I realize the law giving homeowners the right to apply, if they are qualified, for an FHA refinance at 90% of appraised value -- today's value -- went into effect on October 1, but who is funding those programs? That's what I would like to know.
I checked with my Sacramento class A FHA mortgage company today (Vitek Mortgage), and none of its investors are willing to make these loans. I'm dumbfounded.
What good is the new legislation, HOPE for Homeowners FHA refinance, if no lenders are willing to make the loans? What gives?
I realize the law just went into effect a mere 9 days ago, but still. Shouldn't local lenders be willing to take on this type of financing that is insured by the US Government? Or has everybody gone wonky on us? This sounds like some sort of joke to me. Tell me this is not true. Does anybody have loan applications in process that appear to be solid?
I've also heard that the banks, the existing mortgage holders, will report to credit bureaus the deficiency. Why would a borrower take out an FHA refinance, give 50% or so to FHA on future appreciation, and get hit with a ding on top of it, when a borrower could just walk away on a short sale and buy a cheaper home two years later? Please explain. Something does not make sense to me.
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Broker-Associate at Lyon RE. Selling since 1974, helping buyers & sellers in Sacramento. Land Park resident. Midtown office. Home Buying Columnist for New York Times' About.com. DRE license #00697006
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Elizabeth, At this point, HUD is just setting up lenders to do this and we need to make sure our investors will allow them (I have found a couple of our investors will do them.) As far as the portion of the mortgage that is written down, the following is directly from HUD's press release FAQ sheet on this program:
Voluntary Lender Participation
The name of the program is Hope For Homeowners, and you can find additional information by clicking here!
Good luck with it!
~Sue
FHA will continue to offer lenders an alternative to foreclosing on borrowers. Similar to FHASecure, lenders will be required to write-down the outstanding mortgage principal balances to 90 percent of the new value of the property. In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure.
Okay, the comment above got a little backwords! The part after my signature should go right under "VOLUNTARY LENDER PARICIPATION". That is the press release from HUD.
Elizabeth, it sounds like another category of the credit markets tightening up, at least for now.
Sue and Gary: I'm sorry, but it doesn't answer the questions. Who is funding these -- are any under contract - and why would a borrower do this only to get their credit dinged? Wouldn't doing a short sale, maintaining credit for two years and buying another home -- where the buyer owns 100% of the equity, make more sense?
I get your point Elizabeth and you are right. That's the problem. There is no disincentive to people either sell short or walk away so that remains the smartest option for many. And that will continue to hurt the market.
Elizabeth... there's a simple answer to this really..
Everybody has gone wonky on us. :)
I did not know about the reporting part. Really, why not just do short sale and be "clean" in two years?
Elizabeth - I like the conclusion that Jesse and Kathy Clifton have come to. It pretty much describes my feelings on the situation too:-)
Hi Ronnie: I'd like to see a viable option actually work for owners who want to stay in their homes.
Hi Jesse: So you like my word wonky, huh? It beats an expletive, I suppose.
Hi Jon: I guess lenders don't care whether the owner refinances or sells the property on a short sale, the lender is still eating it.
Hi Myrl: Still, I'd like to know if this legislation is just smoke. On the surface, it sounds like a reasonable plan, but if nobody is funding the loans, it's worthless.
Elizabeth - so far, apparently no one. Also, from what I am hearing, no lender is willing to participate. Why should they? The will get more in a foreclosure than they will in this program. Sorry, but this looks like another "feel good" government program with no thought given to reality.
I'm just thinking. But it seems to me that the house would have to appraise for so much they'd be borrowing 90% of value. Remembering that they paid too much in the first place with closing costs probably added in and this time they'd be adding in more closing costs because they have no money for closing costs, what's the point. It's still a foreclosure in the making and probably would dig our graves a little deeper.
Hi Fred: Ah, you, too? I was hoping somebody would step up to the plate. Maybe it's just too early. Lenders are funding regular FHA programs. What's the difference if the home is worth less than its original loan and the house next door with no mortgage? Nothing.
Hi Barbara: It doesn't have to appraise at the original cost. Whatever it appraises at, FHA will insure a loan of 90%. So it's not digging a deeper grave, it's digging out of a grave.