'H4H' Tally Only 64 Refis

In wake of the subprime meltdown and rising foreclosures, Congress passed legislation in late 2008 authorizing the FHA to refinance up to $300 billion of underwater mortgages to help at-risk borrowers stay in their homes. To date the program has resulted in the agency endorsing just 64 loans under the "Hope for Homeowners" moniker. To call this once-heralded effort a disappointment is being generous.

However, Banker's Portfolio, a vendor that specializes in auctioning bulk REO and portfolios of seriously delinquent loans, has not given up on the FHA program. The Irvine, Calif., company has lined up four government-approved lenders to facilitate H4H refinancings and is testing portfolios for several mortgage investors to see if their conventional loans qualify for the program.

Banker's Portfolio said it has filtered $10 billion of mortgages through its proprietary "decisioning engine," finding that $4.2 billion worth of product has a high probability of qualifying for a H4H refinancing.

"We just crossed the $10 billion mark" with a 42% pull-through rate, said Joel Harrison, director of business development for Banker's Portfolio. He expects to complete his first H4H closings in August.

He also expects more mortgage investors will sign up for the program as it gains momentum which means Banker's Portfolio will have to bring on another five to 10 lenders to deal with the volume.

"Asset holders are very excited about participating," Harrison said, but they want to see a track record first.

Under the H4H program, an asset holder or investor is required to write down the mortgage to 96.5% of its loan-to-value ratio and any subordinated liens must be extinguished.

The Department of Housing and Urban Development is authorized to pay incentives to second-lien holders for releasing their liens. A 90% LTV is required for borrowers with credit scores below 500.

Despite the writedown, the investor converts a delinquent conventional loan into a new FHA-insured loan mortgage and transfers all the risk of future losses to FHA.

In addition, the new FHA mortgages can be packaged into Ginnie Mae II H4H mortgage-backed securities. (Investors that work with Banker's Portfolio have to pay a forward commitment fee for the Ginnie Mae securitization.)

The company's goal is to complete $25 in billion refinancings by Sept. 30, 2011, which is when the Hope for Homeowners program is set to expire.

"The need is still there," Harrison said. "The only thing we are fighting is time."

Meanwhile, the FHA is preparing to roll out a new refinancing option program to prevent strategic defaults by underwater borrowers who are still current on their conventional mortgage.

The Banker's Portfolio lender-partners will be able to offer this option if they decide to "embrace it," Harrison said. "They will review it and determine if it meets their needs and provides a good solution for all parties," he said.

Congressional auditors from the Government Accountability Office interviewed investors and found a lot of interest in the new refinancing option. But investors don't expect many homeowners will qualify because of all the requirements.

The new refinance option requires servicers to write down the principal amount of the first mortgage by at least 10%. The loan-to-value ratio on the newly originated FHA mortgage cannot exceed a 97.75%. If there is second lien on the property, the combined LTV cannot exceed 115%.

"Investors we spoke with supported the principal reduction in conjunction with an FHA refinance," the GAO report says.

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