American Dream or Nightmare: Chairman Hensarling’s Review of the FHA

Representative Jeb Hensarling of Texas presided at the hearing on the Federal Housing Administration’s (FHA) proper role on the country’s mortgage insurance industry. Being the chairman of the House Financial Services Committee, Hensarling opened the hearing stating that the current economic status of America for the last quarter of 2012 was unexpectedly close to yet another swerve into tragedy. The expected economic growth in the last quarter did not happen, and the statistics only reflected a growth of 2%. Hensarling purported that America could have done more than 4% for the last year, at least.

According to the chairman, 2% economic growth is indicative of Americans being unable to sleep, worrying over an insecure future. The healthy economy that hardworking Americans deserve will never come to reality unless a solid housing financial system is established with sustainability and competitiveness. With this, Hensarling closed the clause stating that the FHA has done a horrendous job and has only accomplished in being a complete impediment to this envisioned system.

This has led to the FHA being brought into questioning before the Financial Services Committee. The FHA is currently the biggest mortgage insurance agency in the country. Initially, the FHA was built to provide equal opportunities to hardworking Americans who are first time home buyers, as well as those whose credit scores are far from impressive, but are still remain financially reliable—this is specifically for the middle or moderate-income American citizens. Today, the FHA has obviously strayed away from this initial mission.

One of the biggest anomalies in question is how the FHA is providing mortgage insurance to moderate-income homeowners with homes that have values over $729,000. With an already risky term offered to middle-income or even low-income Americans, the agency should have complemented the arrangements by keeping a robust mortgage market. However, today they offer extremely low down payments especially when compared to private lenders; leading to their favor. More premium holders means more risky insurance arrangements.

What will most likely to happen is the FHA  will have to be saved by yet another taxpayer bailout, when the whole country knows it cannot afford another one of those. This kind of mismanagement puts further stress on every hardworking American. Instead of allotting more services for the improvement of American lives, such as education and healthcare, the government is busy bailing out troubled federal agencies.

Hensarling expressed his dismay in stating that the FHA is no longer helping Americans achieved their American dream of owning a home since they are provided with loans that are financially beyond their means. Instead of the American dream, the housing mortgage insurance market has become a nightmare. 

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FHA hikes mortgage fees and insurance premiums

FHA announced its insurance premium increases, mortgage rate increases, down-payment percentage increases, and the reversal of its cancellation policy as functioning and applicable on April 1, 2013.

In a press release statement during the last week of January 2013, the Federal Housing Administration (FDA) and the Department of Housing and Urban Development (HUD) announced that insurance premiums for FHA-backed mortgages will increase by 0.10%, particularly for loans below $625,500 and 0.35% for mortgages above. Up Front Mortgage Insurance Premium (UFMIP) are also planned to increase to 0.75%.

The FHA is considered the biggest source of mortgages with low down-payments in the U.S.; with just 3.5% of the principal loan while most mortgage lending companies take anywhere from 5-20% of the principal loan—especially the non-government companies. FHA’s affordable house financing has allowed homeownership for thousands of Americans over the years; even those belonging to a modest income bracket with bad credit history are able to benefit from FHA’s financing assistance.

As all good things come to an end, the FHA’s services may already be nearing its end now that it is starting to gain back equity from its losses over the years. Loan insurance fees are currently being set to increase, and qualifications for the services will be a tad tougher now that they are intending to give the service to applicants with better credit history. FHA’s latest intended plan is prepared to increase its mortgage rates and insurance premiums, meaning that they are moving away from their traditional market customers.

One broker from Huntington Beach, California, Dennis C. Smith of Stratis Financial Corp. admitted his thoughts that the FHA is on its way to losing business with its new plans of increase. As several brokers and experts in the housing industry share Smith’s thoughts, FHA admits that they are not aiming to increase the market, but that, at the moment, it is their top priority to protect their business. To do that, they need to gain back equity by cutting losses, and they have keenly decided that the moves they are making are the steps to reaching that goal.

