FHA refinance activity rose once again this last month as homeowners continue to make efforts to lower their FHA rates and monthly payments.  Homeowners like FHA refinance programs because the rates are low as the agency promotes fair lending and affordability. In a tough economy, many borrowers don’t qualify for a FHA streamline because they can’t afford to pay for closing costs and lender fees.  Consider a no cost FHA streamline that is available to qualified borrowers who have not been late on their FHA loan in the last 12 months.

Fixed FHA Rates starting at 4%

To figure out the average interest rate, we consider the FHA mortgage rates on Monday through Wednesday of each week from FHA lenders around the country. FHA rates often fluctuate significantly, even within a given day. FHA rates on five-year adjustable-rate mortgages averaged 3.76 %, down from 3.79 % a week earlier. Rates on one-year adjustable-rate home loans dropped to an average of 3.64 % from 3.70 %. The FHA mortgage rates do not include add-on fees known as points.

FHA Cash Refinancing FHA Streamline Refinance FHA for Home Improvements

Take advantage of FHA’s flexible credit guidelines and streamline loan process and get approved for an FHA refinance today.  As an approved FHA lender, we have the volume to justify the lowest FHA rates online.

Few mortgage executives would dispute that FHA home loans provide stellar options for home-buying and refinancing. The story of the collapsed of mortgage markets has been told.  Unfortunately, the effects are still hindering the housing recovery for most of the nation.  This organization’s mission is to bundle and sell home mortgages insured by the Federal Housing Administration (FHA). These mortgage-backed securities are backed by federally insured or guaranteed loans. FHA’s spectacular growth means the organization now insures $560 billion in mortgages.  FHA loan forecasts predict that by year’s end, Ginnie Mae’s mortgage exposure will top $1 Trillion. Along with Fannie Mae and Freddie Mac, Ginnie Mae provides some federal taxpayer guarantee for nearly 9 out of 10 new mortgages in the US. Moreover, the scope of the federal guarantees is the heart of the problem.

What are some of the characteristics of the FHA mortgage insurance program? The FHA loan program features low down payment loans to homeowners of below average to poor credit ratings. The profile of such a lender should be familiar to all and we came to know these loans as sub-prime home loans. The very type of loan that toppled Fannie Mae, Freddie Mac, and Countrywide Financial is back in vogue! Statistically, 7% of FHA’s loans are in default and 13% are delinquent by more than 30 days. The reserve fund backing the insured loans is now 3% implying a leverage ratio of 33%, which is dangerous territory. Refinancing programs approved by Congress add to these woes as hundreds of thousands of borrowers presently unable to pay mortgages move to FHA loan programs. This includes loans in the sub-prime and other exotic realms. Part of the refinancing program includes mortgage reductions of up to 30% to mitigate imminent home foreclosures. Naturally, the 30% home loan forgiveness must be taxpayer financed. There are cases of borrowers with 25% negative equity qualifying for FHA home refinancing under this program. The latter case is especially troubling since one has to ask how many banks would willingly offer FHA refinance terms to a borrower when their collateral is 25% less than the loan amount? Is it even a smart proposition for a borrower to enter into such a loan? How many of these borrowers will default even with new mortgage terms?  In the story, a former Fannie Mae executive noted the FHA might require a bailout (a familiar term lately) due to potential losses of $54 billion.  So consider that one of the pillars of the US mortgage industry is essentially bankrupt.

FHA Mortgage rates dropped below 5% again this week for the first time since May.  Freddie Mac announced in their weekly report that mortgage like FHA loans were available at 4.96% on 30-year fixed rate schedules.  Rates for 15-year fixed interest rates reached 4.36% which created a new opportunity for FHA customers who have been waiting for FHA streamline refinancing to make sense.  Most FHA borrowers would save money with a FHA streamline refinance if their current interest rate was more than 5.5%. 

FHA Lenders have reported refinance FHA activity has risen this week and many anticipate the next few months to be very busy with borrowers looking to capitalize on the low mortgage rates.  FHA credit requirements continue to maintain the most flexible guidelines for bad credit and lack of equity.

In the last two years, FHA introduced several loan modification plans and mortgage relief programs, like FHASecure and Hope for Homeowners and today they announced a third attempt with a new FHA loan modification program.  These past FHA home loan modification performed well because they never really got off the ground with the participating FHA mortgage lenders.  At press time, FHA mortgage rates remained at record low levels.

