It is no secret that the Federal Housing Administration has made significant efforts to make sure that qualified borrowers really want the FHA streamline refinance loan.  Recently, FHA enacted big changes for the FHA streamline guidelines.  Now borrowers that want to lower their interest rate with the FHA streamline must pay for closing costs out of their pocket.  FHA does not allow borrowers to finance any closing costs when streamline refinancing.  That means in most cases that FHA borrowers are covering the $2,000 to $3,000 in lending costs from their savings. 

Did FHA go too far in tightening the Streamline Guidelines? 

The thinking behind the streamline tightening is that by requiring borrowers to pay the closing costs out of their pocket that they will think twice before refinancing and loan defaults will decrease.  FHA streamlines have never allowed cash out and they have not been a problem for defaults and foreclosures.  With depreciating values nationwide it would appear that FHA is protecting themselves and borrowers from increased mortgage balances that would come from a borrower financing the lender fees and closing costs into their FHA streamline loan.  For example, before the streamline guideline change if a borrower had $300,000 mortgage balance, it would be $303,000 after the refinance.  If a borrower refinanced once a year, after a while the balance would be $320,000 and with declining values, this increases the risk as more homeowners would be underwater with their mortgages.

The No Cost FHA Streamline Solution

There are approved FHA lenders that are offering no cost mortgage refinance opportunities for a select group of borrowers.  If you have good income and high credit scores above 700, there is a good possibility that you may qualify for a no cost streamline refinance in which the lender is paying for the closing costs on their end.  This way you do not have to come out of pocket to cover the closing costs and your mortgage balance would not go up because you are not financing fees that FHA will not allow anymore anyways.  Qualifying for no cost FHA streamline loans will take some shopping online to find a credible FHA lender that offers these unique refinancing incentives, but clearly it will be worth it financially in the long run.

FHA home purchase loans only require 3% down-payments so if all goes well, you will be able buy your 1^st home by the time you get back from your honey moon.  FHA home loans provide many benefits, like low fixed mortgage rates and the ability to do a FHA streamline refinance any time the interest rates drop.

The central bank’s commitment to lowering mortgage rates likely spurred buying of 10-year and 5-year Treasury notes, Spinello said. As mortgage rates drop and people refinance out of existing mortgages, dealers in mortgage-backed securities often replace those loans by buying Treasurys of similar origin.   Also helping bonds Tuesday, a report showed U.S. consumer prices plunged 1.7% in November, the fastest pace since 1947. Economists surveyed by MarketWatch were expecting the CPI to fall by 1.4%.  FHA mortgage rates continued to drop, as lender reported FHA loans featuring fixed interest rates were reported across the country.

How will Fed Rate Cut Help Homeowners with Mortgage Rates for Refinancing? 

www.youtube.com/watch?v=_WvYsAT5Kd0

Furthermore, Bernanke said that the interest rates borrowers pay under the program could be reduced from the current level of about 8%, which remains so high because it is hard to find buyers for FHA loan backed securities. To fund the rate reductions, he said, Treasury could buy up mortgage-loan securities bundled by government-sponsored loan securitizer Ginnie Mae, or Congress could choose to subsidize the rate.  Bernanke also announced that would support putting borrowers into home mortgages they could afford over the long haul.  Industry sources said Wednesday that Treasury is contemplating a plan to buy mortgage-backed securities to reduce 30-year fixed mortgage rates down to 4.5% from their current 5.5% level, but it appears this plan might be aimed at helping new homeowners, not distressed borrowers seeking mortgage relief from FHA home refinancing.  He also recommended a plan that would have the government share the cost if the loan servicer reduces the borrower’s monthly payment. Current government initiatives have encouraged servicers to lower borrowers’ payments, but the plans have offered little incentive to do so. Bernanke said this approach would increase the incentive, which would “improve the prospects for sustainability.”

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.

“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.

The pressure has been building in Washington to respond to the huge increases in foreclosure filings. Dodd said he hopes to get the bill approved by the full Senate soon and to President Bush for enactment by early July.  This home loan legislation is the result of weeks of heated negotiations between Dodd and the committee’s top Republican, Ranking Member Richard Shelby, R-Ala.

