By Moe Bedard and Aaron Krowne

It has been 4 months since President Bush announced a new refinancing program called the FHA Secure. This new refinancing product was touted as a foreclosure prevention device and viable alternative to homeowners stuck in adjustable rate mortgages as a way “out” of their toxic loan and into a 30 year fixed FHA insured mortgage.

When it was announced, FHA had estimated that would assist approximately 80,000 borrowers.

An article by Patrick Rucker from Reuters came out today and I was alerted to it by my good friend Peter G. Miller of FHALoanpros.com (thanks Peter), that the FHA Secure has helped only 266 borrowers since its inception back in August.

If you do the very simple math, they are currently helping approximately 60 plus homeowners a month and on track to complete just over 1,000 FHA Secure mortgages within a 12 months period.

The way the FHA Secure is going, it would take 80 years to help 80,000 homeowners!

So, what’s the big hold up and hold out by lenders? Why haven’t there been more of these FHA Secure refinances accomplished?

The biggest issue that I see is that lenders are simply not offering this mortgage to borrowers. What people fail to realize is that the FHA Secure Loan is being securitized in separate GNMA pools, so HUD can track its performance. The major problem is that no investors wants to buy a higher risk GNMA pool. That’s why the lenders don’t want to write these mortgages.

Why? They can’t sell them on the secondary market.

As one reader put it;

Well now we have another bogus fix to add to FHA secure. The subprime freeze. If you examined details, it’s obvious that almost nobody will qualify for the freeze (its voluntary anyways). But they did manage to hammer the mortgage backed bond market with that announcement, as investors were afraid the government was about to start retroactively modifying mortgages. That led to a a big jump in rates. So we have the FHA secure that no one wants to buy, a subprime freeze that didn’t freeze anything and higher rates.

I hope they don’t try to help us anymore…..

The underlying theme seems to be that the government, in taking a little-to-no public funding approach, is failing to jawbone the private market into funding formerly-high risk mortgages — even though they are publicly-insured and hence “risk free”.   We would suggest that general capital flight from US markets, both from the credit crisis and due to the falling dollar,  have eliminated a large fraction of the funding that would otherwise be available (perhaps half).

More on the status of the program from Reuters:

WASHINGTON, Dec 17 (Reuters) – A program unveiled by U.S. President George W. Bush in August that is trying to save tens of thousands of homeowners from foreclosure has aided just 266 borrowers so far, according to government data released on Monday.

Officials behind the new initiative, called FHA Secure, said it is on track to move 60,000 delinquent borrowers into stable, fixed-rate home loans.

But between September and mid-December, only 266 such borrowers have cleared all FHA hurdles, according to data compiled by the Department of Housing and Urban Development that was provided to Reuters.

FHA Director Brian Montgomery said the program was off to a slow start but is overcoming bureaucratic challenges and gaining momentum even as the national mortgage crisis worsens.

It is on track to help 60,000 homeowners? You are joking right?!

More from Reuters;

The number of lenders willing to process the new loans has more than tripled to over a thousand in the last month, Montgomery said of FHA Secure.

“We stand by our estimates, at the end of the day. These numbers (of borrowers) are increasing every week. Not quite doubling but close to it.”

Officials at the U.S. Department of Housing and Urban Development note many of the 3,200 delinquent borrowers who have applied for a new loan since September but have not won final approval may yet be accepted.

MORTGAGE PROS HAVE DOUBTS

Still, some of the mortgage brokers and lenders who must sell the new program say it too cumbersome and narrowly focused to help many borrowers.

“I think the concept is great but I’d like to see the people who are even doing these loans,” said Yamila Ayad, a mortgage broker in San Diego, California.

FHA Secure cannot reach most southern California borrowers whose home prices have slipped but are still valued higher than $362,000, the upper limit of loans FHA can insure, she said.

Before FHA Secure can succeed, some mortgage professionals said, it must gain wider acceptance within the industry.

“We do not have a book of subprime business to identify these subprime borrowers,” said Dave Greige, an FHA loan specialist in St. Louis, Missouri. “The subprime mortgage servicers out there need to let their borrowers know about this program.”

Here are the current loan to value ratios that are acceptable under the FHA Secure.

Maximum Loan to Value Ratios for the FHA Secure

States With Closing Costs at or Below 2.1% of the Sales Pirce

  • 98.75% for properties with appraised values equal or less than $50,000

  • 97.65% for properties appraised in excess of $50,000 and not greater than $125,000

  • 97.15% for properties appraised in excess of $125,000

State With Closing Costs Above 2.1% of Sales Price

  • 98.75% for properties with appraised value equals or less than $50,000

  • 97.75% for properties apprased in excess of $50,000

Highlights of the FHA Secure Initiative:

To qualify for the new program, being called FHA Secure, a borrower will have to prove the original loan was being repaid until it reset to a higher rate and they must have 3 percent equity in the home. The FHA does not supply the mortgage loan but it guarantees loans extended by banks and other lenders.

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1. The mortgage being refinanced must be a non-FHA ARM that has reset.

This means that you cannot currently be in a FHA mortgage and it’s for non-FHA mortgage holders.

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2. The mortgagor’s 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.

In order to qualify you CANNOT have any prior lates prior to the adjustment on your loan.

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3. If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.

Not quite sure how to interpret this but I’m assuming that this means that in order to qualify with late mortgage payments then you need to have sufficient equity. Unfortunately, this will most likely cut 90% of homeowners out of the picture because their equity is dropping by the second and also many of the subprime mortgages were near 100% loan to value. So I’m assuming this will not help them in any way. I’m trying to remain positive about this but I also know the reality of what is REALLY going on in neighborhoods everywhere.

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4. Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2), the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing.

This means that your existing loan may have penalties or fees that FHA will not allow to be covered under the FHA Secure, so your lender will have to cooperate and waive those non-allowable debts. FHA will allow an approved second on your home.

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5. Lenders must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

In order to qualify you must prove that the ONLY reason your were late on your mortgage was because your loan adjusted. No hardships will be allowed. No lost jobs, no illness, nothing of the sort.

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Additional Information about the FHA Secure Initiative:

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What May be Included in the FHA Secure Mortgage Amount: FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount. Subordinate Financing under the FHA Secure Initiative: 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 FHA Secure first mortgage and any subordinate lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Educate Borrowers Regarding FHASecure: The FHASecure initiative will take effect almost immediately through administrative action. Counselors should understand this new opportunity and knowledgeably present it as a viable alternative for delinquent borrowers struggling to pay higher interest rates. HUD will soon publish a Mortgagee Letter providing additional and more detailed information regarding the new initiative.

I am following this very closely and I will post any new emerging information that I find.