First Ohio Home Finance

By now, surely you’ve heard of the nationalization of our industry. Fannie Mae and Freddie Mac were “seized” by the Federal government and put into “conversatorship” over the weekend as it became apparent these secondary markets for the mortgage industry had come to the point of bankruptcy.

Short-term, that means mortgage rates are heading lower – MUCH lower. The loans on your home and mine are now backed by the full faith and credit of the United States Treasury now. What seems like zero risk means that more investors will buy mortgage bonds and rates will continue to decline.

An interesting facet of this bailout, though, is that the “solution” is having the opposite effect as the intended purpose of the grand vision for Fannie and Freddie to improve the lives of average Americans. Peter Schiff doesn’t pull any punches in a recent column:

The original idea that gave birth to Freddie and Fannie, which is to make housing more affordable to average Americans, should now be seen as farcical. Their new goal is to keep housing prices high. Absent Freddie and Fannie, housing prices would fall sharply and the mortgage market would stabilize. Americans would once again be able to buy affordable houses with mortgages they could actually repay –just like their grandparents did. Instead they will keep overpaying for houses, burdening themselves with excessive payments in the process, and ultimately sticking taxpayers with the bill when they default.

What’s your opinion?

Regardless of our second guessing of massive policy decisions, this is an excellent time to refinance your home. Call us if your mortgage rate on your first or second loan is more than 6.5%! We’ll give you the straight scoop every time.

Like most government programs, FHASecure is not having the results that were intended. That means it’s not effective at saving Ohio homeowners who have fallen on hard times after their adjustable rate (ARMs) reset – and here’s my top three reasons why.

1. The program continues baseline FHA requirements, including the stipulation that mortgage payments must be timely BEFORE the borrower’s teaser rate expired and loans reset. They also want to see good credit otherwise – credit cards, auto loans, etc. Easy enough, right? Here’s the rub: Americans have been taught for years that the LAST thing to pay late is the mortgage. If you fall on hard times, push a credit card payment but NEVER be late on your mortgage. So many of the people who would be helped by this program have already made late payments due to hard economic times before ever running late on a mortgage payment. So they, in fact, get turned down on this program.
2. The interest rate environment is not generally increasing ARM payments on reset. That’s a little known secret the mortgage industry has been less-than-forthcoming about - reset interest rates are roughly equal or lower so your payment might actually become less than while in the “fixed” period of their ARM. So this program is creating an unnecessary incentive for the middle class to “let go” in the struggle to rising living expenses. Faced with the stigma of late mortgage payments, most would probably continue the juggling act as they wait for better economic times.
3. The equity requirements of FHA are not going away - in fact, as of Oct 1, they increase to 3.5% - whether purchase down payment or refinance equity. That’s a huge problem for people living on the edge, financially. Think about it. If Joe Six-pack is having trouble making his house payment, chances are he has other debt and little home equity. So many of our customers who need FHASecure, don’t qualify because they don’t have enough equity.

For these reasons, I can’t understand why the program is offered. It’s either poorly conceived or a political gimmick – I suspect some of each.  In fact, our firm has not been able to close one of these loans.  They have all been rejected for one reason or another.  And we’ve been able to help some of the people through other means.

For my readers who are not familiar with FHASecure, the program was announced by President Bush in early 2008 to help ease the mortgage crisis. Like all FHA loans:

• underwriting takes into account the borrowers’ ability to repay,
• fixed rates are overtly promoted,
• escrow of taxes and insurance are required,
• real human appraisals are required,
• full-documentation is critical,
• mortgage insurance is included, and
• there is gads of foreclosure prevention assistance.

FHASecure is available for loans that reset between June 2005 and December 2009.  So there is still time for this program to kick in and help families in Ohio.  I hope it helps.