A key measure in the mortgage aid bill would allow the Federal Housing Administration to insure $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers’ homes. “The passage of this bipartisan legislation marks tremendous progress in my ongoing effort to help stabilize our markets and provide relief to hundreds of thousands of Americans,” said Dodd.

A sticking point had been Shelby’s push to shield taxpayers if borrowers default on their payments after getting government-backed loans. He wanted the FHA plan funded by redirecting money that Dodd’s original bill earmarked for a new affordable housing trust fund. The funds would be paid by Fannie Mae and Freddie Mac.  “My primary concern in negotiations has been to protect the taxpayer,” Shelby said.

The compromise bill will still create a fund to spur affordable housing but would use the funding for that program in the first year to backstop the FHA mortgage program.

How the FHA plan would work

Dodd’s FHA plan is similar in structure to one sponsored by Rep. Barney Frank, D-Mass., and passed by the House on May 8 in a 266-154 vote. One key difference, Dodd’s FHA plan would be in effect through 2011 and Frank’s would go through 2012. Dodd’s plan would also not go into effect until Oct. 1.

To qualify for an FHA-backed loan in either proposed program, lenders would have to be willing to write a new, 30-year fixed rate loan for borrowers for an amount no greater than 90% of the appraised value of the home. The other 10% would be equity for the borrower.

So, in cases where borrowers owe more on their homes than they’re worth, lenders would forfeit any amount owed above appraised value plus 10% equity. They also would have to pay upfront costs to the government to participate.  Borrowers, for their part, must pay an annual premium to the FHA for the insurance backing their new loans. And they must share their equity with the government when they sell or refinance their homes.

They also must meet a number of qualifying criteria. They must be a full-time resident of their principal home. They must have a mortgage debt-to-income ratio of more than 31% under Dodd’s bill and if they have a second mortgage, the second mortgage holder must agree to extinguish that debt before the borrower can enter the FHA program.

The new FHA program could benefit an estimated 500,000 people, according to Dodd. Its cost: up to an estimated $500 million paid for by Fannie and Freddie. If it turns out the costs fall below that level – that is, should few if any borrowers default on their new FHA loans – the funds from Fannie and Freddie would be redirected back to the affordable housing trust fund.

Regulating Fannie and Freddie

The legislation also provides for stricter oversight of Fannie and Freddie. The two government-sponsored enterprises guarantee the purchase and sale of home mortgages in the secondary market.  Shelby had been campaigning for more stringent safeguards than Dodd’s original bill provided. Both Fannie and Freddie have experienced accounting scandals in the past and both saw steep first-quarter losses.

Dodd said he is hopeful he can get the votes he needs to pass the bill through the full Senate in time to go to President Bush before the July 4 congressional recess.  It remains an open question whether Bush would support the bill. He has threatened to veto Frank’s bill.

White House spokesman Dana Perino said Tuesday it is premature to say whether the president would sign the Senate version. “But we’re hopeful that we’ll be able to get to that point.”  Frank said in a statement “it is highly likely we will be able to compromise on a significant housing package.”

According to a recent government lender survey, FHA mortgage rates remained steady with slight drops for FHA home loan rates across the board.  Last week FHA interest rates had worsened, so consumers were relieved tp see the decrease.

Just twelve months ago, 30-year mortgage rates averaged 6.21 %, 15-year mortgages 5.92 percent and the one-year ARM 5.48 percent. The 5/1 ARM averaged 5.92 %. “Recent remarks by Federal Reserve officials, which partly bolstered optimism that financial markets will recover later this year, helped mortgage rates ease up a little this week,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

“Despite the bleak housing market, there was positive news on the overall state of the economy. Retail sales excluding automobiles rose 0.5 percent in April, over twice that of market forecasts, and there was a significant upward revision in March’s figures as well. Also, the consumer price index for April rose less than expected, allaying some market concerns of inflation taking hold,” Nothaft said. Lenders charged an average of 0.6 % in fees and points on 30-year mortgages, up from 0.3 % last week, and 0.5 % on 15-year mortgages, also up from 0.3 %. Charges on the 5/1 ARM averaged 0.6 %, up from 0.5 % last week, while fees and points on the one-year ARM averaged 0.7 percent, compared with 0.6 % a week ago.