The House Appropriations Committee has passed an appropriations bill which extends the FHA mortgage limits enacted last year.

This is both good news and bad.

On the good side, without the legislation to update the American Recovery and Reinvestment Act the maximum FHA loan amount for a one-unit property could have reverted to the old limit of $417,000. This would have greatly limited the ability to get FHA financing in a number of high-income, high-cost metro areas, not good news at a time when the housing market needs all the help it can get.
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If you’re one of the millions of people with an FHA loan then you may be wondering about refinancing, and especially about the question of refinancing with something other than an FHA mortgage.

I’m one of those people who alway thought the hardest part of college was getting in. I also think that in many cases the toughest part of getting a job is finding one. Once you’re in college or once you have a job, you’re in.

It’s the same with FHA loans. Once you’ve got one you’re in the club.
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In the latest quarterly report from the Mortgage Bankers Association it turns out that FHA loans have a lower foreclosure rate than prime mortgages, the gold standard of residential financing.

The seasonally adjusted delinquency rate in the second quarter for prime loans was 6.41 percent, 25.35 percent for subprime loans, 13.84 percent for FHA loans and 8.06 percent for VA loans.

The percentage of loans in the foreclosure process reached 3.00 percent for prime loans, 15.05 percent for subprime mortgage, 2.98 percent for FHA loans and 2.07 percent for VA financing.

Translation: FHA loans have a lower foreclosure rate than prime mortgages.

This report is enormously important because it comes from the industry’s main association and it rebuts claims that the FHA program is somehow faulty or faltering. Alternatively, you have to actually look at the full report to see what it says.
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When FHA reform was passed last summer it contained an important passage which related to the insurance fees that HUD would be allowed to charge. In essence, Congress beat back efforts by the Bush Administration to fund FHA mortgages with risk-based premiums.

The FHA program is an insurance plan, in exchange for a smaller down payment borrowers buy FHA mortgage insurance. If something goes wrong, the FHA will assure that the lender is paid off.
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The latest numbers from Freddie Mac tells us that the typical 30-year mortgage was priced at 5.29 percent last week. That’s for fixed-rate financing with .7 points.

If you look at interest rates during the past 50 years you will see that mortgage costs have rarely been lower. No less important, when they have been lower they haven’t been lower by much.
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According to the Wall Street Journal, we should be worried, very worried, about the growth of the FHA program.

“The FHA now insures $560 billion of mortgages — quadruple the amount in 2006,” says the paper.”Among the FHA, Ginnie, Fannie and Freddie, nearly nine of every 10 new mortgages in America now carry a federal taxpayer guarantee.

“Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.” (See: The Next Fannie Mae, August 11, 2009)

This is just nonsense.

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Last week the FHA suspended Taylor, Bean and Whitaker Mortgage Corporation (TBW), a huge lender based in Ocala, Florida.

Published reports say the company was the third-largest FHA lender and the 12th biggest mortgage company in the country. But size doesn’t matter: A day after the suspension the company closed shop.
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For a number of years you could depend on Fannie Mae and Freddie Mac to change the loan limits for conventional loans each winter. There were some guidelines involved, but it didn’t matter because if the market didn’t go up and justify higher loan limits then the guidelines were ignored.

Following in that tradition, the House has now passed HR 3288, legislation which would continue this year’s FHA loan limits through next year — but lower the limits for FHA reverse mortgages.
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Maybe the third time will be the charm.

So far the FHA has been involved with two loan modification schemes, neither of which went anywhere. First there was the much talked-about FHASecure effort, a program originally intended to allow delinquent conventional borrowers to refinance with FHA mortgages. While the related PR was huge and intensive, it was also misleading. Despite HUD claims that “FHASecure has helped more than 100,000 families stay in their homes, the truth was different. In real life only about 3,800 delinquent conventional borrowers were helped in fiscal 2008.

Why the huge difference in numbers? Very simple: FHA changed the definition of the FHASecure program. Instead of being designed to help distressed borrowers it was now said to include everyone who refinanced with an FHA mortgage.
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