Ron, I think that there's ALWAYS room for improvement, but I didn't get the same message from the guideline that you did.  It reads:

* The mortgagors 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,
i.e., the homeowners mortgage payment history during the 6 months prior to the reset
showed no instances of making mortgage payments outside the month due.

Is that not stating that they had to be perfect prior to the reset?  It doesn't seem to give guidance about the payment history AFTER the reset, although it's obvious that they're allowed to be delinquent.

Can you clarify how you arrived at you and Broker Bryant came to this conclusion?  I was thinking that the program would really help a lot of people until I read your blog!  =)

Ah - a little higher it states:

This mortgagee letter extends eligibility to borrowers who became delinquent under their current mortgage following the reset of the interest rate.

Surely they can't be this stupid, right?

Gareth,

I was just about ready to cut and paste the verbiage from Mortgagee Letter 2007-11 that you now see and refer to.  That's why I said 2 payments to = deliquent.

I guess  we all can get a case of stupidity from time to time but my thoughts are that they didn't consider the deeper picture and follow-on results to the extent that they should have.

Ron, as you can see just by the comments between you and Gareth, there is going to be a lot of questions about this.  I just finished reading the news letter, and I have to say that it leaves the door to wide open for interpretation for my liking.  If a lot of this is not cleared up and put into more definite black and white terms, underwrites will apply theses guidelines differently, and possibly cause a lot of problems between them and FHA.

We are having our normal Monthly Company Meeting next Friday, and I am sure that the VP in charge of following these things for our company will report on this.  But how our company applies these new standards might be different than another lender sees them.  We are very conservative, and will most likely continue to take a conservative approach to this.

It seems that the area that all lenders will probably be pretty much in line with will be if we get an Approved/Eligible or Accept/Approve from Automated Underwriting, but it is with a Refer decision that I see a mess. 

"FHA encourages all approved lenders to use FHAs TOTAL Mortgage Scorecard to obtain

risk classifications on each mortgage originated under the FHASecure initiative. If

TOTAL renders an accept/approve, the mortgagees underwriter need not perform a

personal review of the borrowers credit history and capacity to repay.  However, in

the more likely event that the risk class is a refer, the underwriter must:"

This seems to get even more unclear with the statement towards the end of the News Letter saying:

"The FHASecure initiative for refinancing borrowers harmed by non-FHA ARMs that have recently reset

is not to be used to solicit homeowners to cease making timely mortgage payments;  FHA reserves

the right to reject for insurance those mortgage applications where it appears that a loan officer or

other mortgagee employee suggested that the homeowners could stop making their payments, refinance into a FHA insured mortgage, and keep, as cash, the amount of payments not made on time."

In my opinion, the thing that is being lost in all this is that the people that this is being targeted at probably already had high ratios and LTV’s before these loans even adjusted, and them being able to come anywhere near the ratios to do this or have enough Significant Compensating Factors to go beyond the guidelines are going to be pretty slime. The Government needs to decide if they are going to help or not help, and if the decision is to help then stop confusing and clouding the means to do it, and just do it in simple easy to understand guidelines.

Ron thank you for starting to bring this to light.  I am sure there will be a lot of varying opinions on this besides mine, in fact there might already be some posted in the time it took me to write this.  If we all share the information that we are getting on this, the better it will be for us all.

Hey Ron, very good post. I too feel this "salvation plan" the gov has put together is not even in the ball park of being something that will help. My sellers that you met with are a perfect example of very good folks that have done everything they can to meet their obligations. If they do not qualify for this program by the time it becomes available then the program has missed the mark by a mile. As we had discussed I'm sure what they are releasing now will change before January. But if it doesn't.....well they just wasted an opportunity to help.

Hi Ron,

I did not get the same understanding of the facts as you did in the Mortgagee Letter from FHA. This program is designed to assist borrowers that are having trouble with their adjustable rate mortgage, after it starts to adjust and there is a specific guideline. After all FHA originally design was to to offset the borrowers that were not A paper. A what point to borrower become accountable for their own circumstances. If a borrower is not late on their payments they may qualify for a strait FHA Loan, or a product in the A-Minus category. My though this is going to be a savior for many families that are heading to foreclosure.

