An article on Inman News details new guidelines for HOPE NOW, the program for helping homeowners facing foreclosure. Two such guidelines set deadlines for how long servicers have to inform borrowers of their options:

The new HOPE NOW guidelines state that loan servicers should inform homeowners within 45 days whether their application for a workout — such as a repayment plan, loan modification or short sale — has been accepted or denied.

Servicers also agreed to re-subordinate second-lien loans if their position will not be worsened by a refinance or workout — potentially removing a major obstacle to preventing foreclosures in cases where borrowers have “piggyback” second loans. HOPE NOW servicers will also attempt to contact homeowners with subprime adjustable-rate mortgages (ARM) and other homeowners with ARMs that have a probable risk of default 120 days in advance of reset.

These new guidelines have been put in place to make HOPE NOW a more effective tool for distressed borrowers.

The more I learn about the Frank-Dodd plan, the less I like it. It focuses far too much on fixing past bad sub-prime loans and not enough on creating a plan to make FHA work for the future. Basically, they are forgiving those who made bad decisions and neglecting those who are trying to use the FHA program and practice in responsible lending and borrowing. An article by former House majority leader Dick Armey in today’s Wall Street Journal delves into these problems. There is strong opposition within FHA and some shocking facts that back up the sentiment:

On June 9, FHA Commissioner Brian Montgomery told reporters that he opposes the Dodd-Frank approach, saying that the FHA “is not designed to become the federal lender of last resort, a mega-agency to subsidize bad loans.” Last week the Congressional Budget Office (CBO) projected that banks will use the program to offload their “highest-risk loans” to the taxpayer, and that a stunning 35% of all of the loans refinanced through Dodd-Frank will eventually default on the FHA.

35%!! Wow, that could literally destroy the FHA. There has to be a better solution that does not reward irresponsible corporations and punish not only lenders, but potentially the FHA itself.

Did you know that HUD, the Department of Housing and Urban Development is in the business of selling homes?  Well, that is not exactly the case but it is something that home investors should consider.  If you are considering an FHA loan, or you are looking for a combination of a low priced home with a low priced mortgage, then you definitely want to look at the opportunities that HUD offers.

At HomesSales.gov, you can find a listing of some of the most current homes for sale from the US Government.  Now, before you worry too much, consider what these homes are on the market for.  Many times, taxes go unpaid, seizes happen, or the properties are simply turned over to the government for other reasons.  Yes, in some cases, it has to do with criminal situations, but the government is selling these homes through a public auction, which means that you could get them for next to nothing.

Is The Price Right?

Some of the homes available are quite low in price simply because the government needs to sell them.  Just as if banks have homes that they have foreclosed on and are trying to sell as quickly as possible, the same is true for these US Government homes for sale.  When you visit their website, you can click on the state of your choice and see the properties in question.

For example, through a quick search, I found that a four-bedroom home for sale in Anaheim California is at under $370,000.  That is good for that area.  It tells me why the home is in the hands of the government (in this cases it was forfeited.) and it tells me many of the specs of the home.  As you can see, the process is simple to do, but you cannot make your purchase on that website (this is not eBay after all.)

Getting Into The Homes

Rather, you do have to work with a real estate agent that has approval to sell through HUD.  Many (if not most) are.  When you work with the agent, you will be able to get even more details and find out when the auctions are held.  In most situations, these government homes for sale auction through real estate agents, though some do allow the public to come and make their bidding happen.

Funding for such a purpose can be complete in a number of ways.  It is usually necessary to have a detailed document from your lender approving you for the loan in the amount of at least as much as the auction price.  Most auctions do require that you have preapproval for a loan or show that you have the necessary cash to pay for the property.

Should You Buy This Way?

Some people may believe that purchasing foreclosed or government seized property is in bad taste, but it is one of the best investments you can make.  Most of these properties are in decent shape, having working systems throughout them and are a good value.  If you couple this with an affordable loan (you may qualify for an FHA loan), you could be saving yourself a substantial amount of money in the process.

Before purchasing any home, you should have the opportunity to see it and inspect it.  Contingencies are allowable on most auctions.  While this sounds like a great opportunity for an investor, and it is, it can work well for any homebuyer looking for an affordable way to get into a home of their dreams.  There are no guarantees about the overall condition of any home, of course, as each is different.

The Seattle P-I has always been a great source for FHA-related articles and the paper’s diligent coverage seems to be spreading to the locals. Seattle real estate professional Samuel Hilbert addresses the growing number of FHA Loans being used in the Seattle area. There is a great photo on his site, AgentSamuel.com, that shows signs advertising FHA & VA Financing for local communities. His site features lots of other excellent information on Seattle real estate, and real estate in general. I recommend checking it out!

