FHASecure Diary Part I - I Took My First Loan App For an FHASecure Loan - Let's Be "Guinea Pigs" Together Saving Alfredo's Home

Last week, I wrote a blog called, Here It Is... The New FHA Loan Program - FHASecure - Mortgage Lates and 100%+ CLTV Allowed. 

It detailed the new FHA program that is supposed to help up to 250,000 save their homes from resetting adjustable rate mortgages over the next few years.

Today, I took my first FHASecure loan application.  I have to believe I am one of the first since it just came out yesterday.   

Therefore, in the spirit of Active Rain, I am going to do a diary of this process for the next 30 days, or however long it takes to close it, or decline it, so we can all, cynics and proponents, learn from this experience together.

As a reminder, this new FHA program allows people whose ARM has adjusted to refinance their home as an FHA loan.  

Here are the highlights again:

1. The mortgage being refinanced must be a non-FHA ARM that has reset.   Your loan must have adjusted already to be eligible.

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.  You can be late on your mortgage but you must prove that you were not late prior to the reset and that the reset is the only reason why you have lates now. 

3. If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.  If you are on a plan with missed mortgage payments that need to be paid, they can be rolled into your new loan, so long as you have enough equity.

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.  

Last night I got a call from a valued real estate agent client of mine, Sam.  Sam sold a home to Alfredo two years ago.  Alfredo got a subprime ARM on 100% financing. 

The rate on the first was 6.99 on a 2/28 IO with a 2 yr hard pp.  He owes $171,000 on the first.

The rate on the second was 9.99 on a 30/15 balloon. He owes $42,500 on this. 

Please excuse the mortgage jargon, but the diary of this transaction is going to require a bit of mortgage knowledge.

Sam said Alfredo was very upset because he could not afford his new reset mortgage payment and would soon lose his home as it had not appreciated much at all.   

"Aaron, is there anything we can do?"  asked Sam.

"Let's try the new FHASecure program," I said.  Of course, he never heard of it.  He brought Alfredo into today for the loan app.

Alfredo bought this condo for $213,500 two years ago.   He has never been late.

The rate just reset this month.  His new reset rate on the first is 9.500%.  He can no longer afford the payment and will go into foreclosure if I can't help him with this new program.

Alfredo believes the value today is $228,000, which will make him able to qualify for this program with no problem and leave 3% equity in the transaction, which is what FHA requires on this new program. 

His new loan amount will be $221,160, which will cover the first and the second and pay all of his closing costs.

His agent who referred me believes its only worth $220,000 or less.    If the agent is accurate, and I tend to believe he is, this is going to test the promise of this new program.

If its only worth $220,000, that will mean I can only get him an FHASecure loan for $213,400, which will not leave enough to pay off the second entirely and cover closing costs.   It will be close but not enough.  If its worth less than $220,000 its even worse.

To add to the challenge, his debt to income ratios are 41/46 but his credit score is in the 700's.  He has limited reserves.

Today, I took the loan app, submitted to processing, who ordered the appraisal and prelims, and title/escrow has ordered the payoffs.

It's going to be very interesting what happens when that appraisal comes in.

If the appraisal doesn't come in, will the holder of the second mortgage take a small loss just to be done, will they resubordinate part of it, or will they challenge Alfredo on his threat of foreclosure? 

I am going to have to get on the phone for this borrower, use every bit of sales and persuasion skill I have learned, and convince this second mortgage holder to reduce this lien or re-subordinate it in part.  

I am excited by this opportunity!!! 

The other challenge to this will be that WMC Mortgage did the loan, both first and second, and America's Servicing services the second now.  

God only knows who owns the second today but I will soon find out.  Getting to the actual decision maker at that bank ought to be interesting as well. 

I am geared up for 60 minute hold times and endless "sorry, not my department" transfers.  This loan is certain to be more of a learning experience than a profitable one.

Will they write a new second mortgage for him to cover his deficits?   Will they defer the payment on this new second for three years as one more payment will push his DTI to a much more difficult underwriting zone? How about our closing costs?  What will happen to those to make this work?

Lot's of interesting questions.   I am very excited about this opportunity and I told the borrower how psyched I was to be getting a chance to do this for him.    

Alfredo is psyched too.  He thought he was going to lose his home and is very grateful to be given this opportunity.   He understands the uncertainty of this loan. 

I let him know that he is one of the first.  I told him this is my first time as well.    

As he was walking out of my office, Alfredo smiled at me and said "Aaron, you and I are the guinea pigs!" 

I said, "Alfredo, you got that right."

Stay tuned.  It ought to be interesting.  I will keep you informed.  I will also appreciate any input you have as I go through this.

UPDATED 10/16/2007:   I am sad to report that this experiment, for me, was a failure.  When FHASecure was released, I was very excited about its promise for client's like Alfredo.  Many Active Rainers argued with me.  They were right.  I was wrong.   

In my experience, this solution will help very few.   I blogged my frustrations at The Headline Reads, "Democrats Want President Bush To Do More To Prevent Foreclosures" Give Me a Break, The Cubbies Are On.   I am at a new company now that does not even offer FHASecure.   Not many banks do.  I know of only one and they are having limited success with it.   

The best option for borrowers in trouble today is note modification. Calling on All Mortgage Lenders on Active Rain! Be a Hero - Give FREE Time To A Distressed Borrower and Help Them Save Their Home thru Note Modification. 

A great place to start is Moe Bedard's website www.loansafe.org.

The good news is Alfredo is going through the loan modification process.  The note holders agreed to not reset the mortgages. 

He has been offered a 30 yr fixed rate mortgage with his bank at 6.750%, and his first lien holder is negotiating with the second lien holder resubordinated their note behind it.   He is confident in the process so for now he is happy.