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.”

Last week it seemed that Bush may have opposed the FHA loan expansion programs. Ironically, the FHA was born in 1934 during the great depression in an effort to stabilize the housing market with the mission of HUD’s fair lending policies.  The thirty-year mortgage loan featuring a fixed interest rate was a FHA initiative.

Secretary Paulson informed Congress to forget about passing a Democratic bill that would create a special Federal Housing Administration fund for refinancing one to two million homeowners with home mortgages that were greater than the home’s value.   According to mortgage banker Bryan Dornan, “FHA has clearly been the savior for home financing products for the mortgage industry in 2007 and 2008.”  Dornan continued, “Having the ability to offer Americans a quality home loan with an affordable rate is critical during these uncertain financial times.”

Under the proposal sponsored by Rep. Barney Frank, D-MA and Sen. Christopher Dodd, D-CT., FHA mortgage lenders would have to write down the mortgage to 85% Loan-to-Value. The FHA loan proposal would give lending-investors the option of taking a “quick hit or a slow bleed,” one pundit of the bill remarked.  It might also offer homeowners a new opportunity with an affordable FHA mortgage and a fresh start.  Recently we were told that Housing Dept of Urban Development has been working on a similar mortgage product. But the Bush administration does not want Congress to tinker with it, because it would be available faster by using FHA’s existing authority to mold the loan products for today’s circumstances.

Negotiations over an unprecedented $700 billion bailout opened on Sunday between Congress and the administration of President George W. Bush. The idea of this intervention is to revive the U.S. financial system, which includes a plan to sweep away the unpaid loans that are choking banks and blocking the flow of money to borrowers.

Mortgage rates remained low, but home lending guidelines continue to tighten.  Most brokers are reporting that FHA home loans have taken 75% of the market share.  According to Nationwide Lender Jeff Moran, “FHA mortgage products are most attractive because they underwrite loans beyond the credit scores.”  FHA mortgage guidelines promote fair lending with underwriting practices that encourage qualifications based on compensating factors like, equity, assets, benefits and likelihood of the proposed borrower making the loan payment on time each month.

The sweeping proposal would have the Treasury buy up bad mortgage-related debts from financial institutions, including U.S. subsidiaries of foreign banks, to try to stem the worst financial storm since the Great Depression. This is supposed to leave banks with more money and fewer problems, according to two sources familiar with what was said at the meeting.

The Securities and Exchange Commission (SEC) is considering further limits on short-selling, a practice that allows investors to bet on a decline in a company’s stock price, according to a person familiar with the matter. Critics of the practice say short sellers are driving down the share prices of financial companies, thereby contributing to their destruction. So, short sales could very well be out of the housing market picture in the very near future.

People are withdrawing money from money-market mutual funds. Banks are refusing to lend to one another. Several large financial companies need money to stay in business, including the bank Washington Mutual, which is seeking a buyer. Regulators and the banking industry are increasingly concerned about customer withdrawals from money-market funds. Crane Data, which tracks the industry, said total deposits in money-market funds fell Wednesday by at least $79 billion, or about 2.6 percent.

Money-market funds are particularly important because they buy short-term debt, which is used by financial companies and other corporations to finance day-to-day activities.

“As of now, the Bush administration has only offered a concept with a staggering price tag, not a plan. Even if the U.S. Treasury recovers some or most of its investment over time, this initial outlay of up to $700 billion is sobering,” says Democratic presidential candidate Barack Obama.

If a plan does move forward, Democrats may try to demand concessions from the suddenly humbled industry, said Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, including support for a proposal to permit bankruptcy judges to modify mortgages for distressed borrowers. Currently, judges may set new terms for mortgages on second homes but not on primary residences.

At this point, all of this financial turmoil seems only to affect conventional loans. Credit is pretty much frozen.  FHA Lenders don’t even want to lend to each other much less borrowers, which is why FHA, VA and other government-backed Ginnie Mae loans are being extended (particularly for refinance loans) at a record pace. What’s happened so far is that interest rates have dropped lower than they’ve been in a year.

With sellers having to deal with a huge inventory of houses on the market and declining prices, they have to make what they have for sale stand out in the marketplace. One of the ways is to be open to FHA home refinancing and other government-backed loans. It may take a little longer to process the loan, but at least loans are being extended through the government-backed channels rather than being stagnated as are conventional loans. It’s better to jump through a couple of extra hoops in getting your house sold than to let it sit while all this financial mess is sorted out by investment bankers that adversely affect lenders and their ability to lend.