Hi Ron,

I did not get the same understanding of the facts as you did in the Mortgagee Letter from FHA. This program is designed to assist borrowers that are having trouble with their adjustable rate mortgage, after it starts to adjust and there is a specific guideline. After all FHA originally design was to to offset the borrowers that were not A paper. A what point to borrower become accountable for their own circumstances. If a borrower is not late on their payments they may qualify for a strait FHA Loan, or a product in the A-Minus category. My though this is going to be a savior for many families that are heading to foreclosure.

Hi Ron...let me see if I understand this.  The proposal to help people who are struggling with adjustable rate mortgages that are about to reset mandates that even those who are managing to stay current inspite of tremendous difficulties which can be clearly documented must to INTO DEFAULT??  And then, after going into default to qualify for help are not guaranteed to get any?  It doesn't take a genius to see that this is a very unwise "solution."  If on the other hand, borrowers who are not behind in their payments but stressed and in danger of getting behind have the option to re-finance to a fixed rate, as suggested from the comment by Doreen, then this would make a little more sense.

George,

As always and true to form you bring excellent comments and discussion points to the table. I appreciate your feedback and insight. I want to digest your entire response and possibly respond with separate comments to each point you raise.

I do believe that you did hit the proverbial nail on the head in your comment that some of the aspects of the FHASecure Initiative will receive different interpretations by different people to include Underwriters. This program/initiative may very well get off to a rocky start until the guidance and various interpretations get clarified in greater detail by HUD. Even then or even after the dust settles this Initiative may turn out not to be anywhere near a "silver bullet" for many mortgagors. 

More to follow.....

To All:

As I read George Souto's comments and re-read HUD's Mortgagee Letter 2007-11 for the umpteenth time I found myself bombarded with so many thoughts about this FHASecure Initiative and the larger scope of the "mortgage mess" I wanted to go back and dissect everything in greater detail to bring an even deeper perspective to the subject matter. Or for that matter, re-evalute my thoughts and perspectives.

To do this, I feel that I need to reflect on my own loan originations and client dealings over the past few years.  Probably 95% of my originations are purchase transactions and referrals from Realtors. I will admit that I have originated my fair share of sub-prime and Alt-A mortgages with a significant percentage of those being 2/28 or 3/37 ARM's. I have only "proudly" done one Option ARM in my career. This product was used and abused by originators to almost no end. I would say that any originator that made a living off providing/pushing this product off on consumers where not acting in the best interest of their clients. I my one instance my client was purchasing a $800,000 home and could have paid cash for it if he so desired.

When I work through a pre-qualification I make every effort to identify all financing options available to the borrower given the big picture, their eligibility/qualifications while focusing on their intent, what is important to them and their "comfort zone" for repayment terms. Then offer these options with all the pros and cons of each.

As I reflect on these transactions in their entirety the vast majority of the borrowers were placed in these products as there was really no other choice available  to them other than to forego their purchase plans. They could not qualify for the more traditional conventional or government loan products for one or more reasons...quite often...multiple reasons, overall credit, credit scores, qualifying debt ratios, insufficient funds to close, reduced documentation and on and on. So sub-prime or Alt-A was the only solution if they were to complete their purchase. It then became a decision of fixed rate vs. ARM! The ARM was much more attactive with the lower payment and most often a necessity to qualify their debt ratios and/or stay anywhere near their comfort zone for their PITI payment.

In educating my borrowers about the nature of these 2/28 and 3/27 ARM's it was my standard practice to explain to the borrower these products were "band-aid" loans, A quick fix or a means to justify an end, so to speak. That there was a price to pay if they opted to pursue their purchase...a significant risk to their financial future. That these loans would reset.....and reset at much higher rates. If opting to pursue they must do so with the intent of refinancing just prior to the reset.  You must focus, as applicable, on the following: Improving your credit, elevating your credit scores, retiring debt and or reducing credit card balances, clean up adverse/derogatory credit items, maintaining/keeping your mortgage payments current at all costs, and so on. I attend the vast majority of my closings and these points were again voiced at the closing table.

To be continued.....

To All (continued):

Affordability in my local market has been the largest issue or concern in making a deal come together for the majority of my clients, more particularly for first-time buyers and more-so than other aspects of qualification including credit profile.

A quick illustration of this would be a new home purchase by my daughter and son-in-law in 2002 at $90,000 and selling 4 years later (2006) at $204,000 or right at the time our market started it's downward spiral. It was on the market approximately 14 days.  They now know just how fortunate they were!

