U.S. Department of Housing and Urban Development Secretary Steve Preston today announced that 400,000 families have refinanced their mortgages with HUD’s affordable mortgage insurance program. Since expanding its refinance program in September 2007, HUD’s Federal Housing Administration (FHA) has helped more distressed homeowners keep their homes by utilizing FHA’s safe and affordable mortgage refinancing and home loans.

FHA mortgage refinancing is on pace to help 500,000 families by the end of this year.“Thanks to FHA’s expanded programs, hundreds of thousands of families now have peace of mind knowing they have a stable, more affordable mortgage,” said Preston. “Today, we are proud to say that FHA home loans have helped more than 400,000 struggling families keep their homes while also creating greater liquidity in the mortgage market.”

Since its creation in 1934, FHA has helped more than 35 million families become homeowners. Nationally, the number of mortgage loans insured by FHA was nearly three times higher in the third quarter of calendar year 2008, compared to the same time last year. By requiring full income and employment documentation, FHA loan programs are underwritten to ensure borrowers have the ability to repay the loan. FHA home refinance products continue to provide unprecedented loss mitigation assistance to homeowners. FHA’s loss mitigation efforts have helped about 300,000 families keep their homes over the last three years through the foreclosure prevention programs.

Timeline: Expanding FHA’s Refinance Loan Program is rolled out to help families stay in their homes with a foreclosure prevention program

August 2007 – President Bush launched a new initiative at HUD’s Federal Housing Administration (FHA) called FHASecure loans which have helped hundreds of thousands of struggling homeowners – especially low-income families and minorities avoid foreclosure. This product expanded FHA’s ability to offer mortgage refinancing to homeowners who have good credit histories, but cannot afford their current mortgage payments after their adjustable rate reset.

May 2008 – FHA helped 200,000 families refinance their mortgages since September 2007.

July 2008 – HUD expanded the FHASecure to help homeowners with adjustable rate subprime mortgages who can no longer afford their mortgages and missed up to three monthly mortgage payments over the past 12 months. Rather than go into foreclosure, eligible borrowers can refinance with FHA lenders that voluntarily write down the outstanding subprime mortgage principal balances and help with loan modifications.

August 2008 – FHA helped 300,000 families refinance their mortgages since September 2007.

October 2008 – HUD launched the HOPE for Homeowners program to refinance mortgages for eligible borrowers who are having difficulty making their payments, but, after a write-down in principal, can afford a new loan insured by HUD’s Federal Housing Administration (FHA).

October 2008 – FHA helped 400,000 families refinance their mortgages since September 2007.

Sales of Existing Homes Rise, but so do Foreclosures

Sales of existing homes rose by the largest amount in more than five years in September, a real estate trade group said Friday. The National Association of Realtors said Friday that sales of existing homes rose by 5.5 percent in September compared to August, the best showing since a 5.6 percent increase in July 2003, during the five-year housing boom.

By region of the country, sales soared by 16.8 percent in the West and rose a more moderate 4.4 percent in the Midwest and 2.2 percent in the South. The only region of the country which saw a decline was the Northeast, where sales fell by 1.1 percent.

Foreclosures continue to be a problem.

Each day from July through September, more than 2,700 Americans lost their homes in foreclosure, up from 1,200 a year ago. While there has been some progress in curbing foreclosures, signs indicate that the mortgage industry and government programs have done little to help troubled homeowners.

“We are behind the curve. We are falling behind,” Sheila Bair, head of the Federal Deposit Insurance Corp. told a Senate hearing Thursday. “There has been some progress, but it’s not been enough, and we need to act. And we need to act quickly, and we need to act dramatically to have more wide-scale, systematic (loan) modifications….”

In a further effort to bolster the housing market and deal with record high levels of mortgage defaults, Blair is pushing Treasury to include in the $700 billion rescue package for the financial system a new program to prevent more mortgage foreclosures. Under Bair’s proposal, the government would provide guarantees for mortgages that have been reworked by banks to lower the payment schedules to more affordable levels.