If investment banks aren’t making any money, they can’t fund loans. So, until investment bankers can make money to fund lenders, conventional lenders won’t be able to extend loans, so FHA and other government-backed loans are pretty much the only players in the housing market. Sellers need to accept FHA home loans, and borrowers need to apply for them to buy houses. This financial mess has made FHA not only the refinance loan of choice, but also the purchase loan of choice.

FHA lending standards are still reasonable, and FHA only requires 3% down. However, the down payment requirement will be going up to 3.5% in January of next year. But, that’s still a lot better than what conventional loans have to offer. And, at least you can get a FHA loan. Not too many people can get conventional loans right now, and they probably won’t be able to for quite some time to come. If you’re looking to buy while housing prices are low, FHA and other government-backed loans are the best way of securing financing for your new home. Otherwise, you could be in for a long wait, especially if you’re a first-time buyer who can’t afford a 20% down payment.

The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies. The two government sponsored enterprises (GSEs) own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt. Treasury Secretary Henry Carlson said he hopes the move will lower FHA mortgage rates, increase home buying and slow down the drop in home values.  The government plans to move these two mortgage giants into the FHA home loan division for the time being.

The news, first reported on The Wall Street Journal’s Web site, came after stock markets closed. In after-hours trading Fannie Mae’s shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac’s shares fell $1.06, or almost 21 percent, to $4.04. The news also follows a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.  The FHA secure refinance loan was created for foreclosure prevention so this number may drop further in the next few months.

The number of new mortgage holders entering foreclosure in the second quarter stood at 1.19 per cent of all US mortgages, the Mortgage Bankers Association said Friday. This is the first time the rate has topped 1 per cent in the 29-year-history of the association’s record keeping.  Fannie and Freddie have suffered 14.9 billion dollars in losses from the widening mortgage foreclosure crisis in the US that has rippled outward to foreign investors. The central banks of many countries, including those in Asia, hold considerable stock in Fannie and Freddie.

The US Treasury has plans to put Fannie and Freddie into a so-called conservatorship, House Financial Services Committee Chairman Barney Frank told Bloomberg financial news agency, after a briefing by Treasury Secretary Henry Paulson on Saturday.  “What they are talking about doing are two things, one is conservatorship and two, putting some money into them. I think it’s an important combination,” Frank said.

Daniel H. Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts eventually, the Wall Street Journal reported. The value of the company’s common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the Washington Post said. The Federal Housing Finance Agency (FHFA), a new agency that Congress created this summer, will regulate Fannie and Freddie.  Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies’ losses warrant, sources told the Washington Post late Friday. This would be an attempt to minimize the initial cost of the rescue, the paper said.

How is all this going to affect the housing market?

“I think it is probably a good thing. We could see the foreclosures were going to continue and something needed to happen. This will bring some cash to the organizations and I think it’s going to bring some stability,” said Greg Bauman, president of the St. Paul Area Association of Realtors.

Bauman said if the government would not have taken over, and Fannie and Freddie failed, the results would have been devastating. Now with the government in control and funding the organizations, and with new CEOs in place, Bauman said there will be more stability in the housing market.

Local mortgage brokers have commented that there is a void for down-payment assistance loans with FHA.  However, local home buyers and sellers may not see that much of a difference.  “I don’t think consumers are really going to see a real impact. I don’t think we will see a big change in interest rates and mortgages or the qualifying for them,” said Bauman.

The Housing Wire reports that the Standard & Poor’s Ratings Services lowered Fannie and Freddie’s preferred stock rating to ‘BBB-’ from ‘A-,’ while cutting a host of other ratings as well, and warning that further cuts may be coming in the future. The ratings agency said it cut the ratings over “increasing uncertainty about whether government support will extend to these securities in the context of further deterioration” in each GSE’s assets. It further reports that it’s becoming clear that holding preferred interests in either GSE is going to be hazardous to Q3 earnings.

