“Over the past several months, FHA has been working to help families who want permanent relief from their high cost subprime mortgages,” said Deputy Secretary of Housing and Urban Development Roy Bernardi. “We are proud to have helped these struggling homeowners keep their homes.”
Applications for FHASecure loans are largely what has driven a huge spike in FHA application volume during the past three months, with numerous brokers reporting to Housing Wire that the FHA-led program is often the only resort many subprime borrowers have available to them when looking to refinance and avoid potential problems.
“It’s either that [FHASecure] or hard money,” said one broker, who asked that his name not be used. “There isn’t much else out there right now.”
In the past three months, FHASecure has insured twice as many loans as the program did in the program’s first six months. From September 2007 to February 2008, FHA insured 100,000 refinanced mortgages under the program; since February, FHA has backed another 100,000 loans, it said in a press statement last week.
“The Bush Administration’s FHASecure product has quickly proven to be a responsible solution for 200,000 American families who are in the right house, but the wrong mortgage,” said FHA Commissioner Brian D. Montgomery. “These homeowners have found affordable relief from their exotic loans, and FHA is on pace to help a total of half million families keep their homes by year’s end.”
Administration officials are pumping up the program as a counterpoint to current housing proposals being debated on Capitol Hill, sources within the administration told Housing Wire on Monday morning. A bill under consideration in the Senate, and one already passed by the House, would authorize the FHA insure an additional $300 billion in refinanced mortgages. Critics suggest that the bill amounts to placing the burden of bad loans onto the shoulders of taxpayers, and President Bush has already threatened to veto the package, calling it a bail-out of irresponsible borrowers and lenders.
Who’s being helped?
Despite the administration’s suggestion that the FHASecure program is sufficient to backstop troubled subprime borrowers, it’s clear that the program has not met its original objective of helping homeowners in trouble avoid the loss of their home. Via CNNMoney:
… only a small number of the people so far helped by FHASecure - about 3,000, according to FHA - were those in imminent danger of losing their homes. Instead, they were borrowers who were current on their payments who wanted to refinance out of high-cost loans.
“[The original targets] make up only a small portion of the [200,000] people who got FHASecure loans,” said HUD spokesman Steve O’Halloran. Instead, he said, “FHASecure became our de facto refinance product.”
The numbers track with earlier coverage here at HW that first suggested last December that the housing program wasn’t helping troubled borrowers per se, but instead those looking to avoid trouble and/or secure a lower-cost, government-guaranteed mortgage.
FHASecure was sold as a program to primarily help 240,000 delinquent subprime borrowers hit hard by resets avoid foreclosure when it was originally introduced last year, but some sources at HUD that spoke with HW said the shift wasn’t necessarily a bad thing.
“We’re capturing those borrowers who are good credit risks, who have made their payments on time and are simply in the wrong mortgage,” said one official, on condition that his name not be used. “We’re not in the business of assuming bad credit risk.”
But the FHA is certainly creeping towards assuming what one source characterized as “riskier risk.”
Perhaps looking to head off further changes to FHA-insured mortgage programs, the Bush administration announced a broad expansion of the FHASecure program on May 7. The expanded guidelines target more delinquent borrowers, including currently delinquent borrowers post-rate reset who have missed payments prior to their reset — a pretty broad change in program guidelines, clearly designed to make it so that more delinquent borrowers can clear the underwriting hurdle.
Under the new guidelines, borrowers in situations where LTV is 90 percent or less can have a 90-day late payment on record prior to their rate reset and still qualify for refinancing under the government program; all delinquent borrowers in reset ARMs, regardless of LTV, may have a 60-day late payment on record prior to reset and still qualify, according to a mortgagee letter outlining the expanded underwriting standards.
Previous guidelines did not allow borrowers to have late payment histories prior to their rate reset. it’s unclear how many more borrowers are expected to qualify under the expanded FHASecure guidelines, but consumer advocate groups have suggested to numerous press outlets that the expansion won’t be enough.
HUD officials, however, take the stance that those refinancing via FHASecure are those that would have needed help eventually.
“We’re trying to be proactive, and help those that can be helped,” the same official suggested.