Housing prices still continue to fall.

The median home price in the U.S. dropped 9 percent in September from a year ago to $191,600, and is down 17 percent from the peak in July 2006, the National Association of Realtors said Friday.

Already, 23 percent of homeowners with a mortgage owe more on their loans than their homes are worth, and that figure is expected to rise to 28 percent by this time next year, according to Moody’s Economy.com

Sophie Lapointe, a mortgage broker and owner of Five Star Mortgage in Las Vegas, has found there’s little that can be done to help people who owe more than their homes are worth. “The biggest problem is negative equity,” she said.

When homeowners in that position ask her about refinancing, Lapointe tells them to contact their current lender and ask about a loan modification because she already knows no new lender will give them a loan.

Loan modifications are needed to help curb foreclosures.

Loan modifications vary depending on many conditions, but can include deferring payments, allowing partial payments, lowering the interest rate and lowering the principal balance. Some states are passing laws to further promote loan modifications. The foreclosure problem needs to be resolved in order for housing prices to stabilize. Otherwise, the housing crisis will continue. An increasing number of lenders are willing to help because loan modifications are becoming a more attractive option to them due to the falling home prices.

Contact your lender ASAP. The sooner you start the process, the sooner you can stop the foreclosure process. If you’re having problems getting your lender to respond to your loan modification proposal, all is not lost. You may qualify for FHASecure, which is due to expire on 12/31/08 or the new FHA Hope for Homeowners program. For more information on what options you may have, fill out the free loan quote form on this page.

Mortgage Lender Participation

FHA will continue to offer mortgage lenders a better refinancing option than foreclosing on borrowers. Similar to a loan modification or the FHASecure refinance loans, FHA lenders will be encouraged to write-down the outstanding home loan principal balances to 90% of the new value of the property. In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure.

Market Stability and Liquidity

By continuing to fight the foreclosure rate, this HOPE for Homeowner loans will support FHA’s existing effort to stabilize local housing markets. From September 2007 to June 2008, FHA home loans have guaranteed more than $93 billion of mortgage capital.

Mortgage Funding

FHA will insure up to $300 billion in new FHA refinance loans. Borrowers will pay an upfront premium of 3 percent of the original mortgage amount and an annual premium of 1.5% of the outstanding mortgage amount. Any further costs incurred by FHA will be reimbursed by Fannie Mae and Freddie Mac.

Loan Program Timeline

The program will last from October 1, 2008 through September 30, 2011. Since September 2007, FHASecure has aided more than 290,000 families with more affordable fixed rate mortgage loans FHASecure is on pace to help 500,000 families by the end of 2008.

U.S. Housing and Urban Development Secretary Steve Preston will address the Mortgage Bankers Association meeting in San Francisco today alongside Karl Rove, President Bush’s former deputy chief of staff and senior adviser, and George Mitchell, former Senate majority leader.  Preston took the reins at HUD in June after previous secretary Alphonso Jackson stepped down in April amid allegations of cronyism.

HUD oversees the Federal Housing Administration, a Depression-era agency created to stimulate home ownership. FHA home loans remain the focal point of many efforts to help struggling homeowners with foreclosure prevention solutions and is playing a more significant role in the home mortgage market this year after Congress allowed it to insure larger jumbo loans up to $729.750. 

Question: Hope for Homeowners, or H4H, the $300 billion FHA mortgage refinancing program for struggling homeowners authorized by Congress this summer, took effect Oct. 1. How willing are lenders to participate, given that they must write down a loan to 90% of a home’s current value?

Answer: FHA lenders continue to sign up. We have seen many of the lending companies begin to work through the process. It’s too early to tell what the volume will be. It’s important to note, this is just another tool in the toolbox. It’s specifically designed for the most urgent cases, people who have a loan greater than the value of their home. Mortgage lenders need to take dramatic action to participate. In addition to revising and writing the loan down to 90%, they need to assure that the resulting mortgage is affordable and based on sound lending criteria.  Many of the larger lenders informed HUD that they will take a piece of their portfolio and put them into H4H. HUD urges all homeowners who thinks they could have a problem paying their mortgage to get to a counselor sooner rather than later. HUD recommends discussing your situation with a FHA lender about your options.  Shop around with other mortgage lenders to fully understand your refinance options.