Shares of the two mortgage financing giants each hit a new 52-week-low. They’ve lost more than a fifth of their value on Wednesday as fears mounted that the companies will soon need government support. Regional banks and insurers hold the majority of Fannie and Freddie’s $36 billion in preferred stock, and any bailout would hang these stockholders out to dry.  Many financing experts wonder why Fannie and Freddie have not moved to a insured home loan platform like FHA.  The government has backed FHA home loans and FHASecure for fixed rate refinancing and foreclosure prevention

Dow components Bank of America (BAC, Fortune 500) fell nearly 4% while Citigroup (C, Fortune 500) was down 2.5%. Wachovia’s (WB, Fortune 500) stock fell 7%. And shares of the investment bank Lehman Brothers (LEH, Fortune 500), which is facing its own concerns about the need for more capital, plunged 9%.  “There’s a big negative feedback loop and there’s no way out of it,” Friedman, Billings, Ramsey & Co. analyst Paul Miller said in an interview. “As the stock falls more and more, it’s more likely the government steps in and more likely equity holders get wiped out.”

It’s looking more and more like the government bailout of Fannie Mae and Freddie Mac will become the taxpayers’ burden. JP Morgan Chase & Co.’s CEO, Jamie Dimon said in a Q2 earnings call that prime mortgages looked “terrible.” This is an indicator that it’s not just sub-prime mortgages with bad credit that are going sour. Even with all of the loan modifications, the home foreclosures are not stopping.

Fannie Mae has reported a loss for the past two quarters while Freddie Mac has posted three consecutive quarterly losses. Both companies are expected to report a loss in the second quarter as well.  Fannie Mae’s chief executive sought to reassure investors that no bailout is imminent. They haven’t offered anything and we haven’t asked for anything,” Fannie Mae CEO Daniel Mudd said in a public radio interview Wednesday morning. “I don’t anticipate that they will do that.”

Armando Falcon, who served for six years as Fannie and Freddie’s chief government regulator, expects a full-fledged government takeover before year-end. The companies’ financial picture is far worse than they have acknowledged, he said, particularly for riskier mortgage loans they purchased as investments.

Following Freddie Mac’s August 12th announcement that it won’t purchase subprime loans fitting New York State’s new definition for that credit class, Fannie Mae recently announced that it too will not purchase New York Subprime loans.  Fannie Mae will not purchase or securitize any mortgage loan that meets the definition of a subprime home loan under New York law, regardless of whether any provision of the law is preempted for a particular mortgage or for a particular originator,” senior vice president Michael Quinn wrote in a seller bulletin dated Aug. 19.

Quinn suggested that New York’s new definition of subprime falls under what the government-sponsored entity (GSE) sees as “high-cost” or “high-risk” home loans, and said that Fannie has had a long-standing policy of not purchasing such mortgage loans for securitization or for its retained portfolio.

Housing Wire reported that the percentage of subprime borrowers 60 or more days in arrears at the end of last month surged for both the 2006 and 2007 vintages, up nearly 7 and 11 percent compared to June, respectively. Sources indicate one of the reasons for this is because a large volume of repayment plans put into place earlier this year for troubled subprime borrowers are now failing.  According to mortgage lender Jeff Moran, “FHA mortgage rates have increased slightly with the fears of Fannie and Freddie being taken over by the Fed.”  A recent report from Moody’s Investors Service found that more than 50 percent of subprime adjustable-rate mortgages modified during the first half of 2007 had become 60 or more days delinquent by the end of March 2008.

Who will lend to New York subprime mortgage holders now?

It appears now that the only lender willing to handle subprime loans in New York is the federal government through the Federal Housing Administration (FHA) loans. As a result of new legislation passed to address the foreclosure epidemic, the FHA has two new programs: FHASecure loans which are due to expire on December 31, 2008 and HOPE for Homeowners, due to start on October 1, 2008. These programs are foreclosure prevention programs, and only those facing foreclosure due to recently resetting or soon to reset subprime loans.

