddie […] read more

Eleanor Thorne says the President took changes for FHA mortgages out of the stimulus package.
However, she likes the idea of the stimulus package and says “FHA Reform is necessary for tens of thousands of Americans who no longer qualify for Conventional Financing, and who are interested in HELPING the ECONOMY by purchasing one of the […] read more

HUD has a new approach to FHA mortgage numbers: Misdirection.
According to HUD’s 2009 budget summary, “in August 2007, the Bush Administration introduced FHASecure as a refinance option for subprime borrowers who have good credit histories but cannot afford their current payments. While still very new, the FHA has already helped more than 75,000 people refinance […] read more