Recently HOPE NOW has taken a number of steps to increase the program’s effectiveness. Along with an improved website and upgrades to the program, HOPE NOW is running an advertisement on television. The commercial features a young girl packing up a doll house when her mother enters the doorway, surrounded by boxes, telling her its time to go. The voice over tells viewers that the effects of foreclosures go beyond just the homeowner and gives the HOPE NOW phone number (1.888.995.HOPE). It’s good to see that more is being done to get the word out to homeowners in distress.

I was recently contacted by a couple asking for advice on their housing situation. Due to the recent market conditions, their house has greatly depreciated in value and their payments have become too much to handle. They are currently trying to work with their lender, but are still concerned about losing their home. What should they do?

I have a few major pieces of advice. First, contact a housing counselor immediately. Through the HOPE NOW program, housing counselors can help you figure out your options and, hopefully, avoid foreclosure. Plus, the counselors are available free of charge, so you’d be crazy not to take advantage of it. Distressed borrowers can call HOPE NOW directly at 1-888-995-HOPE (4673) to get started on the process.

Additionally, you need to stay on top of your lender. Lenders like Countrywide are already notorious for their poor customer service and are also working with many other borrowers in your exact situation. Don’t count on them to take care of things without a little pressure. Also, don’t be afraid to negotiate. When you lose your home, they lose money; so they should be willing to make concessions to keep you in your home.

Lastly, don’t count on pending legislation or litigation to save you. Although states like Illinois are pressing for restitution from Countrywide, no one should wait on a decision like that (which could take years) to be helped out with current mortgage problems.

Basically, take things into your own hands and be persistent.

FHA expert Peter G. Miller offers his analysis of the WSJ’s recent features about FHA Loans. Specifically he addresses a critical aspect that the Wall Street Journal has omitted from its series:

This is great stuff but it never quite gets to an important point: There was no FHA mortgage meltdown.

Fewer FHA loans, yes — after all, how could the staid, old-fashioned FHA program compete with mortgages which required nothing down and little meaningful financial disclosure.

But an FHA meltdown? Didn’t happen.

By sticking to its standards, the FHA has been an oasis of financial sanity.

Miller’s FHA insights tend to be spot on and this is no exception. Maybe the WSJ will take note and add an article on this topic to their growing archive.

Markham Lee over at SeekingAlpha.com takes a look at the WSJ’s graphs in their article about the problems with DPAs, which I wrote about the other day. Lee is not totally opposed to DPAs but stresses that down payment assistance should only be used to support “financially stable home ownership.” His analysis:

To be clear, I’m not against the program, provided it’s putting people into a strong, stable financial situation, and if the default rates are only slightly higher than those for regular FHA loans. The key is to set higher standards and aim to help people get ahead financially, instead of having them fiscally limp into home ownership. For example: instead of providing down payment assistance for people who can barely afford to make ends meet, provide it for those who will have enough savings for 3-6 months expenses (after they buy the house) if they receive help with the down payment.

Although I’m against DPAs, I don’t think they will be completely eliminated. I do think that if the powers-that-be take Lee’s attitude towards reforming down payment assistance they could serve their intended purpose and get deserving individuals in homes.

The worry that many people have, that I have encountered, is that now is the worst time to get into a home. It is not. Now, that has not to say that it is the best time either. There are opportunities in the housing market and with the approval of FHA loans even more readily available, it makes sense that more people than ever would be interested in getting loans. Those that are leery are the people who are worried about mortgage lenders going under or not qualifying for the loan. Let us look at the advantages.

I was recently asked, “Isn’t the mortgage industry too shaky to get into? I don’t want a lender to drop out of my loan if I buy now.” They went on to tell me that they planned to hold off buying until the real estate market improved. It stepped back, looked dumbfounded for a second, and then explained a few pointers.

First, the risks in the current housing market are not necessarily in the lenders themselves. While some of the bigger companies who did a lot of lending through subprime loans are shaking, it is highly unlikely that they will pull all mortgage notes they have. More than likely, they would be sold to another lender. However, that is not the risks with these two friends of mine.

You see, they have decent credit and after getting married a year ago, have managed to get a sizable down payment together for a home. They are worried about all mortgage lenders. Most lenders are suffering from the housing crisis, but they are not going out of business. In addition, what they know and you should know is that once the housing market straightens out and house values start coming up (which most experts believe will happen towards the end of 2008 and the beginning of 2009) the long-term outlook looks good.

Since this particular couple is looking for a family home and doesn’t plan to move too much, chances are they can get a pretty low priced home now and watch the property value rise on it over the next five, ten or even thirty years. It may not be the best time for short-term loans, granted, especially in areas where house prices are dropping by 10 to 15 percent. However, it is an ideal time for many others.

