FHA Helps B&C Refinancing

Now that the FHA Secure program has fallen short in helping slightly delinquent subprime borrowers, proposals are being floated to expand the Federal Housing Administration program to refinance a growing number of seriously delinquent borrowers.

The Credit Suisse Group has proposed an expanded FHA Secure program that could potentially help 600,000 delinquent subprime borrowers refinance into an FHA-insured mortgage. Under the CSG proposal, lender/servicers "may need to forgive some debt" to meet FHA loan-to-value and debt-to-income requirements. And the borrower must make three timely payments on the modified loan before FHA insures it.

The National Association of Realtors is working on a similar proposal. But the Realtors contend it is too risky to have the FHA refinance these borrowers and only require a 3% downpayment. Based on certain risk criteria, NAR wants the loans refinanced at a 90% LTV or 80% LTV to compensate for the credit risk and to protect the FHA from falling house prices. Major banks have taken billions of dollars of writedowns and losses on their subprime obligations. It's time to transfer those writedowns to the actual mortgages, one source said.

In response to the subprime meltdown last August, President George Bush directed the FHA to create a special program to refinance subprime borrowers that had missed a payment or two in the past 12 months.

The Department of Housing and Urban Development launched the FHA Secure program on Sept 5. By the end of December, lenders had refinanced only 400 delinquent borrowers.

Lenders found the FHA Secure program too difficult to implement and too narrowly targeted. Credit Suisse estimates the current FHA Secure program could refinance only 5% of the 600,000 borrowers it hopes to reach. The American Securitization Forum also has proposed an expanded FHA Secure program that is modeled after the Credit Suisse plan. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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