Most of you will remember how FHASecure was pushed out by the Bush Administration in an effort to salvage homeowners stuck in an ARM that was about to reset to a higher interest rate.  This FHA loan program was intended to enable delinquent borrowers a mortgage refinancing option with low fixed FHA rates. FHA Loan Pros discussed it in a recent article; HUD claims that “FHASecure has helped more than 100,000 borrowers remain in their property, but the reality was only 3,800 delinquent homeowners received specific aid from the FHASecure program in 2008.

Then late last year, FHA announced the lending savior, Hope for Homeowners that was designed to do what FHASecure was not able to accomplish.  The press ate it up and FHA was the home financing talk on airwaves for months. Unfortunately as of June 30th for the Hope for Homeowners program could account for 949 mortgage applications but only 1 Hope for Homeowner loan could be documented.   FHA remains determined to extend a loan modification to distressed homeowners, so hopefully this new FHA initiative will succeed.

The New FHA Loan Modification Program

o    FHA announced their new mortgage relief program to help distressed FHA borrowers.

o    The FHA home loan is refinanced and 30% of the FHA mortgage is placed into an interest-free second mortgage that must be paid back when the home is sold or refinanced.

o    Borrowers can qualify with ratios of 31/55. The first ratio says that up to 31% of the individual’s monthly income can be used for housing costs and that 55% can be used for housing costs plus other monthly debts.

o    The homeowners must be able to document a hardship (ie. an income change, loss of employment etc.) and it must be deemed as a long term hardship.

An industry group lowered their forecast for 2009 home loan originations by more than 25% as higher FHA mortgage rates stifle mortgage refinancing activity.  The Mortgage Bankers Association estimates that lenders will make $2.03 trillion in new home loans this year, down by more than $700 billion from its forecast in March.  The Washington-based group attributed $84 billion to reduce mortgage lending on home purchases.  The rest of the decline would be from fewer FHA refinance loans and “very low” volumes on an affordability loan program overseen by mortgage agencies FHA, Fannie Mae and Freddie Mac, MBA said in a statement.

FHA mortgage rates have risen from record lows since the MBA’s prior forecast as have Treasury yields, which spiked amid a flood of debt issuance needed to fund federal rescue programs.

In March, the MBA boosted its forecast of mortgage originations by more than $800 billion but reversed most of that expected increase with Monday’s revision.  Average 30-year loan rates have slipped from recent peaks but at 5.38 % last week remain well above the record low 4.78 % set in April, Freddie Mac reported on Thursday.  The higher mortgage rates have quelled home refinancing demand.  The MBA’s index of mortgage refinancing applications in the week ended June 5 sank to 2,605.7 after hovering between about 5,100 and 6,800 from the March 20 week through the end of April.

Estimates of home loans moving through the Home Affordable Refinance Program, using Fannie and Freddie, have also fallen short.  According to Jay Brinkmann, MBA’s chief economist, “While generally accepted estimates were that around 1.5 to 2 million borrowers might avail themselves of this FHA loan program, with many more potentially eligible, to date only about 13,000 loans have been completed according to press reports.”

Though the FHA home loans created under this program should increase, volume is unlikely to come near forecasts, he said.  FHA home purchase loans are also expected to be less than expected in March. Falling prices mean lower loan sizes, and homes bought in foreclosure and by investors are often done for cash, the trade group said.

The MBA expects total existing home sales in 2009 to drop 1.2 % from last year to 4.8 million units. New home sales will slump about 27 % to 352,000 units, the group said.”Median home prices for new and existing homes will likely continue to fall, dropping by about 10 % from 2008 levels, but leveling off in 2010 as the economy improves,” Brinkmann said.

The Obama plan would temporarily approve Fannie Mae and Freddie Mac to provide mortgage refinancing that they own or guarantee with loan-to-value ratios (LTV’s) of as much as 105% without appraising the property or requiring additional mortgage insurance.   That means that first and second mortgage loan balances can be 5% greater than the property’s appraised value.  This is good news for thousands of homeowners who recently found themselves upside-down with mortgage balances that exceeded that home values. Because of the lack of home equity, these homeowners were previously unable to qualify for traditional or FHA refinance loan.

Borrowers who don’t have mortgage insurance on their current home mortgages will not need it under the plan, Lockhart said.   Without new appraisals, the loan-to-value ratios could be far higher than 105%, masking the companies’ true risk, said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia.   “They’re a public policy arm of the federal government right now,” Miller said of Fannie and Freddie. “They aren’t being run for profitability.”