Although I primarily write about the standard FHA Home Loan, the FHA has a number of programs for helping out homeowners. One that I haven’t mentioned in awhile is the Reverse Mortgage. An article in yesterday’s Seattle P-I talked about the benefits of reverse mortgages and who they benefit most. Plus, the article details new changes that may allow more seniors to take out reverse mortgages:

Pending legislation may spur more senior homeowners to consider reverse mortgages. Those who have enough equity in their homes can qualify for loans of as much as $362,790 backed by the Federal Housing Administration. A housing bill in Congress includes a proposal to raise the payout to as much as $550,000 and eliminate the current limit of 275,000 reverse mortgages that the Department of Housing and Urban Development can insure.

As with any loan product, reverse mortgages aren’t for everyone; but if the circumstances are right, an FHA Reverse Mortgage could be a great choice for many Americans.

Congress has made up its mind: it is now in the mortgage business, or at least trying to be. In two proposals, Congress has decided it will help risky home loan holders a helping hand. The problem with such a program is that the details show the difficulties. The program is expensive for already hurting lenders, and borrowers do not getaway without anything either.

The plan is for the government to back some of the more risky mortgages that have put so many lenders in trouble. While it may not sound bad, the problem is how such a program would work, beneficially. Key questions need answers, for example, who would qualify for such help? What would borrowers (as well as lenders) have to do to get into the program?

What is In The Works?
The House has passed a bill that would give the Federal Housing Administration the ability to insure mortgages to those people who are at risk of losing their home to foreclosure. Another bill is in the Senate, and that one gives us a better idea of how the process would work.

In these bills, to qualify, the homeowner would need to be a full time occupant of the property. They must have a debt to income ratio of more than 35 percent. Lenders and borrowers have voluntary participation. Borrowers can contact lenders and lenders can contact borrowers. The lender gets the final say, though, in if the borrower may participate.

Here are a few more points to keep in mind:

• If a homeowner has a second mortgage, the holder of the second loan must eliminate the debt.
• FHA backed loan qualifying individuals may be excluded from the program is the lender believes there is too much risk involved.
• No borrower is turned away just because they are delinquent on the existing mortgage they have or because of their credit score (solely.)
• The lenders must be willing to accept no more than 85 percent of the appraised value of the home (which will include loan fees and closing costs factored in.)
• All FHA backed mortgages must be 30 year fixed rates to qualify.

Look at the math.

A home now valued at $200,000, with a borrower that has an upside down mortgage owing $220,000. The owner’s debt to income ratio has to be over 35 percent, so that means if he makes $4,000 a month, his mortgage debt must be more than $1400. Once he qualifies like this, the process moves on.The FHA program would guarantee 90 percent of the appraised value. This means that the new loan would have to be written down by the lender to $180,000. The remaining value gives the homeowner equity of 10 percent. Also, the lender will need to pay the FHA 3 percent of the loan amount to participate in the program as well as providing another 2 percent for closing costs. That amounts to an additional, $9000 on this particular loan.

When everything boils down here, the lender loses $29,000.

The borrower also has to pay the FHA 1.5 percent in an annual premium to the FHA. The amount of this will diminish over time as the principal on the home falls. An exit fee may also be on the loan, which would be more than 3 percent of the FHA loan amount originally. From the borrower’s look, there is a high risk of being able to get out of the loan affordable if they sell the property over time.Perhaps the most troubling aspect of this Congress made loan process is that it is so confusing. While costly to the lender and to some borrowers, the FHA loan offer here may be an option for some situations. Nevertheless, it has not become law and President Bush has threatened to veto it. He and other critics believe that the taxpayer is being asked to pay some $300 billion worth of poorly backed, bad loans through the program. President Bush has called in irresponsible for both lenders and borrowers.

The Washington Post had an article the other day about the rise of FHA Loans in the DC area and across the country. It’s a great piece that covers the many benefits of FHA Loans that include:

It’s a great article with the personal stories of borrowers have been helped. One particularly interesting (and encouraging) tidbit is that FHA Loans were up 126% for the first quarter from last year.

AmeriDream, Inc. issued a statement today that had one sentence in particular that bothered me. From a press release defending Down Payment Assistance:

“In addition to jeopardizing homeownership opportunities for qualified low to moderate income homebuyers, the Administration’s position does not comport with the facts…”

The above remark was made by the organization’s president, Ann Ashburn. The word I take issue was is “qualified.” To qualify for an FHA Loan, a potential borrower must be able to put down at least 3% on their new home. If a borrower does not have enough cash-at-hand to make the down payment, he or she is not a qualified borrower. So, technically, AmeriDream assists non-qualified borrowers. If FHA reform passes there could be a down payment as low as 0%. In that case, people who could not put money down would qualify and AmeriDream would have no customers.