Alt-A Loans –Another  Serious Cause for Concern

Another type of loan that is problematic that isn’t being addressed by either of the GSEs, Fannie Mae and Freddie Mac, or the FHA: Alt-A loans. Alt-A loan default rates are also rising at alarming levels. HousingWire.com reports that Alt-A delinquencies continue to worsen in July. It continues by reporting that the 2005 vintage — which should be seasoned by now — saw delinquencies jump an eye-opening 29 percent to 9.72 percent of remaining loans in the vintage; the increase is somewhat telling as well, given that prepayment rates actually fell by more than 5 percent in the same timeframe. Beyond the 2005 vintage, 2006 vintage Alt-A loans saw 60+ day delinquencies rise from 22.74 percent in June to nearly 25 percent in July; for the 2007 vintage, delinquencies rose from 20 percent to 21.35 percent. Weighted average loss severity also increased for Alt-A loan liquidations during July, according to the Clayton data: hitting 39.7 percent, compared to 38.6 percent one month earlier.

What is an Alt-A Loan?

An Alt-A loan is also known as an alternative documentation loan. The Mortgage Reference Library provides an example: a self employed borrower who makes $250,000 a year, but for tax purposes, writes a lot of that income off. These FHA home loans are held by borrowers with good credit that don’t qualify for conventional loans due to various circumstances like being self employed or having an income that is comprised mainly of commissions or bonuses. Another example is someone whose credit scores are slightly lower than what is required for an A paper loan, or someone who doesn’t have quite enough asset documentation. In short, Alt-A loan holders are not as high-risk as subprime loans but are deficient in some way to qualify for an A paper loan. Alt-A loans typically carry a slightly higher interest rate than conventional loans.

So, what’s going to happen with Alt-A loans and people who’ve lost their jobs?

With all the attention that the fed is giving to subprime loans, what about the Alt-A loans? There is no bailout for these types of loans. Will Fannie Mae and Freddie Mac decide not to purchase these loans like they’ve decided not to purchase New York subprime loans? What about people facing foreclosure due to job loss, medical bills or other financial distress? Like holders of Alt-A loans, people who are simply in financial distress due to job loss, medical bills or other reasons are not being addressed by the federal government or GSEs. Unless a solution that addresses all the reasons foreclosures continue to rise is reached, the foreclosure epidemic doesn’t look like it’s going to end any time soon. It will be interesting to see how the new president will handle this being that our country will be well in the midst of a housing and foreclosure crisis when the new president takes office.

Government-insured mortgage applications tripled in the past year according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Of all mortgage applications accepted during the month of July 2008, 29.1 percent were for government-insured loans (consisting of mostly FHA loans) compared to 8.4 percent in July 2007.  FHA home loan volumes continue to rise as conventional lending continues to tighten.

Data from the U.S. Department of Housing and Urban Development (HUD) show that the level of conventional to FHA refinance applications has increased 317 percent on a year over year basis in July, the bulk of which is likely from subprime ARM products. Similarly, the level of conventional to FHA refinance endorsements has increased 260.8 percent on a year over year basis. Based on the MBA survey, application volume for government-insured loans was up 133.9 percent in July from a year ago.

In March of this year, the Economic Stimulus Act of 2008 temporarily raised the FHA and conforming loan limits for most areas in the country, which broadened FHA financing options for more borrowers. The Housing and Economic Recovery Act of 2008, passed in July 2008, permanently raised the lending limit, not quite as high as the Economic Stimulus Act, but high enough to still broaden the reach of FHA mortgage loans.

FHASecure, under the Economic Stimulus Act of 2008, provides holders of subprime adjustable rate mortgages (ARMs) the opportunity to refinance their loans to more affordable fixed-rate loans. This program is due to expire on December 31, 2008. The other foreclosure bailout program will begin before the expiration of FHASecure. HOPE for Homeowners will be initiated on October 1, 2008. Like FHASecure, it allows holders of subprime ARMs to refinance into more affordable fixed-rate mortgage loans.

The news isn’t so great for conventional mortgage applications, the MBA reports that those fell to the lowest level in 6 years. Application volume for conventional loans was down 50.2 percent. Refinancing activity led the downward charge last week, according to MBA data, dropping 3.7 percent to 34.8 percent of total applications down from 35.2 percent the previous week. Purchase applications fell 0.4 percent, despite mortgage rates that appear to have eased somewhat during the week. The MBA’s preliminary rate survey found that the average contract interest rate for 30-year fixed-rate mortgages decreased to 6.47 percent from 6.57 percent; formal rate surveys are due out Thursday.

“With two more weeks left until the unofficial end of summer and mortgage rates threatening six-year highs, little on the horizon suggests any reversal of the current seasonal trend through the end of 2008,” said Mortgage Maxx publisher Paul Descloux.