Question: Some of the government’s other programs include the FHASecure refinancing product and the HOPE Hotline, in partnership with large lenders. What are other ways to help homeowners avoid foreclosures?

Answer:  You’ve laid out the bigger federal programs. The next step is the $700 billion TARP (Troubled Asset Recovery Plan) program. It has a provision to advance foreclosure prevention activities. There is work in progress right now to begin to design those programs. FHA is coordinating with them at HUD to design those initiatives. Also, Fannie Mae and Freddie Mac announced that they are buying (troubled) mortgages. That will give us an opportunity to advance foreclosure mitigation actions. Potentially that gives us an opportunity to reach those homeowners directly because we would own those mortgages.

Question: The Housing and Economic Recovery Act authorized HUD to distribute $3.92 billion to states and cities to help combat blight, and assist low- and moderate-income buyers. The money was allocated based on foreclosure rates. California received $529 million, second only to Florida with $541 million. How do you expect state and local governments to use these grants?

Answer: HUD has a lot of latitude. They can buy foreclosed homes. They can buy and demolish blighted properties. They can offer down payment and closing cost assistance to low- and moderate-income buyers. We had a massive housing summit in Washington, D.C., earlier this month to teach people how to use these grants and to have other communities teach about best practices.

Question: What were some best practices you identified?

Answer:  Bringing in local not-for-profits that have a specialty in buying houses and turning them into affordable housing projects. Some smaller recipients talked about partnering with two or three local communities in the area to pool administrative resources, to maximize the amount of money they put to work. Some talked about how to focus on the visual uplifting of a community to make it more attractive to home buyers. HUD is putting together an idea-sharing Web site for best practices.

Question: Until recently, FHA was a minuscule part of the mortgage market here in pricey California because it could only insure low-cost loans. In February, Congress temporarily raised the FHA cap to $729,750 until the end of the year; in July, Congress permanently raised the limit to $625,500; both increases are only for high-cost areas. How has that affected FHA loans in California?

Answer: The program has gone from being a nonfactor in California to a quickly growing tool in the California market. For the most part, our low caps previously made the product almost ineligible for the market; now we’re seeing some really nice growth. We have more than 2.5 times the volume in the Bay Area this year compared to last year. For fiscal year 2008, which ended Sept. 30, HUD had over 5,000 loans for the Bay Area, up from 2,000 in FY 2007.

Question: Of course, FHA volume is increasing around the country as well as in California. How is FHA ramping up to handle that big additional workload?

Answer: People, process and technology. We’ve expanded the operation in terms of physical bodies. HUD is redesigning internal processes to improve their productivity. They have expanded the physical capacity of their system to handle volume.

Question: How can HUD improve lending standards and forestall inappropriate loans?

Answer: HUD continues to work very hard to finalize RESPA – the Real Estate Settlement Procedures Act – which would provide mortgage borrowers with information to evaluate the cost of their mortgage. When people go into a mortgage, they will have a statement that shows exactly how much they will have to pay, whether it will reset, and what other costs are associated with it. We’re hoping to get it done by the end of the year. It would be comprehensive but also simple.

Question: When do you think the housing market will hit bottom?

Answer: Six weeks ago, HUD was hoping to see us come out of the slump toward the back half of 2009. But in the past few weeks, we have had what could be a game-changing event with this severe shock to our system of liquidity. We have to understand what will happen to the broader economy before we get a sense of what it means for home prices.  One critical factor in keeping the wheels of the housing market turning is to ensure that liquidity is out there. Essentially that is how FHA works for mortgage lenders who adopt these programs that help borrowers understand we’re out there if they need help. Liquidity is a real enabler for purchasing.