The intended increase in premiums and mortgage rates are going to commence on the first of April 2013—no joke here. By 2011, the FHA had already taken two premium increases. The one to be in effect on April this year is their third, successive movement to increase insurance premiums. Borrowers with debt-to-income ratios that go above 43% and credit scores lower than 620 are going have mandatory manual underwriting, starting June 3^rd this year. Another big change is the rescinding of its cancellation policy to borrowers who reach a loan above 78% of the principal loan. They believe that this policy played a big role in their losses, thus the need to change it. 

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With rising mortgage rates, homeowners have overwhelmed lenders

The refinancing boom has shot up mortgage rates. With rates consistently in the all-time lows, it is not surprising that home refinancing has improved across the country. Over a year ago, rates reached 4 percent but today lenders are practically overwhelmed by the homeowners. The increasing rate of refinancing is resulting in higher mortgage rates in the U.S.

Mortgage refinance is a financial contract where the existing mortgage will be repaid in full through the funds of the new mortgage being applied. By being replaced with a new finance, the old mortgage is satisfied or paid.

Currently, refinances are in three types. First, there is the cash-out type of refinance where the homeowner’s new applied mortgage can exceed the previous mortgage by at least 5 percent. This kind of transaction is often used to aid in home improvement endeavors or in order to decrease one’s debts in their credit card, or it is sometimes done to satisfy student loans.

Cash-in refinance, on the other hand, is the kind of refinance where the new mortgage of the homeowner will be reduced to at least 5 percent compared to the current mortgage. This is common among homeowners who are looking into specific loan-to-value (LTV) requirements just to achieve the best rates of the bank.

The last type of refinance, also considered to be the most common of the three, is the rate-and-term type of refinance. In this refinance transaction, the goal of the homeowner is to decrease his or her mortgage rate or to alter the term or lengthen the term of his or her loan. Sometimes people choose to go with this category in order to both lengthen the term and decrease the rate of the mortgage.

Today, it takes 57 days to refinance from application to implementation of the transaction. The Mortgage Bankers Association (MBA) reports that the growth of applications for mortgage refinance has increased to at least 15 percent since last year. This refinancing boom is due to the decreasing mortgage rates and implementation of new refinance programs that cater underwater homeowners.

During the first quarter of 2012, the Home Affordable Refinance Program (HARP) revamped and caused a huge wave of refinance applications from homeowners who were not eligible to refinance their homes in the previous program. Most homeowners applied for HARP’s rate-and-term refinancing program and had their monthly mortgage rate drop to 32 percent.

In 2012 alone HARP served almost one million households. Without the program, this number of homes would not have had the chance to refinance. Another culprit of the increasing mortgage rates is the recovering economic condition of America’s housing market. This caused home values to increase which in turn is pushing homeowners to refinance their homes for lower monthly mortgage payments. Since mortgage rates last year hit close to an all-time low of 4 percent, millions of American homeowners have become eligible for the refinance program.

Refinancing an FHA loan

http://www.melodika.net/index.php?option=com_content&task=view&id=576198&Itemid=54

A case study of a streamline refinance

Here is an interesting story of an FHA streamline refinance which was completed with nothing due at closing.

 http://www.sfgate.com/realestate/article/FHA-Streamline-Refinance-completed-with-nothing-4206700.php

US housing recovery should be met with caution

An interesting analysis of what to expect from the recent US housing industry’s road to recovery.

http://www.telegraph.co.uk/finance/economics/9825573/A-US-housing-recovery-with-a-lot-of-long-term-question-marks.html

Maryland Title Company Owner Indicted in Fraud Scheme

Owner of two title companies in Maryland was declared guilty of fraud schemes involving wiring and commingling money between her two companies, and also using some of the money for personal use.
http://alexanderjchaudhry.tumblr.com/post/41299071046/maryland-title-company-owner-indicted-in-fraud-scheme