Government and Lenders Close To Reaching Mortgage Default Relief Agreement

Treasury Secretary Henry Paulson announced on Monday there could soon be an agreement between the government and the major players in the mortgage industry to help thousands of American homeowners avoid mortgage defaults by temporarily freezing borrower’s lower introductory rates to keep them from resetting to higher levels for a period of years.

Paulson was addressing a national housing conference and said in his speech that this effort was a “pragmatic response” to the current realities of the worst housing slump in more than two decades. He also noted that the number of homeowners unable to meet their higher monthly mortgage payments because of their rates resetting is currently soaring and will continue to do so unless something is done to help address the issue. Recent estimates show some 2 million mortgages are scheduled to reset by the end of 2008 and the typical payment is expected to rise by $350 per month. Stemming the tide of these increases should help homeowners, who have steady incomes and relatively clean repayment histories, stay in their homes.

While nothing is yet decided, and regulators currently disagree over how long such a freeze should remain in effect, it appears an agreement could be reached in relatively short order. Mortgage insiders believe their industry would adopt the new program quickly and would also implement standards to measure its progress over time. Paulsen was cautious in his statement as to how soon a new program could be put forth, but said he is confident that "disagreements could be resolved" without delay.

The rate freeze is just one of a three-part program the Bush administration is pushing for approval. The other two include stepping up efforts to contact at-risk homeowners and encouraging the creation of new programs like FHA Secure, that would offer more affordable loans to homeowners, so they can refinance their mortgages and lower their monthly payments.

Administration officials touted the success of the FHA Secure Program as a reason to believe these efforts can indeed work. They pointed to HUD Secretary Alphonso Jackson's release of data showing that more than 33,000 borrowers already have refinanced their existing mortgages using the new program and that an additional 20,000 are awaiting approval before the end of this month. Jackson also estimated that HUD will be on target to insure over 240,000 FHA Secure loans in 2008.  He also added that normal FHA refinancing increased by 125% this year and that number should continue to increase in 2008.

FHA Secure Program Guidelines:

To qualify for FHASecure, and include the delinquent loan payments, homeowners wishing to refinance must meet the following requirements:

• Have a non-FHA insured ARM that has reset;
• Sufficient income to make the mortgage payment; and
• A history of on-time mortgage payments before the loan reset.

Note:  Homeowners who are current on their conventional mortgages must have sufficient income to qualify to make their new mortgage payment.

As mortgage lenders, we understand and even applaud some of these mortgage default relief efforts. While a measured response to provide payment relief seems prudent, crossing over into anything which would resemble a bailout would be a mistake in our eyes. Too many of the lending mistakes that were made in recent years should not be rewarded, but should be used as hard learned examples that will never be repeated again.

Update:  The Bush Administration and the Lending Industry announced they have reached an agreement...read more

Metro Mortgage Company is a federally regulated FHA approved lender. For more information on the FHA Secure or any of the other available FHA loan programs, please contact us at MetroMtg@comcast.net. Be sure to include your phone number and we will respond to your request promptly. 

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