Federal housing officials have compiled a list of lenders participating in the HOPE for Homeowners (H4H) program. The list was last updated on October 17th, and they plan on updating it each Friday. The H4H program was signed into law under the Housing and Economic Recovery Act on July 30, 2008. It is designed to help homeowners avoid foreclosure by refinancing bad credit loans into new 30-year fixed-rate mortgage loans insured by the Federal Housing Administration (FHA). The program was launched on October 1, 2008 and ends on September 30, 2011.

“For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford,” said HUD Secretary Steve Preston.  “FHA home refinancing remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners’ ability to retain their homes.  We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them.”

According to the FHA, Borrowers are encouraged to contact their lender to determine eligibility, but may be eligible if, among other factors:

• The home is their primary residence, and they have no ownership interest in any other residential property, such as second homes.
• Their existing mortgage was originated on or before January 1, 2008, and they have made at least six payments.
• They are not able to pay their existing mortgage without help.
• As of March 2008, their total monthly mortgage payments due were more than 31 percent of their gross monthly income.

Lender participation in the HOPE for Homeowners program is voluntary, and the lender must be willing to write down the loan to 90% of the home’s current value. Junior lien-holders have to take a total loss on the loan because they are required to release their lien on the house in order for the borrower to participate in the program.

When contacting any of the HOPE for Homeowners lenders on the list, you “are strongly encouraged to contact your servicing mortgage lender and any subordinate lien holders since their participation is vital for you to refinance into a HOPE for Homeowners mortgage,” HUD advised.

If you are experiencing difficulty in communicating with your current servicing lender and/or subordinate lien holders, you may wish to contact a housing counseling agency to ask for advice and assistance in reaching a mutually agreeable solution, like a loan modification that helps borrowers avoid foreclosure.

Investors reacted enthusiastically to the U.S. government’s plans to spend $250 billion to buy stock in private banks. The Dow Jones industrial average rose about 120 points a day after its record 936-point jump. Investors are hoping that these extraordinary steps by the government will help revive the stagnant credit markets. The Dow’s advance Monday by far outpaced its previous record for a one-day advance, 499.19, scored during the last days of the dot-com boom in 2000.

President Bush said Tuesday the government will use a portion of the $700 billion bailout to inject capital into the nation’s major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.

Stocks are seeing increases in the Asian and European markets, as well. Hong Kong’s Hang Seng index rose 3.19 percent, after a more than 10 percent increase on Monday. Japan’s Nikkei index, catching up from the country’s market holiday Monday, jumped 14.15 percent — the largest increase ever. In afternoon trading in Europe, Britain’s FTSE 100 jumped 5.57 percent, Germany’s DAX index rose 5.26 percent, and France’s CAC-40 rose 4.97 percent.

Banks appear to be growing somewhat more willing to lend to one another. The London interbank offered rate (LIBOR) for three-month dollar loans fell to 4.64 percent from 4.75 percent, after a 0.07 percentage point dip on Monday. LIBOR is important because many consumer loans, including about half of all adjustable-rate mortgages, are tied to it.  Even FHA home refinancing has slowed as borrowers wait to see what the Federal Reserve has up his sleeve.

“This begins to penetrate the core of the problem,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.  But, he said, “There will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession.”

All we can do is wait to see if the stock market continues its ascent and if banks begin FHA mortgage lending to consumers again. This won’t happen immediately, but at least there seems to be light at the end of the tunnel. At this point, conventional lenders are still not lending to anyone with a credit score of less than 700. If you’re looking to purchase or refinance your loan, FHA loans still remains the best bet.

FHA has received a lot of press in the news lately mainly because of the two foreclosure rescue programs: FHASecure and HOPE for Homeowners. But, did you know the FHA has several other refinance loan programs available to those looking to buy a home and those looking to refinance? Here are some of those programs:

• 203(b) – this is the standard single-family home loan program. It’s the loan most people have heard of because it’s the most common purchase loan program.

