Fraud fears cloud FHA’s success in stabilizing housing market – National Business –

Posted on April 6, 2009. Filed under: Banking, FHA, Finance | Tags: , , , |

WASHINGTON — As the Federal Housing Administration has stepped in to help stabilize the housing market by underwriting more mortgages, the Depression-era agency is seeing growing default rates that could undermine its health, the Department of Housing and Urban Development inspector general testified Thursday.

Kenneth Donohue also told the Senate Appropriations housing subcommittee that unscrupulous lenders who helped precipitate the housing crisis with subprime loans are moving into the FHA loan system, and the number of fraud cases is a growing concern.

Sen. Patty Murray, D-Wash., who chairs the subcommittee, said that if the FHA can’t pay its debts, Congress may have to cover the shortfall.

“And we don’t have the dollars to do it,” Murray said.

While some see the FHA as the “savior of the market,” Murray said, she’s concerned the agency suffers from outdated technology, personnel shortages and inadequate underwriting.

“Just because FHA has become a major player in saving the housing market doesn’t mean these challenges have disappeared,” she said.

In addition to the resurgence of FHA-guaranteed mortgage loans and the stimulus bill, lower interest rates and an $8,000 first-time homebuyer tax credit are helping to stabilize the market, J. Lennox Scott, the chief executive of John L. Scott Real Estate in Washington state, told the committee.

Two years ago, FHA-backed loans made up only a small percentage of the housing market. The agency didn’t underwrite subprime or adjustable rate loans. As prices rose, the FHA was barred from writing loans on mortgages above $362,500.

The maximum was raised in the stimulus bill to nearly $730,000. As subprime loans and adjustable rate loans disappeared, the FHA now guarantees nearly 30 percent of mortgages. At the same time, the number of lenders doing business with the FHA has grown more than 500 percent.

“As is the case with other mortgage market participants, currently FHA is experiencing elevated default rates and foreclosures and with it, losses that exceed prior estimates,” HUD Secretary Shaun Donovan said.

Donovan said the primary reasons for the defaults were growing unemployment and other economic factors. Donovan said FHA-guaranteed loans didn’t include “unsafe features” and poor underwriting that made subprime and other loans risky.

via Fraud fears cloud FHA’s success in stabilizing housing market – National Business –

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HUD Looking at Hefty Principal Balance Reductions

Posted on April 2, 2009. Filed under: Banking, Finance, Foreclosure Defense, Housing, Loan Modification, Mortgage Audit | Tags: , , , , , , |

The creators of the wildly-popular, one customer served, Hope for Homeowners program are reportedly looking to expand their stable of loss mitigation tools.

The Department of Housing and Urban Development is considering principal balance reductions of up to 30 percent on FHA loans in an effort to keep homeowners afloat, according to National Mortgage News.

Details are preliminary, but basically the FHA would pay a partial claim to the loan servicer or investor of the mortgage to cover the write-down and bring the loan current.

Here’s the kicker though…eventually, the borrower would have to repay the forgiven balance, something I see as a deal killer.

Hope for Homeowners had similar issues, with the whole forcing borrowers to split any future profits from the sale of the property with the government if they accepted a write-down.

But as more FHA loans fall delinquent, it’s clear the agency will need some serious loss mitigation tools of its own unless it wants to meet a fate similar to that of Fannie and Freddie.

FHA loans 90 days or more past due, including those in foreclosure, rose to 7.46 percent last month, up from 6.16 percent a year ago.

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Maryland program to stave off foreclosures

Posted on August 19, 2008. Filed under: Uncategorized | Tags: , , , , , , , , |

Homeowners fearful of losing their homes because of looming defaults and foreclosures could get help through a new state initiative.

Called Homeowners Preserving Equity, the HOPE program offers a commitment of $100 million in private capital to help about 500 homeowners to refinance and switch adjustable-rate mortgages to fixed-rate mortgages.

The state also plans to use $10 million from the state’s mortgage insurance program as an incentive to encourage lenders to provide another $200 million to refinance another 1,000 homeowners.

The goal is to prevent an expected wave of foreclosures due to the recent proliferation of “exotic” loans which include adjustable rate, balloon payment and negative amortization loans.

“The HOPE initiative is an innovative package of foreclosure prevention measures, combining refinancing, mortgage insurance, incentives and homeownership counseling to make sure Maryland families can preserve the equity they have built up in their homes,” said Ray Skinner, secretary of the state Department of Housing and Community Development, in a statement after a June 13 press conference in Dundalk.

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