HUD Terminates FHASecure

The ""Department of Housing and Urban Development"":http://www.hud.gov (HUD) issued a ""notice"":http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-41ml.doc late last week, advising lenders of the termination of the ""Federal Housing Administration's"":http://www.fha.gov FHASecure program, under which FHA was able to insure refinance transactions for borrowers delinquent on their mortgages. While this foreclosure prevention program will sunset this Wednesday, December 31, FHA said it will continue its standard rate-and-term refinance program for borrowers who are current on their existing mortgages.
The ""FHASecure"":http://portal.hud.gov/portal/pagex_pageid=73,1824154&_dad=portal&_schema=PORTAL program was created by the Bush Administration in 2006, to help combat the onset of rising foreclosure numbers across the nation -- a problem that since then has mushroomed into a full-blown housing and economic crisis of historical proportion.
According to HUD, maintaining the program past the planned termination date of the end of this year would have a negative financial impact on FHA's Mutual Mortgage Insurance (MMI) Fund, which pays for any losses the agency must cover when insured mortgages default. HUD said the expected hits to this fund from an extension of the FHASecure program would have to be offset by either substantial across-the-board premium increases or the suspension of FHA’s single family insurance programs altogether.
So, as of December 31, 2008, FHA will not issue any new case numbers for lenders seeking to refinance borrowers into FHASecure loans, the agency said. However, any loans for which the lender has requested a case number and taken a loan application prior to December 31, will be processed and insured by FHA.
Last month, the ""Center for Responsible Lending"":http://www.responsiblelending.org (CRL) and several other industry organizations, including the ""American Bankers Association"":http://www.aba.com/ (ABA) and the ""Mortgage Bankers Association"":http://www.mbaa.org (MBA), submitted a letter to HUD Secretary Steve Preston asking the Department to continue the FHASecure program at least through the end of next year. According to the industry groups, extending the program would help to keep millions of families in their homes and, in the process, stem the wave of foreclosures that are at the root of the country's economic crisis.
""Without doubt, the current crisis has caused a significant decrease in the availability of loan options, along with increasing lending standards throughout all credit markets,"" the letter said. ""In light of all the challenges, banks and mortgage lenders need all possible tools to be successful in these extremely challenging times. The expanded loan options offered by FHASecure are an essential component of our collective efforts to help the largest possible numbers of at-risk borrowers. This is not the appropriate time to permit the lapse of a viable mortgage refinance option,"" the organizations wrote.
According to CRL and its fellow program proponents, FHASecure was designed to help families at more moderate income levels, and its these homeowners who are most in need of assistance right now. Even more important, CRL said, is that the design of the FHASecure program is not set in statute and therefore permits the program to adequately adapt to market evolutions. FHASecure's added flexibility is a key strength during these unpredictable times of elevated delinquencies, CRL said.
In addition to retaining its standard rate-and-term refinance program, FHA said it will also continue its cash-out and streamlined refinance products as foreclosure alternatives. And in addition, FHA's ""HOPE for Homeowners"":http://portal.hud.gov/portal/pagex_pageid=73,7601299&_dad=portal&_schema=PORTAL (H4H) program is currently available to help borrowers who are already delinquent on their mortgages. FHA said it encourages lenders to consider this product for meeting the needs of distressed homeowners.
However, CRL says that H4H is a very new and still evolving program, and cannot serve as a replacement for the FHASecure system. The two programs were created to address rather distinct consumer needs, CRL said, and they differ in the form of assistance that they provide to homeowners. According to CRL, FHASecure is a much more accommodating product.
For example, one of the difficulties in trying to assist struggling borrowers is the fact that loan investors in many cases will not permit loan modifications. And even when investors do agree to modifications, loans may be securitized in such a complex manner that the operational difficulties of obtaining investor approval present a high hurdle to overcome. CRL points out that FHASecure is a refinance program, not a loan modification program, allowing lenders to sidestep such modification obstacles.