• FHA/VA 203(v), also known as the FHA/VA Tandem Loan – Most people haven’t heard of this one because it’s only available to veterans. Those who have used their VA eligibility or those who want to use their VA certificate later on can use it. The FHA/VA loan doesn’t involve the veteran’s entitlement, and there are no limits on how often the loan can be utilized. Veterans can only finance single-family homes with this loan. They are not allowed to finance duplex or other multi-family properties.

• The FHA Adjustable-Rate Mortgage (FHA ARM) combines the three-percent down payment guidelines of the standard 203(b) program with the features of an ARM. But, unlike the subprime ARMs and exotic hybrid ARMs (interest only and negative amortization loans), the FHA ARM does not allow negative amortization, and maximum interest rate increase caps are limited to 1 percent per year and 5 percent over the life of the loan.

• Section 245’s FHA Graduated Payment Mortgage (GPM) plan allows a borrower to pay lower initial monthly payments during the early years of the loan. Mortgage payments are structured to rise gradually for a set period of time, generally from five to seven years, and then remain fixed for the remainder of the loan. This enables borrowers to grow into higher monthly payments as their income increases.

• The FHA Growing Equity Mortgage (GEM), under Section 245(a), is designed to allow the borrower to grow equity in his or her property at a faster rate than with the traditional 30-year mortgages, while at the same time keeping payments low during the early years of the loan. With the GEM, payments increase between 2 percent and 7-1/2 percent each year (depending upon the particular plan), with the increase being applied directly to the principal balance. The loan is thereby retired in approximately fifteen years, dramatically reducing the overall cost of the mortgage.

• Section 203(h) is available to anyone whose home has been destroyed or severely damaged in a federally declared disaster area. The funds can be used to rebuild the home or purchase a new one; however, the borrower’s application must be filed with the Department of Housing and Urban Development (HUD) within one year of the President’s declaration of the disaster. Under this program, 100 percent loans can be obtained (including closing costs). The borrower can pay prepaid expenses such as property taxes and insurance, or the lender can premium price the loan (charge more interest) and pay the prepaid items for the borrower.

• Section 203(k) insures loans used to rehabilitate existing residential properties that will be used for residential purposes, or to convert non-residential buildings to residential use or change the number of family units in the dwelling. The 203(k) provides the borrower with interim and permanent financing in one loan. The loan amount, which is based on the property’s after-renovation value, cannot exceed the current FHA maximum mortgage in the borrower’s area.

• FHA Title I program – this is similar to the 203(b) program, but it’s for manufactured housing. A borrower can receive financing for the purchase of a manufactured home and land. The program can also be used to buy just the home if land is already owned, or land if the borrower already owns the manufactured home.

Are you looking to buy a home? If you already own a home, are you looking to refinance? FHA is the best loan option available. Unlike conventional lenders stuck in the credit freeze, FHA home loans are available. Credit underwriting for these loans is quite reasonable, too. FHA home refinancing is flexible and funding is much faster than it used to be. Fill out the loan quote form on this page for more information.

In a recent article from the Originator Times, they discussed some of the details of John McCain’s mortgage plan proposed to help stop foreclosure with FHA home loan assistance from the government. The new loan would be called the FHA 203S loan and there would be no statutory cap so every homeowner is eligible if the home is owner occupied, regardless of loan amount. The Loan-to-Value however would be capped with a max of 100% of the present appraised value for the property. 

With this FHA loan option there would be no credit check to qualify, but the homeowner would need to provide income documentation proving they could afford the revised monthly mortgage payments within the existing FHA home loan guidelines; The homeowners would have the ability to buy down the FHA mortgage rate in an effort to increase the possible number of applicants that could qualify;

Homeowners refinancing with this program would have to agree not to sell their home for at least five years; and the difference between their current mortgage balance, plus any costs of obtaining the FHA 203S mortgage and the current appraised value of the house would be lent to the homeowner by the U.S. Treasury at a nominal interest rate as a 2nd mortgage with no loan payments due.  The Treasury would place a tax lien on the property for principal and interest that must be paid back to the U.S. Treasury when the home is sold or refinanced in the future.

