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HUD Announces New FHASecure Standards

by Peter G. Miller
July 15th, 2008

Below is the announcement of changes to the FHASecure program.

What’s new? Two things.

First, HUD is loping off the borrowers most in need. When the FHASecure program was first announced the FHA, a high-ranking FHA official told reporters that virtually all delinquent borrowers would be welcomed into the program. He specifically mentioned a borrower could have six late payments and still qualify. If I remember correctly he was open to ten missed payments as well. Now the deal is no more than two late payments and you can get the “standard 97 percent loan-to-value (LTV) FHASecure refinance loan.”

However, “borrowers delinquent on their adjustable rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past twelve months will be eligible for a 90 percent LTV ratio FHASecure refinance loan.”

What are the problems here? Many borrowers have insufficient equity to qualify for the 97 percent LTV program and you can bet that those who have missed three payments will rarely have enough value in their property to show 10 percent equity.

Also, notice that the second standard says you can miss “three consecutive monthly payments” — but it does NOT say you qualify if you miss three or more payments. Alas, many troubled borrowers have missed four payments, and more.

Second, HUD is raising its insurance premiums with risk-based pricing. It used to be that the FHA mortgage insurance premium was 1.5 percent up front and .5 percent divided monthly on the remaining loan balance. Now the up-front fee for borrowers in trouble will be 2.25 percent and the monthly fee will be .55 percent. Raising prices is the one thing least likely to help people with financial problems — and thus it is one way to keep risky borrowers out of the program, despite news releases to the contrary.

See the latest HUD chart for further program information.

The HUD announcement is below:

BUSH ADMINISTRATION IMPLEMENTS EXPANSION OF FHASECURE MORTGAGE ASSISTANCE FOR STRUGGLING HOMEOWNERS

Fair and flexible insurance plan will help more families and better protect taxpayers against risk

WASHINGTON – The Bush Administration today implemented an expansion of its flagship mortgage insurance program to assist more homeowners who are struggling to keep up with their high-cost subprime adjustable rate mortgages. HUD’s Federal Housing Administration (FHA) has expanded its FHASecure refinancing product to help bring liquidity to the housing market and insure more mortgages for borrowers who were late on a few payments and/or received a voluntary mortgage principal write-down from their lender.

“Starting today, even more families will be able to turn to FHA to find an affordable mortgage and save their homes from foreclosure,” said HUD Secretary Steve Preston. “This broader FHASecure refinancing product allows FHA to reach even more troubled homeowners without putting taxpayers or its insurance fund at risk.”

With this expansion, FHA is on pace to help 500,000 families refinance into a more affordable mortgage product by the end of this year. The plan, which is designed to help address the adverse economic conditions affecting many communities across America, will help break the cycle of house price depreciation that is being caused by an increasing number of foreclosures and the overall contraction in the credit market.

In August 2007, FHA initially modified its refinancing program to help creditworthy homeowners who missed their mortgage payments as a result of the payment shock associated with interest rate resets. Today, FHASecure is expanding its eligibility criteria to homeowners who have gone into default as a result of temporary economic setbacks. FHA will adjust the loan-to-value cap to provide an additional risk control, as follows:

1. Borrowers who are delinquent on their adjustable rate mortgages, but who were late on no more than two monthly mortgage payments over the previous twelve months are eligible for the standard 97 percent loan-to-value (LTV) FHASecure refinance loan.

2. Borrowers delinquent on their adjustable rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past twelve months will be eligible for a 90 percent LTV ratio FHASecure refinance loan.

With these new criteria, the expanded FHASecure can help additional borrowers access a more viable refinancing option and will offer lenders an alternative to foreclosing on these individuals. Lenders may voluntarily write down the outstanding subprime mortgage principal balances to a 97 percent or 90 percent LTV ratio depending on the borrowers’ circumstances. FHA will also encourage lenders to make other arrangements, such as subordinate financing, to “fill the gap” between the existing loan balances and the FHA-insurable loan amount. The refinanced loan amount backed by the FHA would be based upon a new appraisal, performed by an FHA-approved appraiser.

Like most other insurance companies, FHA will begin pricing insurance premiums according to borrowers’ credit risk. To protect taxpayers, FHA will implement a fair and flexible premium pricing structure. Previously, FHA had a ‘one size fits all’ premium structure that charged borrowers 1.50 percent of the loan balance upfront and .50 percent annually regardless of their credit standing. product in a responsible manner.

“Fair and flexible premium pricing is a common sense solution to helping more lower-income American families stay in their homes and protecting the solvency of FHA. It is about time our pricing mechanism rewarded lower income families who live within their means and pay their bills on time,” said Assistant Secretary for Housing – Federal Housing Commissioner Brian D. Montgomery.

An analysis of FHA borrowers showed that risk-based pricing actually benefits lower-income American families. Contrary to conventional wisdom, FHA families with the lower incomes have higher FICO scores because they live within their means and pay their bills.

Under the new structure, FHA’s upfront mortgage insurance premium will range from 1.25 percent to 2.25 percent. Borrowers must continue to adhere to FHA’s strict underwriting criteria, such as fully documenting their income and job history. This premium structure will preserve lower premium costs for FHA’s traditional borrowers, including low-income and minority families who have a strong credit history and save for a downpayment.

By charging slightly higher premiums based on risk, FHA will be able to extend the benefits of its FHASecure program to more homeowners affected by the volatility in the mortgage market. Borrowers refinancing into FHA from the subprime market are better off, even with slightly higher mortgage insurance premiums, because FHA insurance gives them access to substantially lower interest rates and lowers their monthly mortgage payments.

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This entry was posted on Tuesday, July 15th, 2008 at 3:58 am and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

5 Responses to “HUD Announces New FHASecure Standards”

  1. Jackie Says:

    I’m not late on any payments but can’t get help because I don’t have 97% LTV. Nothing has really changed!

  2. marc brinitzer Says:

    Peter, the other catch in the deal is that all lenders I know of are imposing a minimum Fico score of 580.

    Why is that a problem? Just try to maintain a 580 + score after you’ve had a string of mortgage (and maybe other) late payments!

    What a sham.

  3. Peter G. Miller Says:

    Marc –

    You make an important point.

    Just a guess, but I bet that the number of delinquent conventional mortgages refinanced each month under the new FHA rules will stay largely the same or actually fall.

    Any help for Jackie, above?

    All the best,

    Peter

  4. Carolyn Says:

    Most people who have subprime mortgages whether deliquent or current will not be able to get FHA secure loan because there is no equity in their home. Most lenders are not going to voluntarily write down the outstanding balance. As a result, obtaining a 97% LTV will be impossible. This concept sounds good but will not help subprime mortgage holders.

  5. Tom Says:

    So with the housing market being the way it is and just about everyone owing more on their mortgage than what the value of their home is (negative equity), what is this program supposed to do? If no one can use it and then they just increase their rates, it’s a waste of time. Is it just something for them to try and make themselves look good with out doing anything?

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