FHA Secure Refinance

Will the 3 month old FHASecure Initiative save all the borrowers with subprime mortgages facing foreclosure? The crystal ball is still a little murky on this issue. However, according to statistics, more than 40,000 FHA Secure loans have been approved. Many of the subprime mortgages at issue have loan amounts far above today's FHA mortgage limits. Legislation is under consideration that would raise those limits, but nothing is in place yet to do so. If this FHA reform does pass, many thousands of home owner's will be helped.

The HUD Mortgagee Letter announcing the FHASecure program states:

"If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate lien may exceed the applicable FHA loan to value ratio and geographical maximum mortgage amount."

As usual when dealing with HUD, this is left wide open to interpretation. For quite some time it has already been allowable under the standard FHA guidelines to have a second mortgage resubordinated (i.e. kept in place still secondary to the new first mortgage) even if the second mortgage is above 100% of the value of the home. This has been useful when the borrower has two mortgages, however there has been a foolhardy lack of cooperation by the second mortgage holders. They often refuse to resubordinate, with the result being a default on both mortgages. The second mortgage holder definitely ends up on the short end of the stick then.

With FHASecure, my bet is that bigger lenders who also do FHA lending will refinance their own subprime loans and hold back second mortgages for the balance due - if only to avoid having a default on their own books. However, there are a lot of subprime mortgage note holders who do not offer FHA loans, or are even out of business. It will be really interesting to see how these lenders interact with other lenders and brokers trying to refinance these loans.

Another major factor preventing FHASecure from helping some homeowners is that they have other credit problems which disqualify them from the program. In order to qualify for FHASecure, a borrower must have had perfect credit for the six months prior to refinancing. There are many borrowers who don't fit this profile.

It remains to be seen how useful the FHASecure program will be. It will definitely save some borrowers, but it may not be enough to save those most in need of help unless FHA reform is passed.

Free mortgage information and advice are available at http://georgialoanadvice.com and http://fhaloanadvice.com

Loan officers need more FHA Training to be sure to be able to help the most borrower's possible.