Still No Hope For Homeowners, But Basic FHA Loans Flourish

by Peter G. Miller
December 1st, 2008

FHA figures for the first half of November are out and you just have to say, wow.

The country, for those who may have missed the news, is in the midst of a foreclosure meltdown and HUD has hurried help with all the immediacy and urgency of FEMA after Hurricane Katrina.

In the first 15 days of the month, 69 people nationwide applied for financing under the Hope of Homeowners program. H4H, you will recall, was supposed to help as many as 400,000 borrowers avoid foreclosure and poverty. HUD is maintaining its perfect record in this category and — even though more liberal standards have been approved. To date it has yet to approve a single Hope for Homeowners mortgage application. Not one. So far a total of 180 H4H applications have been received since October 1st.

Meanwhile, on the oh-damn-I’m-facing-foreclosure front, HUD has permitted 39 delinquent conventional borrowers to refinance with FHA mortgages in the first half of November. Since October 1st HUD has allowed 142 borrowers nationwide to dump toxic loans in favor of FHA financing.

HUD did approve 67,818 FHA loans during the first half of November, that’s up 126.6% when compared with last year. It’s apparently getting either borrowers with better credit or making standards tougher because average credit scores now stand at 683 versus 650 last year.

These numbers plainly say that FHA financing is in demand, which is as it should be. The numbers also suggest that the FHA program is evolving into something which best serves well-qualified middle-class borrowers with solid credit scores.

The conflict, of course, is that many people would have better credit if they did not have toxic loans and soaring payments. If they could refinance with an FHA loan they would have lower and more predictable payments, and thus their credit scores would likely rise.

The original idea behind the FHA program, of course, was to take on riskier borrowers and make them less risky by allowing them to borrow on a sane basis. That was the thought in the 1930s, and it is a thought worth reconsidering today.

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2 Responses to “Still No Hope For Homeowners, But Basic FHA Loans Flourish”

  1. D'Aune Says:

    FHA doesnt want my money. I have a FHA loan, and have never missed a payment – but they are threatening to default because i moved out (i got married) and cant sell it.
    Why default me when im still making payments?

    thanks FHA.

  2. Prof. Samuel D. Bornstein Says:

    Mr. Miller, last year I commented on your blog.
    I want to share an interesting survey that I created and which NASE sent to their membership. The National Association for the Self-Employed (NASE) survey had a 2,400 rate of response.

    The results indicate that self-employed business owners have Alt-A, Option ARMs, Interest-Only, Subprime mortgages. Estimates are that:

    · 22.9 % (3,709,800* At-Risk) of all self-employed business owners used risky or “toxic” mortgages or refinancing that are scheduled to “Reset”.

    · 19.2 % (3,110,400* At-Risk) of all self-employed business owners are at-risk of “payment shock”. They do not know the monthly mortgage payment that they will be required to pay at “Reset”.

    · 18.4 % (2,980,800* At-Risk) of all self-employed business owners are very worried about the monthly mortgage payment due at “Reset”.

    · 7.9 % (1,279,800* Immediate Risk of Default) of all self-employed business owners have already missed one to three or more monthly mortgage payments at this date before the expected resets in 2009 to 2012.

    * Based on 16.2 million self-employed business owners per SBA Advocacy

    Since the average number of employees for each self-employed business is 1-10 employees, this level of involvement in foreclosures and failure at reset may cause potentially millions to lose their jobs.

    The NASE Survey sheds light on this mortgage foreclosure crisis. The survey highlights the fact that self-employed and micro-business owners bear the largest share of the “toxic” mortgages that are out there. These Alt-A, Option ARMs, Interest-Only mortgages will “reset” in 2009 and will result in the next wave of foreclosures.

    It is suggested that loan modifications will help lower foreclosures. I agree, however, whereas loan mods will lower the monthly mortgage payments and may lower default, there is another concern. “Re-default” rates on modified loans are very high. In order to lower the rate of “re-default” we should include “immediate and specific financial guidance” to enhance the borrower’s ability to make the revised monthly payments.

    The NASE survey Press Release was issue on November 21, 2008. Small Business is the “key” to the solution of this crisis. I have been researching Small Business Failure since year 2000 and concluded that the main cause of failure was the lack of understanding financial management. Individuals have the same problem.

    The survey discloses that micro-businesses had the vast majority of these mortgages that are expected to “reset” and cause the next “tsunami” wave of foreclosures. The findings reveal an interesting fact that may offer a key to mitigating the losses on “toxic” mortgages that have plagued the banking community.

    The Press Release and my Commentary appear on the NASE website http://www.nase.org

    Thank you,

    Samuel D. Bornstein
    Professor of Accounting & Taxation
    Kean University, School of Business, Union, NJ
    Email: bornsteinsong@aol.com

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