Lenders Skeptical about FHA Role in Rescuing Borrowers
The Bush administration is depending on the Federal Housing Administration to refinance a lot of subprime borrowers to stem rising foreclosures, including delinquent homeowners under its FHA Secure program.
But lenders have found the FHA Secure program difficult to implement and too narrowly targeted. Industry experts consider the refinancing program President Bush unveiled just before Labor Day to be more of a political gesture by the White House than a viable option for many struggling homeowners.
"It is nice that they offered this FHA Secure product, but it addresses a very small part of the mortgage population that is in need of relief," said Salvatore Tomaselli, chief executive of SearchMyLoan.com.
He noted that 1.2 million subprime borrowers are in jeopardy of going into foreclosure.
David Zugheri, the president and founder of First Houston Mortgage, said the refinancing program has too many limitations that disqualify borrowers. "Where the rubber meets the road, we have not placed one borrower in a FHA Secure loan."
The Department of Housing and Urban Development launched FHA Secure Sept. 5 to assist subprime borrowers who were current on their monthly payments up to the time of the reset on their adjustable-rate mortgage.
Four thousand delinquent borrowers have applied for a FHA Secure refinancing as of Jan. 10, and 1,021 loan transactions have closed, which is below expectations.
"FHA is looking into ways to make it easier for delinquent borrowers to qualify," a HUD spokesman said. But so far, no changes appear to be in the works.
At the same time, FHA has experienced a surge in refinancing activity from subprime borrowers who are current on their mortgages. Nearly 170,000 conventional borrowers have applied for a FHA loan since Sept. 5 and 65,100 have closed.
FHA single-family refinancings totaled $17 billion in the second half of 2007, up from $8.8 billion in the second half of 2006.
Treasury secretary Henry Paulson wants all Hope Now servicers linked to mortgage originators and FHA as they prepare to fast-track subprime borrowers facing resets into refinancings and loan modifications "And they must fully implement connections to FHA," the secretary said in the recent speech.
The president of First Houston Mortgage noted it is difficult to refinance subprime borrowers because the lending was so aggressive in Texas and escrow accounts were not required.
"A lot of subprime borrowers couldn't afford the house at the teaser rate," he said. On top of that they are having trouble paying homeowners insurance and property taxes.
It's like a "one-two punch" with the ARM resetting and the property tax coming due. "It is too much," he said. He expects people who can't pay their property taxes in February will be in foreclosure in June or July.
First Houston Mortgage operates in 20 states and Mr. Zugheri noted FHA is helping to finance subprime borrowers with credit scores as low as 580. However, borrowers with serious delinquencies "are not likely to get a FHA loan."
MRG Document Technologies Group chairman Terry King commented that his firm has helped process 3,000 loan modifications for clients. But when it comes to FHA Secure refinancings, "we haven't seen a single transaction come through yet."
Mr. King noted FHA could be more effective in helping subprime borrowers who are current on their mortgage if Congress passed legislation to revamp FHA and raise the loan limits. House price increases have shut FHA out of too many markets, he said, and Congress has been "negligent" in failing to pass FHA reforms. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/