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“FHA Secure”: The Solution to Foreclosure?
President Bush today announced FHASecure, a new FHA refinance program designed to help trouble homeowners keep their homes. The new program should provide an option for at least some of those people headed into foreclosure due to interest rate resets and skyrocketing mortgage payments.
Who will benefit?
Hard to say just yet, but here are five criteria listed on the HUD cite:
To qualify for FHASecure, eligible homeowners must meet the following five criteria:
- A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset
- Interest rates must have or will reset between June 2005 and December 2009;
- Three percent cash or equity in the home
- A sustained history of employment
- Sufficient income to make the mortgage payment
Number 3 in particular interested me. After all, if a homeowner needs to have 3% equity (or cash) in the home, this lifeboat won’t hold the folks who owe more than their homes are worth. That will be a key question for many here in Sacramento CA. I was hoping this might be similar to the old FHA Streamline Refi’s we did years ago. Value and appraisals were not an issue then and the borrower could refi to a lower rate as long as they had been current on their existing FHA payments.
For further clarification, I called FHA’s Resource Center. Unfortunately, according to Rodney, the details have not been published. He could not confirm whether or not the homeowner has to have equity in the home or explain exactly what number 3 means.
He was given a memo this morning clarifying that the reset must have caused the default and that payments have to have been current prior to the reset. The memo also cautions that “this program is not to be used to solicit or entice homeowners into not making their payments.”
The final confusing line of the memo is one that neither Rodney nor I could decifer. It says that FHASecure may allow approved FHA lenders, at their discretion, to forgive the amount of indebtedness that cannot be refinanced through an FHA insured mortgage or by taking a second lien that includes closing costs, arrearages, or secondary financing.
I’ll post a follow up when I figure what that means exactly.
Is your lender FHA approved? Not everyone is. Need some help with an FHASecure? Give me a call or email!
August 31st, 2007 at 4:10 pm
In order to clarify your points above, I received the following information directly from a HUD email. If you would like more information, I have included some links at the end of my post.
1. The mortgage being refinanced must be a non-FHA ARM that has reset.
2. The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments.
3. If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.
4. Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2), the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing.
5. Lenders must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.
The email was, as usual, extremely long, drawn out, and went into excruciating detail. However, these were the main points of the email.
To read the entire press release, please visit: http://www.hud.gov/news/release.cfm?content=pr07-123.cfm
LENDERS PLEASE NOTE: FHA WILL PUBLISH A NEW MORTGAGEE LETTER WITH GUIDANCE ON THE NEW FHASecure PROGRAM ON OR ABOUT TUESDAY SEPTEMBER 4th, 2007 at: http://www.hud.gov/offices/hsg/mltrmenu.cfm
September 1st, 2007 at 8:29 am
Good morning. Great information. I am definitely going to share with my customers. Everyone was asking and commenting all day yesterday, I have heard so many versions, most of them with political inflection.,…this will be great to share….right on point….well as close to point as we can be right now. Hold on to your hats though, congress comes back from vacation on tuesday.
have a great holiday.
September 4th, 2007 at 9:06 pm
So when do they tell us whether FHA will refinance borrowers who owe more than their homes are worth?
The memo alludes to something like that, but it would be great to get the details.
September 5th, 2007 at 9:09 am
I don’t see where it indicates that FHA will finance more than what is owed on a home, rather that “(1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2), the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing.”
Provided the existing lender agrees to these terms, it would appear to me that “FHA will refinance borrowers who owe more than their homes are worth”, but not lend more than these properties are worth because they also state that the property needs to have “…sufficient equity in the home, under additional eligibility instructions.”
September 5th, 2007 at 9:12 am
Here’s a link to HUD’s new Mortgagee Letter (issued yesterday, as indicated in the initial memo):
http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=MLET&s1=07-$[no]&op1=AND&SECT1=TXTHLB&SECT5=MLET&u=../html/shortcut.htm&p=1&r=1&f=G
I haven’t had a chance to read through it yet.
September 5th, 2007 at 9:14 am
Here’s a link to the HUD Mortgagee letter:
http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=MLET&s1=07-$[no]&op1=AND&SECT1=TXTHLB&SECT5=MLET&u=../html/shortcut.htm&p=1&r=1&f=G
September 5th, 2007 at 9:30 am
I found this…
“If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate lien may exceed the applicable FHA loan to value ratio and geographical maximum mortgage amount.”