The recent influx of activity for FHA home loans underscores the need for modernization of FHA’s lending guidelines. The new FHA Modernization Act of 2008 proposes to make the much-needed modernizations, which will be tested as more and more applications for government-backed loans keep coming in. The massive shift from conventional to government loans is due mainly to the fact that conventional lenders have tightened down lending standards to the point where only those with high credit scores and very low debt-to-income ratios can qualify. FHA’s standards are more reasonable, and allow those who have some credit challenges the opportunity to be a homeowner and to refinance troubled loans.

Even if a borrower doesn’t have a troubled loan, they are afforded the opportunity to refinance their existing loans into competitively priced FHA home loans. If you’re interested in getting a FHA loan or refinancing into one, fill out the free loan quote on this page, or call us.

Freddie Mac announced Tuesday morning that it will not purchase mortgage loans in the state of New York that fall under the state’s new definition of “subprime”.  “The state of New York has enacted legislation that creates a ‘subprime home loan’ category of mortgages,” wrote vice president of customer outreach Patricia McClung in a memo to sellers and servicers. “Freddie Mac will not purchase New York subprime mortgages with note dates on or after September 1, 2008 that fall within the law’s definition of ‘subprime home loans.’”

What does this mean to home borrowers?
“Mortgage lenders will just decide to stop lending in certain areas,” said one source, a banking executive that asked not to be named. “We could end up with an entire class of borrowers that I call ‘the unlendables.’”

This exemplifies the position that conventional home lenders are taking. They are tightening their belts on lending practices to the point where it’s getting to be nearly impossible to qualify for a home loan. Fortunately, however, the FHA has stepped up to the plate. Under the Housing and Economic Recovery Act of 2008, just recently signed by President Bush, the FHA is being modernized to help with new home purchases and bring hope to those facing foreclosure.

The FHA Modernization Act of 2008 raises the FHA home loan limit. The current loan limit is $362,790. Under the new legislation it will be raised to $417,000 in certain parts of the country. In less expensive markets, the limit would be raised from 48 percent to 65 percent of the conforming loan limit, or an increase in the ceiling from $200,160 to $271,050 under the bill. It also does away with seller-funded down payment assistance programs like AmeriDream. But, since many lenders have already done away with these programs, it’s inconsequential. And, you can still get down payment assistance from family, friends, employers, churches and city-,county- and state-funded down payment assistance programs.

HOPE for Homeowners Act of 2008 was put in place to bring hope to those facing foreclosure due to skyrocketing mortgage payments as a result of subprime adjustable mortgage rates resetting to record high levels. This program allows these people to refinance into a fixed-rate FHA home loan.

FHASecure is not part of the new legislation. It was put in place earlier this year to address the rising foreclosure rate. It allows people facing foreclosure to refinance their mortgage loans into FHA fixed rate mortgages. This program is due to expire on December 31, 2008. The new HOPE for homeowners act will pick up where FHASecure leaves off.

Even if you’re not facing foreclosure, you can still refinance your home through FHA–just not through the HOPE for Homeowners or FHASecure programs. Fill out the free loan quote on this page or call us at 800-606-5143 to find out if you qualify for a FHA refinance loan.

In a recent article, Carol Marshall reviews the latest FHA home loan programs created to help homeowners stay in their houses with prevention measures against home loan defaults.  HUD secretary Steve Preston has been on the job as the Secretary for HUD for a month. Preston made his announcement in Detroit, which he called “the epicenter of the foreclosure crisis,” for his 1st significant address as HUD secretary to announce an aggressive foreclosure prevention assistance program.  Under the program, HUD would enter a joint venture partnership to buy bad loans from lenders, Preston said at a July 9 Detroit Economic Club meeting. The new FHA loan program will begin in Detroit, one of the country’s hardest-hit foreclosure markets. “Traditionally, when all FHA loan modification and loss mitigation measures have been exhausted, mortgage lenders foreclose and then submit a claim to FHA,” Preston said. “Under this program, we will create a means for lenders to sell their non-performing mortgages before foreclosure to HUD and a joint venture partner.”   FHA is trying to prevent foreclosure losses and may assist the troubled housing market stabilize, he said, at a time when the market remains on the brink of future disaster.

