The biggest thing to remember is that most of this loan is written under the normal FHA guidelines. The FHA Secure loan program will help some property owners, but not as many as one would think. I will explain this part later.
Now the question has been, who does this really help? Homeowners who might go into foreclosure if they don't get any payment relief? The government or President Bush, telling people that they care? Possibly some loan officers who can make so more money off those that they gave subprime loans to in the previous years? My estimate? I would say at least 25% of the loans originated as subprime in the last 5 years could have gone FHA.
Today, Brian Montgomery who is the Assistant Secretary for Housing/Federal Housing Commissioner and Meg E. Burns who is the Director of Single Family Program Development, directed a conference call regarding the FHASecure program.
As I listened to this conference call, I could hear and sense a lot of confused loan officers and underwriters that were part of this call. The main points of the FHA Secure loan program are :
- The Loan Amount - Still can't be more than the required fha mortgage limits. And the LTV (loan to value) can't be more than 97.75% on a rate and term refinance. But you can have secondary financing, a loan that takes second lien position, up to an any dollar amount. This means that your CLTV can be as high as it needs to be. But the 2nd lien would need to be subordinated by the lender/bank.
Now, the problem with this is that you need to find a lender that will either do a new second mortgage at this high ratio or a lender that would be willing to cut some of their losses and subordinate the remainder of their first loan.
- The borrower must have never been late 6 months prior to their payment/rate adjustment. (At the underwriters discretion, they may allow a late depending on the circumstances.) This can only be a conventional to FHA refinance, not FHA to FHA. This would be known as a FHA Streamline Refinance. You can be late after the adjustment though. You have to show proof of the adjustment.
- You can include all arrearages and all late payments into the payoff as long as it fits under the LTV. But these can be included that were after the rate adjustment, not prior.
One major positive -- This can be a great program for those that did 80/20's as a subprime loan. This might help those that have had their values decrease by 10% or so. But they still would need that subprime lender or servicer to subordinate the remaining amount. This could be a big if though.
One major negative -- Many banks and lenders on the servicing side are not with this program as of yet. Think about it, if they had the current loan, why would they want to take a loss at first and a large risk of subordinating anything just to help a client and another lender? Sure, the lender doesn't want you to go into foreclosure, but this will be on a case by case. The lender currently holding your loan that might have to reduce the payoff to fit under the LTV or allow that client to subordinate the remaining principle. They will have a division that will review each of these loans. And if you listened to many of the loan officers who sell their loans, they said they couldn't find an investor that would buy these loans. There are a few out there, but there aren't many.
Conclusion : This sounds like an awesome program from HUD's viewpoint, but how many lenders are on board. And I am not speaking about those that you would apply with, doing your application with them. Be very careful on who you pick. Make sure that they are FHA approved. You can find a HUD approved lender in your area by going to the following HUD website: http://www.hud.gov/ll/code/llplcrit.html Make sure that the loan officer understands this program. There are still some wholes in this program that even Mr. Montgomery said that they had to look into. They were even having a conference call with investors on Wall Street to explain this program in more detail, trying to get them to help with this situation.
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For more information on FHA loans, please go to this link. The FHA Expert You can also go to this group : The FHA Mortgage Group
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Copyright © 2007 by Jeff Belonger
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