September 5th, 2007 at 7:26 pm
Darin, thanks for that clarification. And it is the existing lender, as I understand it, who may execute that 2nd for the shortfall and continue to carry that note.
September 7th, 2007 at 4:53 pm
Interesting, especially item #3. I think the ones that need the most help will be those that are in a neg equity situation. I wonder what the chances are that the existing lender will execute a 2nd, in this market. Just the knowledge of the existence of the program might be of some benefit to the markets.
I truly hope it helps some folks, even if just a few.
September 16th, 2007 at 9:15 am
Of course it has been allowable for quite some time under the standard FHA guidelines to have a second mortgage resubordinate even if the second mortgage is above 100% of the value. This has been valuable when the borrower has two mortgages, however there has been a decided and foolhardy lack of cooperation evidenced by the second mortgage holders. They often refuse to resubordinate with the result being a default on both mortgages. The second mortgage holder definitely ends up on the short end of the stick then. With FHASecure, I bet you will have bigger lenders who also do FHA lending refinance their own subprime loans and hold back seconds for the balance. If only to avoid a default on their own books. However, there are a lot of subprime note holders who do not do FHA loans or are even out of business. It will be really interesting to see how these lenders interact with other lenders and brokers trying to refinance these loans.
September 19th, 2007 at 9:14 am
I think Darin has it correct. FHA is saying that the “lender” may execute a second, but which lender are they referring to? I doubt that the new FHA lender will be interested in issuing a new 2nd mortgage that exceeds 100% CLTV.
It’s far more likely that they are referring (if Bush even gets this) to the existing 2nd holder executing a new note or a resubordination to go back behind the new FHA 2nd.
Carl is correct that FHA has previously allowed this practice, but only on FHA Streamline refinances. These are FHA to FHA rate and term refinances only and the borrower must have had a clean mortgage history on the FHA loan.
What’s in it for the existing 2nd holder? Ongoing payments, a “performing asset”, and a chance that the home owner can stay in the home long enough for the market to come back. In a market like Sacramento where values have dropped precipitously, most 2nds (of the 80/20 variety) will be wiped out entirely. Better something than nothing.
We’ll see how this shakes out. The Bush proposal was a political move in my opinion. When I talk with lenders, they don’t know the details and haven’t decide which parts of this they will participate in. Most are saying it will be January ‘08 before they will know.
September 19th, 2007 at 9:41 am
At least since Oct. 2005, subordinate financing has been allowed on FHA refinances regardless of the combined loan to value - even on cash out refinances. As long as we are “leaving it in place”, not creating a new lien. So it has only been effective for borrowers who already have 2nds. Not for lenders who are creating a new mortgage to cover the amount above the FHA limit. I’ve done several of them when refinancing FHA to FHA and Conv to FHA. The biggest problem is getting the lender who’s going to be left in 2nd place to agree.
Here is the quote from the mortgagee letter.
“ML 2005-43: Revised Refinance Transactions (10/31/05)
Subordinate financing may remain in place, but subordinate to the FHA insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.”
HUD has already had conference call training giving the details and several lenders are already implementing the program
September 19th, 2007 at 10:04 am
I was on that conference call, and they indicated that the secondary financing may be provided by the existing lien holder or the proposed lender. (Dare I say that any available secondary financing would probably be acceptable to the program, should any lender agree to provide this financing.)
HUD did indicate that they were looking into getting State, Local, and City government cooperation in providing this secondary financing, due to the fact that no lenders seemed to be participating or providing any piggyback products.
They also indicated that they could not provide the name of any lender at this time who is participating in FHA Secure, although it was made available to all lenders as of Sept 4th. As they indicated, each lender will have to review the program, and determine whether (or not) they deem it something they want to participate in.
May 5th, 2008 at 9:39 pm
[…] When FHA Secure was announced by the Bush Administration back in August of 2007, the FHA folks were perplexed. I know because I called them. First of all, FHA had already been doing unlimited CLTV refinances for a couple of years. Second, you didn’t have to be in default on your mortgage to qualify. And third, nobody had any idea what the hell the administration was talking about. Those familiar with the Cervantes classic Don Quixote will remember Alonso Quixano, the county gentleman who descends into fantasy and reconstructs a farcical reality in which he fights unwinnable battles with imaginary enemies. The familiar phrase “tilting at windmills” has become iconic for the persistent pursuit of futile endeavors. […]