Experts estimate as many as 2.5 million foreclosure filings this year, Preston said, compared to 1.5 million in 2007. The average is 650,000. Housing prices are down between 4 % and 17 % nationwide. At the same time, FHA lenders have pulled back from originating loans, which are at their lowest levels since 2000-2001.  In Oakland, Wayne, Macomb, Livingston and Washtenaw counties, there are some 40,000 houses on the market now, representing a 17-month supply, well above the national average of 9.6 months. A six-month supply is considered normal, Preston said.  ‘This is tough on families, very tough,” Preston said.  In some parts of the country, the market was impacted by the housing bubble. But in Michigan, fundamental economic challenges prevail.

“Sub-prime lending is not in and of itself a bad thing,” Preston said. “It has been the path to home ownership for very responsible people. But irresponsible behavior has led to a dangerous proliferation in the market.”  There is $1.3 trillion in outstanding subprime loans – about 12% of the market, but more than half of the foreclosures.  Non-prime avariable rate mortgage loans represent 6% of outstanding home loans, but more than 40% of foreclosures, with more than 1 in 4 of those home loans currently more than ninety days past due or in foreclosure.

Unfortunately, the worst may be yet to come.  “We have another $150 billion in subprime ARMs resetting in the next 18 months,” Preston said. “We’re right in the middle of that reset period of time. We have to understand that we will continue to be flooded with a need to work out these loans.”  That’s where the government has been at the center of the solution, Preston said. Government supported lending is essentially the only source for non-jumbo loans.  FHA home loans, Fannie Mae, Freddie Mac and the Federal Home Loan Bank have absorbed the retreat of the private sector, he said.  But HUD needs to protect itself as well, Preston said. So the department is pushing to institute risk-based pricing on FHA mortgage insurance. “FHA will price the insurance premiums for borrowers according to their credit risk,” he said. “Today the typical borrower pays 1.5 points …. Riskier borrowers will pay 2.25.”  He disputed critics’ claims that risk-based pricing hurts low-income borrowers.  “The facts show the opposite. Risk-based premium pricing will actually benefit lower-income borrowers. Contrary to conventional wisdom, FHA families with lower incomes actually have higher FICO (credit) scores. They are hard-working people who live within their means and pay their bills,” he said.

FHA has taken some measures already to try to stem the tide of the foreclosure crisis – temporarily eliminating the 90-day requirement for buyers to hold a property before selling; increasing FHA home loan limits to as high as $729,000 in some areas of the country.  The recent alliance with HOPE NOW, an organization that offers aid and advice to distressed homeowners has proven to be a wise move.  Hope connects these borrowers with mortgage lenders in an effort to revise their existing mortgages to allow homeowners to remain in their properties at an interest rate they can afford while establishing effective housing counseling programs.

In a recent article published by the Star Tribune, H.J. Cummins raises some interesting home loan points.  Cummins assets that income alone “does not explain why minority borrowers got a disproportionate number of sub-prime home loans in the run-up to the current foreclosure crisis.”.  That study also ranked cities by the home loan disparities between white borrowers and those from racial and ethnic minorities. Only Milwaukee gave a worse sindication than the Minneapolis metro area, based on data concluded in 2006.  The 2007 and 2008 data in not available yet.  This data was gathered and collected under the federal Home Mortgage Disclosure Act (HMDA).

John Taylor who is the head of the National Community Reinvestment Coalition said “The financing data reminds us that the current housing crisis was overwhelmingly the result of the explosion of bad loan products in financially vulnerable communities.” However it should be noted that the the study did not consider credit scores or loan payment delinquencies.  FHA home loans are the most popular financing tool used today for buying or refinancing a home and they do not use credit scores into the underwriting score card.  

In the Minneapolis area, middle- and upper-income blacks were three times more likely than comparably paid whites to get loans that carry more expensive terms designed for high-risk borrowers called sub-prime or “Alt-A” home mortgage loans. Middle and upper-income Hispanics were 2.4 times more likely; Asians, 1.6 times.

Dave Snyder, a community organizer at Jewish Community Action in St. Paul was not surprised by the financing data revealead. “It’s not a statistic that stands in isolation,” Snyder said. He continued by noting that Minnesota has one our country’s lowest homeownership rates for black people, and one of the highest for white people.