FHA Mortgage Guide

HUD has announced that it will begin using a “fair and flexible” mortgage insurance premium system for FHASecure loans starting July 14th.

“With a flexible premium structure, FHA can fulfill its mission of assisting families who do not have access to prime-rate financing. Fair pricing will allow FHA to reach more troubled homeowners without placing excessive risk on its insurance fund,” said HUD Deputy Secretary Roy A. Bernardi.

Actually, according to the General Accountability Office just the opposite is true: As we reported last July:

A new study by the Government Accountability Office shows that if the new insurance plan is adopted it will produce both winners and losers:

“GAO’s analysis of data on 2005 FHA home purchase borrowers shows that 43 percent would have paid the same or less under the risk-based pricing proposal than they actually paid, 37 percent would have paid more, and 20 percent (those with the highest expected claim rates) would not have qualified for FHA insurance.”

In other words, the majority of borrowers will do worse if the new “reform” plan is enacted.

The HUD release is below:

WASHINGTON — The Bush Administration today issued final guidance that will permit its flagship mortgage insurance program to assist more homeowners who are struggling to keep up with their high-cost subprime adjustable rate mortgages. To ensure taxpayers do not assume the cost of this expansion, HUD’s Federal Housing Administration (FHA) will implement a fair and flexible premium pricing structure beginning July 14, 2008.

Modifications to FHASecure will help homeowners who can no longer afford their mortgages and missed up to three monthly mortgage payments over the past 12 months. As an alternative to foreclosure, eligible borrowers can refinance with FHA and lenders can voluntarily write down the outstanding subprime mortgage principal balances. Implementation of FHA’s new premium pricing plan on July 14 will coincide with the start date to expand FHASecure.

“With a flexible premium structure, FHA can fulfill its mission of assisting families who do not have access to prime-rate financing. Fair pricing will allow FHA to reach more troubled homeowners without placing excessive risk on its insurance fund,” said HUD Deputy Secretary Roy A. Bernardi.

Currently, FHA has a ‘one size fits all’ premium structure that charges borrowers 1.50 percent of the loan balance upfront and .50 percent annually regardless of their credit standing. FHA feels this approach does not treat borrowers equitably and may put the FHA insurance fund at risk. Under the new rule, 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. By charging different premiums, FHA will operate like most other insurance companies. 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 overall mortgage costs. The difference between the existing 1.50 percent upfront premium and a 2.25 percent premium for a $150,000 mortgage is only about $7 per month. With families turning to FHA in record numbers, the agency is on pace through its expansions to help approximately 500,000 families refinance into its affordable mortgage product by the end of this year.

“Charging borrowers a fair premium based on their credit risk means that they pay their own way, allows FHA to reach more borrowers, and helps create a more financially sound FHA. That’s good news since FHA, like any other insurance company, supports its flagship program through its premiums - not taxpayer dollars,” said Assistant Secretary for Housing - Federal Housing Commissioner Brian D. Montgomery.

FHA has the statutory authority to charge as much as 2.25 percent for the upfront premium and .55 percent for the annual premium. This premium structure will give borrowers an incentive to improve their credit and thereby pay lower premiums. Today’s announcement will allow FHA to offer a range of premiums, depending on the level of risk borrowers represent based on their credit profile and the amount of their downpayment. In other words, to determine a fair premium, FHA will look at the borrower’s financial responsibility and how much they are willing to invest in their home.

Given the House vote scheduled for today regarding HR 5830, the legislation which would allow the HUD to insure up to $300 billion in FHA mortgages, you might wonder what the Bush Administration thinks about the foreclosure rescue plan.
President Bush says he will veto the legislation if it passes both houses on Capitol Hill: “We […] read more

The New York Times has reported what we have been saying here for months: The FHASecure program is a dud:
“Fewer than 2,000 homeowners at risk of foreclosure have been helped by a Federal Housing Administration program that President Bush promised would help homeowners who had fallen behind on their mortgage payments, federal housing statistics show,” […] read more

Given all the claims made by HUD regarding it’s efforts to save American borrowers from foreclosure, it’s revealing to see what their own statistics say.
We now have in hand the official six-month report from the FHA — the government’s fiscal year starts October 1st so now we can we what HUD has accomplished during the […] read more

HUD has released the announcement below, which suggests a loosening of the credit standards for the FHASecure program.
Or does it?
It says “borrowers with adjustable rate mortgages who were late on two consecutive monthly mortgage payments or at two different times over the previous twelve months. FHA will require a 97 percent loan-to-value (LTV) ratio […] read more

We all know by now that Bank of America has said that it intends to acquire Countrywide. What you may not have known is that a greater number of larger banks and lenders are acquiring smaller struggling lenders. Many believe that this is a sign that big banks are preparing to make efforts […] read more

On Tuesday, February 12, 2008, the Bush Administration announced the Treasury Department’s “Project Lifeline.” Simply put, “Project Lifeline is a foreclosure prevention program developed by six of this country’s largest home loan servicers (which collectively account for approximately 60% of the nation’s estimated $9 trillion residential receivables market) and merely “blessed” by the Treasure Department. […] 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

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 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

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

The FHA loan program continues to grow while much of the mortgage marketplace withers.
For the first 15 days of January FHA mortgages applications continued to grow. HUD says in its FHA Outlook report that “after seasonal adjustment, the annual rate for applications was 1,485,000 — 20.5 percent above the prior period — and […] read more

We keep getting emails regarding the FHASecure program, the FHA mortgage plan announced by President Bush in August that was specifically designed to save delinquent conventional borrowers.
HUD says “in only the first 4 months of FHASecure, more than 40,000 households have refinanced under the new housing insurance program to protect their families’ investment in the […] read more

For weeks we have been disclosing the difference between what HUD has claimed regarding the FHASecure program. In essence, the FHA mortgage program was originally sold as a way to help delinquent conventional borrowers. While HUD says that “In only the first 4 months of FHASecure, more than 40,000 households have refinanced under the new […] read more

According to HUD’s own mortgagee letter, the basic FHA mortgage instruction it provides to lenders, the purpose of the FHASecure program could not be more clear.
*”This mortgagee letter describes how lenders and homeowners may refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent.”
*”This mortgagee letter extends eligibility to borrowers […] read more

Someone asked why the mutating HUD definition of the FHASecure loan program is such a big deal. Is it just a few loud people creating an artificial issue about FHA mortgages?
Nope.
The FHASecure program started out as a way to help people with delinquent conventional loans avoid foreclosure. This is keenly important because thousands of people […] read more

Over at FHALoanAdvice.com, Carl Pruitt — a 21-year veteran of the mortgage and real estate industries — has this to say about the FHASecure program and FHA mortgages in general:
“Personally, I have pretty much given up on FHASecure. If I find someone who miraculously actually qualifies for the program, their second mortgage holder often insanely […] read more

The good folks at HUD, in an effort to change reality, now claim that FHASecure isn’t a program to help borrowers facing foreclosure after all. It seems, says HUD, that there has been much “confusion” over the FHA mortgage program announced by President Bush on August 31st.
FHASecure Frequently Asked Questions for Housing Industry
IMPORTANT DISCLAIMER
“These FAQs […] read more