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HUD’s 1 Percent Solution

by Peter G. Miller
October 28th, 2008

HUD is out with new statistics explaining that 400,000 “families” (not just homeowners, of course) have refinanced with FHA mortgages during the past year.

Fair enough. HUD ought to be congratulated for getting as many people as possible into FHA loans. That’s good for the FHA and it is surely good for a lot of borrowers.

The catch is that such numbers do not exist in a vacuum. The core reason for more FHA financing is very simple: Private-sector loan programs are falling off the table. The private sector is running as fast as it can from option ARMs, interest-only mortgages and stated-income loan applications. To it’s credit the FHA never dabbled in such junk.

But HUD is not telling the whole story when it says that in July of this year that “FHA expands FHASecure to help homeowners with adjustable rate subprime mortgages who can no longer afford their mortgages and missed up to three monthly mortgage payments over the past 12 months. Rather than go into foreclosure, eligible borrowers can refinance with FHA and lenders can voluntarily write down the outstanding subprime mortgage principal balances.”

The catch, of course, is that “eligible borrowers” have been rare. Figures from HUD show that 455,803 borrowers refinanced with FHA mortgages during fiscal 2008 — the period ending September 30th. During the same period only 3,794 delinquent conventional borrowers were able to refinance with FHA loans.

In other words, fewer than 1 percent of all FHA refinancing bailed out failing borrowers.

Does anyone doubt that more borrowers — including “families” — could have been helped had HUD relaxed eligibility requirements? Does anyone doubt there the need is there?

The HUD release is below:

WASHINGTON – U.S. Department of Housing and Urban Development Secretary Steve Preston today announced that 400,000 families have refinanced their mortgages with HUD’s affordable mortgage insurance program. Since expanding its refinance program in September 2007, HUD’s Federal Housing Administration (FHA) has helped more distressed homeowners keep their homes by utilizing FHA’s safe and affordable mortgage financing. FHA refinancing is on pace to help 500,000 families by the end of this year.

“Thanks to FHA’s expanded programs, hundreds of thousands of families now have peace of mind knowing they have a stable, more affordable mortgage,” said Preston. “Today, we are proud to say that FHA has helped more than 400,000 struggling families keep their homes while also creating greater liquidity in the mortgage market.”

Since its creation in 1934, FHA has helped more than 35 million families become homeowners. Nationwide, the number of mortgages insured by FHA was nearly three times higher in the third quarter of calendar year 2008, compared to the same time last year. By requiring full income and employment documentation, FHA products are underwritten to ensure borrowers have the ability to repay the loan. FHA also continues to offer unprecedented loss mitigation assistance to homeowners. FHA’s loss mitigation efforts have helped about 300,000 families keep their homes over the last three years.

Timeline: Expanding FHA’s Refinance Program to Help Families Stay in Their Homes

___August 2007 – President Bush launches a new initiative at HUD’s Federal Housing Administration (FHA) called FHASecure to help hundreds of thousands of struggling homeowners – especially low-income families and minorities – avoid foreclosure. This product expanded FHA’s ability to offer refinancing to homeowners who have good credit histories, but cannot afford their mortgage payments after their teaser rates reset.

___May 2008 – FHA helps 200,000 families refinance their mortgages since September 2007.

___July 2008 – FHA expands FHASecure to help homeowners with adjustable rate subprime mortgages who can no longer afford their mortgages and missed up to three monthly mortgage payments over the past 12 months. Rather than go into foreclosure, eligible borrowers can refinance with FHA and lenders can voluntarily write down the outstanding subprime mortgage principal balances.

___August 2008 – FHA helps 300,000 families refinance their mortgages since September 2007.

___October 2008 – HUD launches the HOPE for Homeowners program to refinance mortgages for eligible borrowers who are having difficulty making their payments, but, after a write-down in principal, can afford a new loan insured by HUD’s Federal Housing Administration (FHA).

___October 2008 – FHA helps 400,000 families refinance their mortgages since September 2007.

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3 Responses to “HUD’s 1 Percent Solution”

  1. marc brenner Says:

    The Help for homeowners program needs some additional language . The bill states lenders can voluntarily write down the principle . As of Oct 29,this individual has not sourced one lender that will voluntarily write down principle .

    There needs to be incentives!!! How about a five year tax benefit or the govt issueing some type of credit for the amount voluntary write down.

    These lenders need good ,strong ,make sense incentives.

  2. Wendy Workman Says:

    HUD’s figures and Press Releases are misleading. Any of us in the Mortgage Industry that work directly with Homeownres know that is is next to impossible to qualify a borrower for FHA Secure and if they do qualify (credit wise) you are better off going with a straight FHA refi – which will also allow some mortgage lates. FHA Secure is not offered by all FHA Lenders and the ones that do partake have large increases in rate just for choosing that program.
    ALSO – FHA Secure allows the lender to finance the late payments into a second mortgage if those payments would carry the financing to over 100% of the houses value. Problem again! No lender is doing that 2nd mortgage – thus this very important part of the program can not be utilized.
    It was a good idea and could have saved many people’s homes. FHA loosened the guidelines to allow lenders to help but, you can not force the lenders to take the risk.

  3. Vicki Jean Byrd, Widow Says:

    Problem: the Federal Government Promised US 1% loans if we were in danger of foreclosure, but the interpitation of eligibility requirements make these loans unfair to some! While it “sounds good” at 1 % … the lenders are pushing US into higher rates – SWITCHING US – so they make more money on interest/ not fair! This was suppose to allow people to get the ‘barebones loan’ to keep afloat in this POST-depression. But government has allowed the very “greedy bastards” who sent rates high to continue their dominance. This is NOT good for the PEOPLE of America and the government should have their OWN eligibility screening for eguality.

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