FHA is now New Century, IndyMac, Wamu, Lehman and Countrywide all rolled up into one.
The failed $300 Billion Hope For Homeowners (H4H) program that the markets heralded when it was announced this summer is getting revamped. This is because it was a bad idea in the first place – only 100 applications have been submitted as of Oct 1st. Hear that?!? 100 applications. 100 freaking applications! Its no wonder why there is no faith in the solons actions.
Remember Dodd and Schumer pumping this with all they had? If they would have just called me, I would have told them it was fundamentally flawed – I wrote about it several time. Now this is just more tax payer money already ear-marked that they will spend however they want. Their choice is to spend the money on more bad loans. Remember, borrowers who participate in this program are in default already at other banks.
Part of the new plan is to buy worthless second mortgage paper from the banks. This is because part of the reason H4H was not successful is because second mortgage holders don’t want to write down their loans in order to make the new first mortgage work. Humm – so how do they fix this little problem??? You got it – pay off the banks.
Second mortgages are basically unsecured credit cards and widely unsecured by virtue of the home prices falling below the amounts of the total first and second loan amounts. I am sure the banks love this one especially if FHA pays face value. Even Bernanke told the House these loans are worth as little as a nickel. FHA buying second mortgages from banks balance sheets opens the doors right up for massive problems.
The reasons for the H4H failure are simple – banks do not want to participate because they have to write first mortgage principal balances down too much and waive second mortgage liens. Getting a bank to waive principal is next to impossible as you know. That is the primary reason that every foreclosure prevention plan brought forth has failed thus far. Additionally, borrowers simply don’t qualify without exotic-type loan programs.
FHA WILL NOW BE THE BIGGEST EXOTIC, HIGH LTV and HIGH DEBT-TO-INCOME RATIO lender around.
Actually folks, because FHA is a government agency you and I are taking the hits for all the losses to come from this program. If this style of lending caused the great mortgage and housing meltdown in the first place, why would issuing new loans in the same manner to previously defaulted borrowers have a different outcome?
Once again the government is changing the rules to bailout the banks – see underlined sentences in bold below. This program does waive principal which I condone, but with high housing debt-to-income ratios, 40-year terms, and near 100% LTV’s allowed, borrowers are better off renting. When the value of their homes drop another 25-50% in the next two years, they will walk away and rent anyway.
The mortgage and housing crisis can be solved. It will be a painful and expensive process but it is far better than the alternative and throwing $300 billion of sh** against the wall every month to see if it sticks. I write about it in yesterday’s The Great Mortgage Modification PUMP – GOD SAVE US ALL – Best Mr Mortgage
FHA Help for Homeowners Changes:
Source: Housing Wire
“Clearly, meaningful changes were needed,” Preston said. “These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD’s Federal Housing Administration.”
“Expanding the eligibility criteria and making the program less expensive for both the borrower and the lenders will allow us help more borrowers,”
“These changes, including increasing the loan to value ratio, extending the term to 40 years, and allowing for upfront payments to subordinate lien holders, are all improvements which should make the program more accessible and attractive,”
- changes include increasing the loan to value ratio (LTV) from 90 to 96.5 percent
- reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lienholders (banks)
- Another change to the program involves simplifying the process to remove subordinate liens by permitting upfront payments to lienholders (buying second mortgages from banks)
- change will allow lenders to extend mortgage terms from 30 to 40 years, possibly reducing borrowers’ monthly payments enough to make it possible for them to qualify
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