FHA Secure - Is It Just Another Bad Credit Mortgage Loan?

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Education & Training

I've been getting calls on a regular basis about the FHA Secure Short Refinance.  Many people are calling it the Foreclosure Loan or simply a Bad Credit Mortgage Loan.

The primary questions about the FHA Secure are:

Do I have to be in foreclosure?

Do I have to have Bad Credit, is it really The Bad Credit Mortgage Loan?

Let's take a look one at a time...

Do I have to be in foreclosure?
No - people in foreclosure are not disqualified according to HUD rules but are encouraged to talk with a HUD approved housing counselor who can be found here.  Keep in mind that FHA Secure Short Refinance can help people in foreclosure as a foreclosure refinance, but qualifying is dependant of several factors.

Do I have to have Bad Credit?
No - I work with homeowners on a regular basis who have perfect credit and 700 credit scores.  How do they qualify?  It is because they are in a highly volitile adjustable rate mortgage that has recently adjusted or will soon adjust and are now in a financial cinch.  We need to be able to prove that the adjustment in the loan will cause undue financial hardship and the real possibility of foreclosure in the future.

Paul Dunn
Tucson's #1 FHA Mortgage Loan Originator
Arizona USDA Rural Development Home Loans

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Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Paul.... let us be honest here.... the main people that will need a FHA secure loan are those usually in trouble or over their head, right?. And to get a FHA secure loan, don't you have to be late after the adjustment? That would lover your score....     just some food for thought, because I don't think HUD came out with the best of loans here.  Just my .02. Because if people were in trouble, wouldn't you want to be a little more agressive?  Besides, you don't get the same rate either. The rate is like 3/8% to 1/2% higher than normal FHA loans. What does that tell you?  The investor still feels that this is a risky loan. Again, just my .02.

jeff belonger

Aug 24, 2008 02:45 AM #1
Rainmaker
62,049
Paul Dunn
Tucson, AZ
former orginator

Jeff... that is where most originators are missing the boat on this product and when it first came out I thought FHA Secure would be totally useless.  But then after some studying I found the following to be true and have had success with it.

1)  To get an FHA Secure loan you do NOT have to be late, you can be current and NEVER late.  This is where you will find the majority of the people who apply for this loan.  The majority are in goofy arms with good credit and a NASTY reset that has or will soon happen.  I've found this is the biggest misconception regarding the FHA Secure.

2)  Even if you are late, FHA isn't score driven although most lenders who will fund the fha loans are score driven.

3)  The FHA Secure is exactly the same as the standard FHA rate at most lenders, check Flagstar for example.  Although if they are not current on their current mortgage and are qualifying for a new FHA Secure then they will take a pricing hit. 

Here's a real life example:  I have a client who has 732 middle credit score and is on an 8.375% Adjustable Rate Mortgage (I did not write that loan).  His payment is set to adjust to 16% in January and he is upside down in the equity on his home by $30,000.  His payment will double and at that time he will be in a dire financial position.  The current lender will either write off or subordinate the $30,000 he is upside down.

Aug 24, 2008 03:40 AM #2
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Paul.... then why was it written in the FHA secure guidelines, that you had to be late?  Why was it when I listen in on HUD's tele-conference, that they went over this?  Do you have a mortgagee letter that states otherwise?   I am not trying to argue with you.  But if you are told this by HUD, how do you go against that?

Let me ask you this then....  on the FHA part of things, for the FHA secure loan, doesn't your LTV have to be 97.75%?  I know you can subordinate and have a higher CLTV.... but I am going some where with this then.  

Lastly, how can you say that FHA isn't score driven?  They just came out with a new MIP chart that is score driven.....

One more thing.... in regards to your example...  you could then do that as a regular FHA loan, right?

jeff belonger

Aug 24, 2008 03:47 AM #3
Rainmaker
62,049
Paul Dunn
Tucson, AZ
former orginator

Jeff...Not sure about the teleconfrence you mention... Take a look at Mortgagee Letter 2008-13.  It states that borrowers current on their mortgage must be in a non-FHA fixed or adjustable mortgage.  It actually states that ALL conventional to FHA rate & term refinances are FHA Secure loans.  This is directly from HUD in writing, how do you go against that?

Here's a link to the HUD Portal for FHA Secure

Here's a link to a comparisson matrix for FHA Products.

97.15%

Yes, they do have a new MIP chart.  My point about the score was that it doesn't disqualify you or drive up your rate like a conventional loan does.

In regard to the example, a regular FHA refinance IS an FHA Secure.

Aug 24, 2008 04:36 AM #4
Rainer
27,290
Todd Bookspan, MBA
HomeStreet - Scottsdale, AZ
Senior Mortgage Consultant

Paul,


What percentage of servicers are willing to write the loan down to 90%?  I have a few clients that have called theirs with no luck.


Thanks,
Todd

Sep 17, 2008 04:32 PM #6
Rainmaker
62,049
Paul Dunn
Tucson, AZ
former orginator

Todd - none if you have the client call.  If you do these you either need to learn how to negotiate them like a short sale package or outsource the negotiating to someone who can.  I outsource the negotiation part to someone who has been negotiating short sales for years.

Sep 18, 2008 01:44 AM #7
Rainer
27,290
Todd Bookspan, MBA
HomeStreet - Scottsdale, AZ
Senior Mortgage Consultant

What does the "negotiator" charge for this service?  It would make sense to let someone else handle it who specializes in that area.

Sep 18, 2008 02:17 PM #8
Rainmaker
530,850
Chris Brown- Florida Home Loan Specialist | Certified Mortgage Planner
Chris Brown | Certified Mortgage Planners - Orlando, FL
Chris Brown 407.367.2974

Paul may have a better answer Todd, but you can likely call around and find HUD approved counselors that may be able to take the task on.  I reckon the fees will be between $400-$900, depending.

 

Would you agree Paul?

 

Chris the implementer

Oct 05, 2008 01:12 AM #9
Rainer
11,142
Jeff Judge, Baltimore's FHA/VA Purchase, Streamline, and Reverse Mortgage Expert
Eagle Nationwide Mortgage - Owings Mills, MD

We have been outsourcing our loan modifications as well. The thing that I think is funny is that FHA has included streamlines in the FHA secure program in order to boost the "number of people they help". Just food for thought.

Oct 07, 2008 06:10 AM #10
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Rainmaker
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Paul Dunn

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