House committee passes affordable housing act
Bush administration to help 250,000 homeowners refinanceMortgagePress.comFHA refinance loans President George W. Bush has announced that the U.S. Department of Housing and Urban Development's (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, the 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. "The president outlined a bold initiative ... that will be a lifeline for families in need," said NAMB President George Hanzimanolis, CRMS. "His promise to expand access to FHA-insured loans and work with the lending community to help distressed borrowers couldn't come at a better time. We encourage homeowners who are having trouble making mortgage payments to seek the advice of a professional and learn more about the new initiatives announced." In addition, the FHA will implement risk-based premiums that match borrowers' credit profiles with the insurance premiums they pay (i.e., riskier borrowers pay more). This commonsense, risk-based pricing structure will begin on Jan. 1, 2008. "Many hardworking American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled," said HUD Secretary Alphonso Jackson. "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 aid the FHA in bringing stability to the real estate market by helping break the current cycle of foreclosures and price depreciation and creating much-needed liquidity in the now-constricted mortgage market. "This initiative will have the dual effect of helping stabilize the housing market and the credit markets," said Hanzimanolis. "It is now up to Congress to continue the progress that has been made and pass legislation that will modernize FHA and make it a truly viable home-financing option for low- and moderate-income families." The FHA has recently experienced a substantial increase in the number of conventional borrowers refinancing into FHA products. The number of these refinancing transactions has tripled since the start of 2006. FHA's transactions are projected to surpass 100,000 loans by the end of the fiscal year. To date, these figures do not include refinances for delinquent borrowers. The FHASecure initiative will operate under the same safe guidelines as the FHA's existing mortgage insurance program without affecting the FHA's financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which will offset the risk to the FHA's insurance fund at no cost to the taxpayer. The risk-based insurance premium structure will further expand the FHA's reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA's overall risk management. The move to risk-based premiums ensures that the FHA will remain on solid financial footing as a self-financed agency for the long term. "It is essential that the FHA have the tools and flexibility to adjust its products and programs to meet the evolving needs of borrowers," said Mortgage Bankers Association Chairman John M. Robbins, CMB. "In addition to its vital function helping low- and moderate-income Americans buy their homes, FHA can play a crucial role in helping stranded borrowers keep their homes." FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loans, require escrow for taxes and insurance and continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles. To qualify for FHASecure, eligible homeowners must meet the following five criteria: 1. A history of on-time mortgage payments before the borrowers' teaser rates expired and loans reset; 2. Interest rates must have or will reset between June 2005 and December 2009; 3. Three percent cash or equity in the home; 4. A sustained history of employment; and 5. Sufficient income to make the mortgage payment. "FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates," said Assistant Secretary for Housing and FHA Commissioner Brian Montgomery. "These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund and ultimately prevent risk to the taxpayer." FHASecure will also bring much-needed liquidity to the mortgage market. The FHA anticipates more lenders will offer FHA-insured loans, pool them and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. For more information, visit www.hud.gov.