Nearly half of subprime borrowers who have applied for relief under the FHASecure program so far will have closed or been approved by the end of this month, according to the secretary of the U.S. Department of Housing and Urban Development. And the head of the U.S. Treasury is working with servicers and investors to quickly develop a wide scale plan for loan modifications.
More than 33,000 borrowers have utilized FHASecure to refinance exotic subprime mortgages since the program was created in September, HUD Secretary Alphonso Jackson said in an announcement today. The activity was generated from nearly 900 FHA-approved lenders.
In addition, 20,000 loans are currently pending approval this month for the government-insured foreclosure avoidance initiative, the statement said.
While an estimated 53,000 total borrowers are expected to benefit from the program through this month, about 113,000 have applied, the press release said.
The program reportedly enables borrowers who had a good mortgage history until their payments reset to refinance into loans insured by the Federal Housing Administration. The initiative also helps subprime borrowers who are still current but face an upcoming reset.
The agency estimates 240,000 borrowers will utilize FHASecure in fiscal 2008, "nearly two and one-half times the number served in Fiscal Year 2007."
Overall FHA-insured refinance activity is up 125 percent over the past year, the announcement said.
"FHA could reach more borrowers who need safe and affordable financing alternatives if Congress approves bipartisan legislation to further modernize the 74-year old agency," the statement said. "HUD estimates 200,000 more first-time homebuyers and current homeowners who need access to capital could obtain FHA-insured mortgages next year if Congress expedites passage of FHA reform legislation."
Jackson noted The Expanding American Homeownership Act was overwhelmingly approved by the U.S. House on Sept. 18, while the Senate Banking Committee approved similar legislation the following day. But the full Senate has delayed approval.
The U.S. Treasury is implementing a three-point plan to reduce anticipated foreclosures, Treasury Secretary Henry Paulson said in a presentation at the Office of Thrift Supervision's National Housing Forum, according to a prepared statement released by his agency.
The first of these steps is increased early communication with delinquent borrowers utilizing the HOPE NOW alliance -- a coalition of servicers, counselors and investors.
"Today, all HOPE NOW servicers are contacting borrowers 120-days in advance of their mortgage reset," Paulson said. "For those troubled borrowers that servicers haven't been able to reach, HOPE NOW has launched a nationwide letter campaign."
The second step of the Treasury's plan is to provide programs that can help subprime borrowers who are struggling because of rising payments. These may include loan modifications and special refinancing programs funded by local and state governments.
"Current law allows states and localities to issue tax-exempt bonds only to assist first time homebuyers or homebuyers in designated distressed areas," Paulson went on. "We are proposing to allow state and local governments to temporarily broaden their tax-exempt bond programs to include mortgage refinancings."
Paulson explained that the third step is an aggressive, systematic approach to fast-tracking borrowers into a refinance or modification without using taxpayer funds. He described three categories, including subprime borrowers who can afford their rising payments, borrowers who became delinquent at the starter payment, and borrowers who qualify for refinances. None of these three groups would qualify for loan modifications.
But a fourth group, those with steady incomes and good payment histories who can afford payments at teaser rates but cannot afford the loan after a payment adjustment, might be good candidates for modifications.
"Treasury is working through the HOPE NOW alliance with the American Securitization Forum to convene servicers and investors so they can develop categories of borrowers eligible for appropriate modifications and refinancings, and an industry-wide solution," Paulson stated. "I am confident they will finalize these standards soon. And I expect all servicers will implement them quickly, and create benchmarks to measure their progress along the way.
"As a result, what was a fragmented, cumbersome process can be a coordinated effort which more quickly helps able homeowners."