As I went through a list of fabulously interesting topics to write about, I realized that FHASecure has been in the news.  FHASecure is a program put in place by the Bush Administration in August of 2007.  The program has a design to help struggling homeowners to get help in refinancing their mortgages so that they could get out of the hands of foreclosure.

The Bush Administration released information on the program last week.  They said some 200,000 homeowners have been able to refinance since the program’s startup and during that time, many of the subprime loans people could not afford refinanced into affordable home loans.  The program is not for everyone; in fact it is designed only for those that are at the bottom of the line, have subprime loans and need to refinance quickly to stay in their homes.

The FHA announced that it actually has refinanced 100,000 of those loans in the past three months (February through April.)  Struggling homeowners right now can still get this type of help.  The FHA is likely to help another 500,000 homeowners this year alone to help get out of subprime loans and into loans they keep them in their homes.

Getting Help

If you are one of the many struggling homeowners, I encourage you to reach out to the FHA representatives who have it in their ability to help many in struggling positions.  There is some controversy over who qualifies for the FHASecure program.  Originally, the program had a design to help those who were already delinquent in their subprime mortgages and were struggling with the resets of those loans.  However, some believe there has been a shift in that many of those qualifying for FHASecure are those that are trying to avoid programs and that want to get into the lower costing loan.

Some officials from HUD and the FHASecure program have said that this is a good thing in that these borrowers receiving help are a better credit risk than those already behind. 

The Bush Administration announced some changes as of May 7^th in the hopes of avoiding even more worry of the changing focus of the program.  The guidelines have expanded so that they now include more borrowers who are delinquent which have had a mortgage reset recently and have missed their payments due to it.

Other requirements also have had introduction in the way of late payments on record.  Those homeowners with a Loan to Value ratio that is 90 percent or less will be able to have a 90-day late payment on their record prior to the rate reset and can still qualify for FHASecure.  In the past, this wasn’t clearly outlined.  Additionally, all borrowers behind on their mortgage payments and that have reset adjustable rate mortgages and have a 60 day late payment on their record are also still able to qualify.

What To Do

If you are struggling with your subprime loan, for any reason, or believe you will be struggling for it in the short term, the FHASecure program may be able to help you.  Talk to lenders to find out what can be done to keep you from falling behind.  While the government is working to include more homeowners that are on the verge of missing payments and entering foreclosure, they are still heavily working to improve the situation for those that have already had resets of their loans.

Of course, FHASecure has a long way to go, and it most definitely can be helpful to some.  For other homebuyers, it may be possible to refinance into a standard new FHA loan through a standard lender. 

In recent weeks, there has been a lot of destruction.  Much of the south and central portions of the country have been ripped apart by devastating tornados.  Floods, hurricanes, earthquakes and terrifying thunderstorms have left a path of destruction across much of the country.  Homeowners are barely able to find shelter and yet many are fearful of what will happen to their home’s mortgage. 

For many people who have FHA insured loans, there is some relief available.  According to the guidelines of most FHA loans, the lenders are not able to press you for payment in such circumstances.  They cannot file for foreclosure on your home until a fully 90 days has past.  This gives you time to get things back into place, at least financially speaking, or to find another option.

If your home had damage or destruction, this type of FHA loan backing can be quite helpful (perhaps yet, another reason to consider FHA loans over other types whenever you qualify.)  Now, not all thunderstorms will qualify for this type of help.  It is meant to be in use in only a handful of the worst situations.  Areas that the President has declared to be a disaster area are those that will qualify for this relief.

In addition to this, if your place of employment has been damaged or destroyed at the hands of such weather occurrences or manmade events (like wildfire for example) you too may qualify for such protections even if your home hasn’t been damaged at all.

The FHA insurance on your home is there to help protect you from losing your home, but you still need to talk with your lenders and get into the necessary programs.  Because most lenders are more than willing to keep a good paying customer in their current mortgage, they are likely to have some solution for you.  This can drastically help them save you as a customer and the FHA programs are there to help provide reassurance.

If you believe you may qualify for this type of backing, contact your lender today.  Find out if your particular situation qualifies.  You can also contact your local HUD offices to learn more about the help that is available to you here.  Chances are, there is protection available o you through your FHA loan.