Obama has made clear that he understands how paramount the FHA mortgage loan system is for revitalizing the housing markets from a local and national level.  Low interest rates and comprehensive FHA loan programs are essential for America to rebuild its credibility with homeowners and new homebuyers.  Most mortgage insiders believe that Obama understands the importance of recapturing property values that will help many families get back on their feet.   The Obama Administration will likely move quickly to reestablish credibility for American home financing.  FHA mortgage rates remain at the lowest levels ever.  Today a qualified borrower could take out a FHA mortgage with a fixed interest rate for thirty years at 4.75%. 

Many believe that Barrack should review a few of the FHA home loan products and provisions to see which loan programs are succeeding and which products are missing the mark.  Hope for Homeowners was a program passed over the summer as part of the FHA mortgage reform package. In a recent report, FHA loan pros said that as of “October 1st and HUD has allegedly allotted 22 people to the program.”  They would not confirm it, but clearly their reports and articles were blowing much needed whistles on the government loan relief programs that were supposed to be saving homes and giving new opportunities to homeowner that were able to qualify for home refinancing.

According to congressional testimony by James A. Heist, HUD’s assistant attorney inspector general for audit, “it is our understanding from the Department that funding for 22 staff positions and approximately $20 million for system improvements have been made available for the Hope for Homeowners program.”  Mr Heist does not say HUD has actually deployed 22 people to work on the H4H program, he only says “it is our understanding” that money has been made available for this purpose. This is hardly re-assuring and, in fact, there is no evidence that anyone at HUD is actually doing anything. How do we know? Well HUD’s figures as of December 31st — three full months after the H4H program began — show there have been 370 program applications but that “no Hope for Homeowners cases have been insured to date.”  Look for Congress to investigate the Hope for Homeowners program and while they’re at it expect them to review the FHA Secure loans as well.

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.