Our society (the baby boomer's and generation X) are much different than those of my parents/grandparents in that they got to experience life during the Great Depression. This experience taught them that what is desired and/or needed had to be worked and planned for and that it would take whatever time expired or necessary to achieve the finer things of life. Successive generations have been conditioned or taught that "instant gratification" was OK.....that it was normal to want to keep up with the Joneses and the Smiths!  To throw caution to the wind....I  want it and I want it now! 

More often than not and at the end of the day....most of the buyers convinced  themselves that the risk was worth it. So they "pushed the envelop" or "bit the bullet" with absolutely no margin for error. Did I contribute to the mess......yes to some extent....could I have refused to serve the client with these types of loans...yes  I suppose so.....would I be driving a knife into my livelihood...probably.....alienating myself with my clients and those Realtors with whom I have a  relationship....most likely.  Falling on my own sword....absolutely!

Again there is so much blame to spread around to include the lenders, the investors, the loan officers, the mortgage brokers, the legislators and the consumers themselves. Bottom line is that solutions must be identified and achieved....this is imperative! Focus on blame, penalties and prosecution as necessary but do not do it at the expense of losing focus on the priority task at hand.

This is getting better and better. 

I am not impressed with the government's thought process behind the FHASecure.  This has got to be a Tiger by the tail for mortgage people. 

I sold a new home to a couple this morning who qualified for a jumbo loan with a 24/28 ratios.  The husband's comment was funny.  "We're pushing it Lenn, we know, but we plan to be in this house for about 20 years and my income will continue to increase ($200K now).  So, we're willing to push to the limit to get our house. 

I'm still going to shop their loan. 

George, I am still working on my thoughts in your comments...I will get to you later.

Bryant,

Thanks, and let's hope that there may be some changes with this program by the time we re-look and try to avoid the prepayment penalty. All the while there is a continued flight to quality and credit standards are tightening almost daily. As I look at they FHASecure Initiative I overall thoughts of it's value are falling. Some of my perspectives have been somewhat altered but as a whole for the worse which I will go on to explain later.

Doreen,

As George Souto said, there are going to be some varying interpretations and HUD will probably have to issue some clarity. As I reflect on the bigger picture I believe that even a standard refinance into FHA will still remain out of reach for a very large percentage of these borrowers. I will comment on this later. Thanks for your comments.
 

Lola,

You are pretty much on target. Under the guidelines of the FHASecure Initiative they technically have to be delinquent to be preliminarily eligible which is technically a default should the lender want to push it. One payment due is past due, two payments is delinquent. Then they have to meet other standards or criteria such as qualifying debt ratios, sufficient equity position, other credit standing and so  on. So this is by no means a gimme. If they receive an automated underwriting approval they gain some advantage...but still not a given. If they receive a Refer/eligible then it is a uphill battle and are more at the mercy of the underwriter which George Souto eludes to....and there will be some issues with interpretation as well as closer scrutiny of all factors, compensating or otherwise.

To All:

As I reflected on my thoughts and follow-on comments I remembered a marketing article that I wrote over 1 year ago to local Realtors which sort of ties into this situation. I thought that I should cut and paste portions of it here which may help with a continuing dialogue. Here are excerpts from my letter:

Background-Facts:

• The real estate market is changing! The feeding frenzy of the past couple of years is over. This frenzy has led to record sales, exceptionally low times on market, reduced housing inventory, and along with the economy a mind boggling appreciation rate with area median sales prices exceeding $250,000. 
• All of these factors and conditions have served to disconnect a large portion of the potential home-buyers from their affordability and aspirations of homeownership.  There is no doubt that the loss of their hope and the "American Dream" is very depressing for many of them! The solution to achieving or sustaining continued success will, largely in part, come to those of us who can re-connect (re-vitalize dreams) this segment of the market to home affordability, and to the maximum extent possible.
• For many in the Real Estate business it is construed that obtaining fair market share is no longer ripe for the picking! For the seasoned or veteran  Realtors that have been in the business long enough to experience this cyclic market swing it is an inherent knowledge that you must work "harder and smarter" to attain your fair market share of the available business whether you function as a listing or buyer's agent. Anticipation and adaptation for this market swing is paramount for survival, even more so for the less seasoned Realtors. It is time to break out the "Survival Kit."
• On an ever increasing basis, buyer's are resorting to specialty mortgage programs, products and features such as 100% financing, 80/20 combos, interest-only options, hybrid ARM's, etc., to achieve homeownership. Most of these methods or solutions have involved sub-prime lending programs which may serve to exacerbate their future financial stability. Most often by necessity, not choice and a forced conclusion that the ends justified the means! Regretfully, for many that have already taken these creative paths to homeownership there shall be a "day of reckoning" on their horizon.
• The low to moderate income and first-time home-buyer is and will remain the single largest pool of potential home-buyers in our marketplace. Real Estate professionals and Mortgage Lenders who seek out and find or create solutions to their growing dilemma of home affordability will gain a very competitive edge over their counterparts.
• There are good creative mortgage programs and then there are poorcreative programs. Meaning that in many cases there are Agency (FNMA, FHLMC, USDA, FHA, etc.) products available that will provide a buyer with a sensible path to homeownership without having to resort to an inferior (Alt-A or Subprime) program. All too often home-buyers that may be eligible for an Agency product are not afforded the appropriate opportunity. (In-competence and/or improper motive of their loan originator/mortgage broker)

