FHA Plans For Foreclosure Solution Receives Lukewarm Response

Posted in Foreclosure, February 8th, 2008 |

Federal plans for helping foreclosure victims had been drawn up and introduced last August but panelists at a meeting of bond organization feels that it is too narrow to meet all ends. Within the American Securitization Forum a study was done and it reported that the FHA Secure loan refinance operations should be broadened so as to include more types of foreclosures. It should permit borrowers delinquent on payments for any reason to be able to refinance into a loan backed by FHA. But as it is the terms are too narrow and leaves out many from its ambit. The net result will be that foreclosure numbers will continue to increase with the rise in interest rates.

Against the backdrop of falling real estate market foreclosures will be reigning supreme. FDA Secure has so far modified about 1,000 loans only and thus cannot be termed a success but rather a failure opined Rod Dubitsky the managing director of Credit Suisse at the panel meeting.
ASF has other alternative plans that are not available to servicers currently. The plan would be the only tool that would permit short refinancing. By it a borrower would be allowed to refinance the mortgage even if the pending loan amount was more than the value of the property. The general idea amongst all is that modifying loans is a much better option than accepting foreclosure. Lenders have come forward of their own accord to give a push to modifications but the number benefited is far short of the estimated target.

The current FHA plans are not appealing because the lenders will have a tough time selling the loans. Dubitsky commented that FHA is pressurized by traders to keep its loans out of standard Ginnie Mae bonds which are valued for their liquidity.

On the other hand since house owners with nil equity are at most risk the programme must immediately allow short re-financing. If not the very purpose of help will be defeated. Short refinancing is not a distress sale – the borrower will be able to continue to stay in the house. It will thus address the problem from the socio-economic angle.

The current plan will help merely 4,000 sub-prime borrowers or 5% of those who are two months behind payment. But if the new proposals are accepted then 607,000 borrowers would be reached – that is 68% of the seriously delinquent.