Last week Bernanke wrote a letter to the Senate calling for new, creative loan programs. Then on Friday August 31st, in a HUD News Release...
"President George W. Bush today announced that HUD's Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program... Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing...
To qualify for FHASecure, eligible homeowners must meet the following five criteria:
- A history of on-time mortgage payments before the borrower's teaser rates expired and loans reset;
- Interest rates must have or will reset between June 2005 and December 2008;
- Three percent cash or equity in the home;
- A sustained history of employment; and
- Sufficient income to make the mortgage payment."
My Opinion:
I think it's a great program. There are some good households out there that deserve the opportunity to refinance out of their recasting loan programs and into something a bit more secure/affordable.
BUT...in accordance with eligibility criteria number 1, how many homeowners will we REALLY be able to help? I think that a lot of homeowners looking for help have already defaulted on their recasting loan payment thereby disqualifying them from the program. Personally I think that's a larger portion of borrowers.
Note that FHA will attach risk-based 
premiums to these loans; in other words, riskier grade credit borrowers will pay more. This pricing structure will become effective on January 1, 2008.
In another excerpt from the article:
"FHASecure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.
The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today's cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market."
Because I'm an optimist at heart, I'm a proponent of this program as a positive step; hey, every little bit counts. Do I think that this program will bring stability to the real estate market to the extend alluded to in the above referenced excerpt? No. Unfortunately, we're in for quite the ride as we continue to see this correcting market evolve. What's really going to be brought out into light is the proportion of American Home Owners that have been living beyond their means.
So if I'm a home owner/borrower, what can I do to be pro-active and know that I can be a home owner free and clear of this credit crisis?
You want to go over the following with your lender:
- Credit Reviews - the bar for a minimum qualifying credit score has been raised. FICO score is king of the mortgage arena.
- Recast Reviews - when your mortgage adjusts, you want to be prepared and anticipate what your new payment is going to be. You also want to anticipate any open refinancing options; options such as the one introduced in this article. And if you don't qualify, you want be a part of regular quarterly check-ups so that your taking positive steps towards restoring your credit.
- Freedom Point Reviews - are you living within your means? What kind of mortgage payment will you need to be leading the kind of lifestyle ideally desired? Do you want to pay off your home sooner? Is your mortgage a part of a greater mortgage plan?
- Equity Review - not that each area has suffered but many areas have experienced a declining market. Home appreciation rates are not what they were in yesterday's market. If you want to be pro-active about your home ownership, you need to obtain a clear indication of what your home is valued at in TODAY'S market. But remember, Real Estate is a localized market so talk to your local Realtor; you can find them here at the Realtors Corner!
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Thank You!
Ricardo Bueno - Mortgage Advisor
230 E. Union Street | Suite 200 | Pasadena, CA 91101
Rbueno@wilshire-financial.com | Cell: 323.810.2175
Website: www.ricardobueno.com | Blog: www.industry-report.com
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