FHA Mortgage Guide

On April 29, 2008, Roy A. Bernardi, the acting secretary for Housing and Urban Development, spoke at the Federal Home Loan Banks Annual Conference. In his presentation, Mr. Bernardi addressed the federal government’s role in the current foreclosure crisis, and how the FHA should play a central role in order for there to be any lasting solutions.

Mr. Bernardi commented on certain efforts by the FHA, like FHASecure, aimed at preventing the foreclosure crisis currently plaguing our nation. Mr. Bernardi went on to state how the FHASecure program has helped save hundreds of thousands of troubled Americans from foreclosure.

Mr. Bernardi also spoke about how the FHASecure program was going to be expanded to “serve borrowers in subprime adjustable rate mortgages who are in default as the result of some extenuating financial circumstances which have temporarily hindered their ability to make mortgage payments. These borrowers would still have sufficient income to make payments on the new FHA mortgage, but are stretched or unable to meet the terms of their existing mortgage after the reset rate increase. The refinance will put them in a more sound financial position.”

Mr. Bernardi called this a “good idea,” citing the avoidance of the detriment caused by foreclosures. Mr. Bernardi estimates that the FHASecure will help approximately 500,000 homeowners in total by the end of this year.

My reaction – wonderful (said with a most sarcastic tone and disappointed tone.) Every time I hear the admiration of these “bailout” type plans I lose my mind. I ask myself whether the government really believes providing handouts is the answer.

Why is it that we never hear proposed solutions that address the root of the problem? Why doesn’t the government ask itself how it can prevent such an occurrence in the future? Why doesn’t the government seek ways to deter the mortgage industry from intentionally placing borrowers in bad loans? It is irresponsible lending, coupled with mortgage misconduct, compounded with the occasional less-than-honest borrower that has led to this problem. Now, we are implementing measures that seemingly encourage the foregoing!? It just does not make sense to me.

In very simple terms, what really needs to happen is the following:

First, the government needs to implement preventative measures to assure that the instant mortgage crisis does not happen again. Borrowers need to know what exactly it is that they are agreeing to by signing their loan documents. Period. As I have said many times before, the average borrower has no idea how to interpret the stack of loan documents that he is asked to sign.

Second, there needs to be severe penalties for those mortgage brokers and lenders who actively duped borrowers all in the name of earning fees, and increasing their personal bottom lines. These penalties could range from criminal penalties to treble damages to extending liability, personally, to those persons in charge of overseeing their respective mortgage brokerage or loan operations. If the penalties for such conduct were more serious, you can bet that mortgage and loan professionals would do a little better at policing themselves.

In closing, the government’s current efforts at remediating the mortgage crisis are not appropriate. Although they may “sound good” to the layperson, these efforts are short-sighted and only “band-aid” the problem. It promotes irresponsibility and does nothing to deter malfeasance. Further, bailing out distressed borrowers with taxpayer dollars is not fair. I would rather see our tax dollars go to something more productive, like hiring sufficient staff to police mortgage misconduct -– not funding and encouraging it.

Beyond that, we should look to those culpable mortgage and loan professionals to foot the bill for a problem they caused. And, if the borrower knowingly put himself into such a predicament, then they need face the consequences.

Among the more-interesting matters in the FHA mortgage debate last week was a question for House Republicans — would they or would they not support the President in his opposition to Democratic housing measures?
You could see this coming. On one side we have a lame-duck President with the lowest approval records since Nixon, on the […] read more

What do you do with a mortgage applicant who pays cash for everything? You might rejoice that somebody, somewhere is not addicted to credit cards, however for such an individual to qualify for a mortgage is a problem. Why? They suffer from the anguish of a “thin file” credit report, a report with so few […] read more

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 […] read more

The House has just passed H.R. 5830, the FHA Housing Stabilization and Homeownership Retention Act, by a vote of 266-154.
The legislation, introduced by Rep. Barney Frank (D-MA), would allow the FHA to guarantee up to $300 million in mortgage lending for with toxic mortgages — but only if lenders accept 85 percent of the face […] read more

The House today passed H.R. 5818, the Neighborhood Stabilization Act of 2008, by a vote of 239-188. This is one of two housing-related bills scheduled for a vote today.
The legislation, introduced by Rep. Maxine Waters (D-CA), will provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures […] read more

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

On March 3, 2008, Freddie Mac entered into a formal agreement with the New York Attorney General’s office in order to adopt a “Home Valuation Code of Conduct” (“HVCC”) that Freddie Mac will require all loan brokers and appraisers to comply with starting January 1, 2009. The agreement states (in part):
“To ensure appraisal independence […] read more

This is the week that FHA reform is going to be debated in the House.
What will be discussed is the $300 billion legislation proposed by Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee. In essence, for the first time there will be a realistic alternative to the voluntary measures proposed to date by the Bush Administration, […] 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

H.R. 5830, the FHA Housing and Homeowner Retention Act, has now passed the House Financial Services Committee.
Introduced by Committee Chair Barney Frank (D-MA) and now with more than 40 co-sponsors, the legislation if enacted would authorize up to $300 billion in FHA loan guarantees for troubled homeowners — and thus troubled lenders.
As explained in depth […] read more

The head of the FDIC, Sheila Bair, has proposed a $50 billion bail-out for homeowners and lenders. In basic terms, her plan would have Uncle Sam create something outside the FHA mortgage program, a so-called HOP or Home Ownership Preservation loan.
Distressed borrowers would get a government loan equal to 20 percent of their current mortgage […] read more

How many ways can a borrower get absolutely hit over the head with fees in the loan process? If you think about it, it is amazing how many fees are involved with the lending process. I mean you have fees such as the “document preparation fee;” the “email fee” (a fee some mortgage brokers will […] read more

Ben Stein — the droll actor and financial columnist — had a remarkable story in the business section of the Sunday New York Times.
There are any number of reasons for the mortgage meltdown, and also why FHA mortgage standards make so much sense in their present form. On the other side of the street, the […] 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

The rumor mill is churning in Washington, suggesting that the White House will veto two mortgage reform bills should they pass on Capitol Hill — H.R. 5818: The Neighborhood Stabilization Act of 2008 and H.R. 5830: The FHA Housing Stabilization and Homeownership Retention Act of 2008.
The first bill would provide $15 billion for the states […] read more

In my Realty Times column the question is asked: Should The FHA Own Part Of Your Home?
When I first saw the proposal by Rep. Barney Frank (R-MA) to create an FHA program that would assist homeowners (and thus lenders) who are in trouble I was leery of the concept. As the column explains:
“To make the […] read more

On Friday, March 14, 2008, the Department of Housing and Urban Development released its proposed rule additions and amendments to the Real Estate Settlement Procedure Act (RESPA). The proposed rules, if adopted, would alter RESPA in several material respects. Most notably, the proposed new rules would require for a uniform Good Faith Estimate […] read more

Cat writes and asks: “My home that is in danger of foreclosure due to an adjusted ARM that just happened raising my payment 218.00 more per month. The home is a rental property in Ohio, and I live in TN now. Can I get help with an FHA Secure on a rented property?”
Nope. Not a […] read more

President Bush as named Steve Preston to be the next HUD Secretary. Preston, Administrator of the U.S. Small Business Administration since July 2006, was previously the executive vice president of strategic services with the ServiceMaster Company and, prior to that, senior vice president and treasurer with First Data Corporation.
Preston will have his hands full. Outgoing […] read more