If you are not sure if now is the right time for you to purchase a home, I highly recommend that you talk about FHA loans to your lenders. These are backed and secure loans, ideal for many homebuyers.

In addition to several other suits against Countrywide Financial, the state of Illinois is now suing Countrywide and its top executives. According to today’s article in the NY Times:

The civil lawsuit asks for an unspecified amount of monetary damages and requests that the court require Countrywide to rescind or reform all the questionable loans it sold from 2004 through the present. The attorney general, Lisa Madigan, also asked that Mr. Mozilo contribute personally to the damages and that the court give her office 90 days to review loans serviced by Countrywide that were in foreclosure or soon would be.

“People were put into loans they did not understand, could not afford and could not get out of,” Ms. Madigan said. “This mounting disaster has had an impact on individual homeowners statewide and is having an impact on the global economy. It is all from the greed of people like Angelo Mozilo.”

The lawsuit adds to the considerable legal risks facing Bank of America as it prepares to absorb Countrywide in a takeover announced in January. Countrywide and its executives have been named as defendants in shareholder lawsuits, and the company’s practices are the subject of investigations by the Securities and Exchange Commission, the F.B.I. and the Federal Trade Commission, which oversees loan servicing companies.

I fully support the decision of the state’s attorney general to not only go after the company as a whole, but the money grubbing executives as well. It is high time that those in big business start treating their customers with some respect. Here’s hoping that this case will help the many people in Illinois who have suffered because of Countrywide’s predatory practices.

When it comes to finding FHA news articles, the Wall Street Journal seems to be becoming my new Seattle P-I or CNNMoney.com. The WSJ had another FHA article today, this time focusing specifically on the risks of putting zero down on a home. The article, which has an accompanying blog post, focuses on the reasons why eliminating DPA could be critical to the survival of FHA, and the response from the DPAs and other supporters, particularly those who are closely tied to minority and poverty issues. Others feel that the programs need to be changed, but not eliminated:

Seller-funded groups and supporters in Congress say that such programs should be regulated but not shut down, a proposal that HUD hasn’t shown much interest in in recent years. “If there’s a problem, let’s fix it,” says Rep. Gary Miller (R., Calif.), a vocal defender of the program and a former home builder and developer.

Whether or not DPAs will go away, the article concludes with a sure bet:

Rep. Frank said in an interview that he believed a compromise could be reached with the Senate that would preserve the program but with tougher lending requirements. “No one is talking about leaving it untouched,” he says.

Tonight’s episode of Larry King Live will feature experts offering advice for Americans facing foreclosure. I’m willing to bet that there will be FHA talk – at least there better be!

The episode will be airing at 9 ET.

The Wall Street Journal posted an article the other day that is very critical of two FHA issues that I also happen to be very critical of:

The dangers of zero down are assessed:

The biggest reason the FHA lost so much money was a scam called the “downpayment assistance program.” Under this program, builders or mortgage originators make a loan to low-income homebuyers, and then arrange for a third party to pay the downpayment, so the loan qualifies for FHA insurance. This means borrowers have no skin in the game, and in many cases have negative equity because the value of the homes are often inflated.

Borrowers could bet on the upside of the market at no cost to them. And thanks to the 100% FHA insurance against default, lenders were guaranteed full repayment whether or not the loan is ever repaid. Until recently, lenders even got a tax write-off for their “charitable contribution.” Everyone won – except the taxpayer. Now even the FHA finally agrees that this program invites widespread fraud and wants to end it. But Barney Frank, who heads the House Financial Services Committee, is insisting that it continue.

One lesson from the debacle is what happens with low or zero downpayment FHA loans: They go bust. The Government Accountability Office finds that default rates are about three times higher than on conventional loans. So why in the world is Congress promoting a new FHA bill to lower downpayments to 3% and in some cases even to zero?

Although I find the article to be a bit overly critical when it comes to the FHA program as a whole, I wholly agree with DPA and sub-prime issues.

On June 2, 2003 the FHA began enforcing a rule that it would not insure mortgages for houses that had been sold more than once in ninety days, effectively preventing flippers from using FHA Loans to finance their enterprises. The justification for this rule was to prevent people from using FHA Loans to finance houses that were “fixed up” in a short period of time and then selling the property for a grossly inflated price, as well as stopping genuine scam artists who would repeatedly sell the house to fake buyers. A May 7, 2003 article from the Realty Times does an excellent job describing the details.

CNNMoney.com reports today that the rule has been suspended for one year. The decision is based on the enormous number of foreclosed properties that are sitting empty and destroying market values. Hopefully honest flippers will take advantage of this suspension of the guideline and help revitalize many distressed neighborhoods.