Assumptions:

• The current market absorption rate will hold at best for the near to intermediate term, however most likely increase.
• An increase in the absorption rate is considered more likely with the influx of planned and ongoing condo conversions. There well may be a glut of condos for an extended period of time exacerbating the current market absorption rate.
• Builders will increasingly offer buyers more lucrative concessions package with attractive financing programs to retain market share.  This may serve to steer more buyers away from the purchase of existing homes.
• Another factor that may serve to negatively impact the current market absorption rate is an additional influx of existing homes into the market from those buyers from the past few years. Many of which acquired their homeownership via the means of a "creative" mortgage loan who suddenly realize that their home is no longer affordable.
• One or more of these creative features (short-term ARM's, option ARM's, interest-only option, negative amortization, etc.) creates a change in terms. For many, these changes may come like a thief in the night and the day of reckoning arrives. Their problem may be further compounded in that they acquired their home with 100% financing in a highly appreciated market and median sales prices may be in a downward spiral.
• One key to success will be those selling agents who find creative ways to obtain/retain listings as an integral part of a demonstrated track record of professional service and results for their clients. A key measurement of this is consistently keeping their listings/closed transactions on the front end of the market absorption rate.

Lenn,

Thanks for your comments...they are truly appreciated. Likewise, I do hope this gets better! And by the way I will listen to your RANTS anytime.  Thanks so very much for your post on this subject matter http://activerain.com/blogsview/198144/THE-FHA-INITIATIVE-WITH  and drawing attention to my post. Visit again soon.

Good luck with shopping for your client. I am certain that you will meet with success!

Ron, I have been out all day and finally got a chance to see some of the comments that you have written.  I look forward to reading the rest of what you have to say on this, because it seems that we are looking at this in a very similar way.  What I am most concerned about is that the people that are probably going to need the most help are Borrowers that have Ratios much higher than FHA will accept even in this effort.  To me these are the people that are in no man's land and might not be able to do anything.

For people with high LTV's but with Ratios on the lower side, FHA or FHASecure might provide the answer. If the Ratios are on the high but along with low Credit Scores, but reasonable LTV's  EA-I or EA-II might be the answer. But unfortunately the ones that I am running into that need the most help are the ones with high Ratios, high LTV's and low Credit Scores, because of a bad payment history, and no money in the bank for reserves.  These Borrowers I can't do much for except to offer them advice on what they need to do for me to get them into a new loan.  Most of these people had two years to get themselves in a position to refinance into a better loan, but a lot of them never changed their habits, and now are left with no where to turn.

Ron I will be following your other comments on this, and hope to learn from them. 

Ron the comment above was by me.  I did not realize that I was not signed in so my name did not register.

To All:

Well guess what...I still "Out to Lunch" on my complete perspective/opinion on just what FHASecure will accomplish over the long term. To be continued...ASAP!

However, in the mean time I just made a post USDA Rural Housing Loans: It's Still Under-Utilized

I  will recommend that you read it as its' subject matter ties directly into this post/blog.  I do make a suggestion/recommendation in the last paragraphs of the post that I believe should be considered at part of the solution to the "mortgage mess" and ARM resets.

To All:

I guess that I am not alone in that I am stll "out to lunch" on this program.  I just received a notice that Wells Fargo Mortgage is not yet accepting any applications under the FHASecure program.

An update, please, please, please Ron! A six month perspective is definitely needed.

Tara,

How can I  ignore such a emphatic request?:) I guess that I am long overdue/out to lunch too long on my follow up to this post. Allow me to collect my thoughts and I will respond ASAP.