The Bush Administration today announced that a federal agency can refinance more subprime loans facing foreclosure, in a move that appears aimed at heading off a Democratic push for a broader housing rescue.
Bush is expanding the Federal Housing Administration’s FHASecure program announced last year to refinance borrowers who became late on payments after a low teaser rate ended. FHA will be able to refinance mortgages after lenders voluntarily reduce the principal owed to a maximum loan-to-value of either 90% or 97% of the home’s current value.
The plan should help an additional 100,000 borrowers, bringing the total refinanced mortgages to 500,000 by year end, reports the Wall Street Journal.
Unlike Democratic proposals to use taxpayer funds to refinance delinquent mortgages on more favorable terms, the Bush plan calls for lenders to take losses and borrowers to pay insurance premiums to FHA.
Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, opened a hearing today on a broader plan. In an Associated Press article, he said the timing of the Bush administration’s proposal was a “remarkable coincidence.”
Here’s more from the FHA release:
In August 2007, FHA modified its refinancing program to help credit-worthy homeowners who missed payments after their teaser rates reset. Now, FHASecure is expanding its eligibility standards. Homeowners who believe they meet this additional eligibility criteria must fall into one of the following categories:
1. Borrowers with adjustable rate mortgages who were late on two consecutive monthly mortgage payments or at two different times over the previous twelve months. FHA will require a 97 percent loan-to-value (LTV) ratio for these borrowers to refinance, the same LTV as FHA’s current standard.
2. Borrowers with adjustable rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past 12 months. FHA will require a 90 percent LTV ratio for these borrowers to refinance.
With these new criteria, the expanded FHASecure can help additional borrowers access a more viable refinancing option and will offer lenders an alternative to foreclosing on these individuals. Lenders may voluntarily write down the outstanding subprime mortgage principal balances to a 97 percent or 90 percent LTV ratio depending on the borrowers’ circumstances. FHA will also encourage lenders to make other arrangements, such as subordinate financing, to “fill the gap” between the existing loan balances and the FHA-insurable loan amount. The refinanced loan amount backed by the FHA would be based upon a new appraisal, performed by an FHA-approved appraiser.
To read an Associated Press story on the Bush program CLICK HERE.
Why are we paying for these idiots’ mistakes? What a waste of taxpayer time and money.
I am so sad that I wasn’t one of these irresponsible people that refi their home, pulled all the money out to buy cars and TVs, and now they are rewarded for being irresponsible. The Gov is taking my tax money to help pay down their mortgages, how fair is that!
Well I guess, I should start to figure out a way to suck off the system, and quit being so responsible!!!
I’d love Mr. Padilla to do some research and tell us who FHA deems to be creditworthy. FHA’s underwriting criteria is as stringent as any prime loan, so I am wondering ultimately whether this program will do any good. If the FHA is underwriting problem credit, which I assume is all subprime borrowers,
they already have had their chance….let the market take its course and let qualified people buy at the lower prices. The sooner they get out of the houses the better
Dam, I shouldn’t pay my mortgage should I? I guess it pays to be an imbecile.
90-97% LTV before they can refinance….Well shoot, since prices have dropped to 2004 levels (or thereabouts) and very little principal is paid during that time, that’s quite a few buyers who won’t be able to refinance despite having good credit!
This is better than the Democrats plan since it’s not my tax dollars paying for it, and with a needed LTV of 90%-97% to qualify, this program is just a bunch of hot air (those in trouble are mostly upside down anyway) - which again is fine with me!
Let the mess work it’s self out and stop trying to reward people who got overly greedy and punishing those that were smart enough to actually look at the numbers they were being offered long term and deciding maybe it was better to wait to buy…
People don’t appear to be reading this too closely. This requires the BANK to write down the principle to 97% of current value or less (which opens up a whole host of problems in terms of who/what determines current value and will these “values” be comparables for future sales or not). Given that only 1 in every 10 short sales is currently being approved by the bank it’s clear to me that lenders are not at the point where they are willing to take that loss. For now, they’re taking their chances on foreclosure and holding on to REO’s for 7 to 12 months after foreclosure in the hopes that someone even more foolish than the last buyer will come along and drive prices back up. This mentality will cease eventually, but not soon.
This plan is just more lip service to cause the gullible to believe that the government is trying to help them. People just need to wise up and either pay or walk away.
More Good mortgage news from a lender friend:
The Economic Stimulus passed in February allowed FNMA and FHLMC (FannieMae and FreddieMac) to purchase High Cost Area Conforming Jumbo (HCACJ) loans from lenders. Loans made between $417,000 and $729,600 started closing in March of this year, but no one was willing to buy them. FNMA had not yet created bundles of mortgage securities for these HCACJ’s, nor clear guidelines on how to sell the loans in the first place. In late April these agencies contracted with several banks to accept an HCACJ loan which is why pricing for these products have dropped. What was a 6.5% 30 year fixed HCACJ in April is now a 5.75% HCACJ in May.
Good news indeed. If you are a buyer with 20% down on a $1,000,000 priced home you can get a $700,000 1st at 5.75% and a $100,000 HELOC 2nd at 5.25%. Interest rates on jumbo loans are no longer the biggest stumbling block in front of home buyers today.
And, yes, Virginia, there are PLENTY of such buyers out there, now going into escrow.