Messina says his plan is a better deal for taxpayers and has bigger rewards for the mortgage industry.“FHA 203S loans made by the Treasury would be paid back eventually since the Treasury would be holding a tax lien on the property.  The final price tag would only be the sum of the deficit amounts lent by the Treasury.  Assuming that property values fell by 20%, the total cost would only be $140 billion.  Taxpayers would get a return in the form of interest once the tax lien is paid off,” explained Messina. 

He added: “In addition, mortgage brokers and lenders could see a significant refinance boom like they did in 2003 because close to a trillion dollars in business would be created by giving those one in six homeowners whose under-water home mortgages as a viable option to refinance.” 

The Mortgage Bankers Association has come out with a new study which speaks loudly about FHA home loans.  FHA loan activity has risen significantly with average loan amount sizes increasing as well. The 2008 MBA Cost Study indicates that average FHA loans originated five years ago have were $162,454 loan amounts and they increased to $195,227 in 2007.  

According to economist Jared Bernstein from 2000 to 2007 household income has actually dropped by $324 when factoring in buying power.  FHA mortgage refinance activity continues to dominate the loan application volumes. According to MBA, in June 2003 a standard thirty year fixed rate mortgage loan could be locked at 5.21%  plus .5 points.  The mortgage rates rose, but not by much. According to Freddie Mac as of the start of October rates for fixed-rate conventional home loans stood at 6.10% plus .6 points.

The US Federal Reserve finally reduced its target for a key mortgage rate by half a point to 1.5%.   The Fed cut interest rates in response to the deflated stock market and declining home values across the United States.  The rate reduction for federal funds rate came simultaneously with interest rate cuts by other central banks as financial markets plummeted around the world amid the panic regarding the global mortgage melt-down.”  According to mortgage banker, Jeff Moran, “It’s still unclear how the Fed cut will affect the FHA mortgage rates for refinancing.”  Moran continued, “As long a home values are decreasing, you can expect the Federal Reserve will be actively lowering mortgage rates in an effort to hold off foreclosures.

The Federal Reserve released a joint statement by central banks stating they had been in “continuous close consultation” throughout the current financial crisis and “cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets”.  “The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,” the statement said.  “Some easing of global monetary conditions is therefore warranted. FHA mortgage refinance applications rose slightly last week so the activity does hint at some revival.

Under the HOPE for Homeowners Act of 2008, new mortgages that are offered by FHA-approved lenders will refinance abusive loans at a significant discount for homeowners facing difficulty meeting their mortgage payments. The HOPE for Homeowners act will make it possible for certain homeowners to refinance their existing mortgages with a 30-year, fixed-rate FHA loan of up to 90% of their home’s value.  FHA home loans have saved many homeowners from foreclosure with competitive fixed rate loans and FHASecure.

Eligible homeowners are those who originated their FHA loans before January 1, 2008, spend more than 31% of their monthly income on their mortgage, and are currently in danger of foreclosure.

Important Notes:

• The program is completely voluntary. The decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.

• If you sell your home after you refinance, you will have to split the equity earnings with the FHA, on a sliding scale basis.

HOPE for Homeowners comes at a time when Wall Street financial institutions are taking huge hits because of their investments in mortgage-backed securities. Many in the housing industry say the law won’t have much impact on the foreclosure rate because FHA lenders are not obligated to participate in the program. However, there is a way to better encourage the lender to accept the program: 

“Be proactive early if you’re getting in trouble,” says mortgage broker Drew Sakson. “Be extremely proactive, and be very early. If you can see that you’re not going to be able to make a payment, call them first.”

FHA Commissioner Brian Montgomery announced today that the new HECM, Home Equity Conversion Mortgage, national home loan limit will be $417,000. The target effective date is November 1,2008. Keep in mind this is only a target date and not an official deadline.  Many reverse mortgage lenders have reported a significant increase of inquires since HUD increased the loan limits.  Reverse mortgages are one of the most unique FHA home loans that are available to senior homeowners who are at least 62 years old. Credit and income have no minimum requirements with this cash out loan.