The mortgage loan has to be currently late or in arrears
FHA’s rescue program for distressed homeowners is finally here! Here’s how it works: The homeowner’s current loan has to be an ARM. It must have been paid on time for the previous six months, prior to the loan’s adjustment in rate and payment. The mortgage loan has to be currently late or in arrears. The qualifying process must show that the homeowner could not afford their mortgage payment, once their interest rate adjusted higher.
FHA has incorporated an interesting feature. If the property has decreased in value and the new FHA loan is not enough to payoff their existing mortgage, they will allow the homeowner to have a 2nd mortgage with their current lender. However, the new FHA lender will require that homeowner qualify with all the payments. This will ensure that the new mortgage payments are affordable and protect the homeowner from becoming delinquent in their payments again.
This negotiation with their current lender can be an advantage to the homeowner. If the homeowner doesn’t qualify for the new FHA loan and a 2nd mortgage with their current lender, their current lender may elect to forgive part of the balance on the homeowner’s loan.
Why would they do that? It may cost them considerably less to forgive part of the balance on the current loan and receive the proceeds from the FHA loan. You see, the cost for the lender to foreclose on a property is enormous. After three months of delinquent payments, they can only start foreclosure proceeding. It takes longer to accomplish it. All the while, they are losing interest payments. Once they have the property, they usually have to sell it at a considerable loss. Forgiving part of the balance upfront will get them their money quicker and probably more of it.
About the Author: Chris Ward is a loan officer with Mortgage Advisory Group and is authorized lender FHA Secure assistance programs.
14 responses so far ↓
Carol M // Feb 26, 2008 at 11:49 am
This whole situation is unfortunate, but an example of the multitude of our citizens not using common sense. I have watched for years as I dressed in, lived & ate what I could afford, others credit credit credit and dress, live & eat to the sky. I am truly offended that these people who have had the luxury of being stupid are expecting to be catered to now that their delirious living has thrown them to the dogs. My family didn’t try to get a bigger better house with higher bills, bu getting a risky ARM loan. Why should the government or anyone else bail these people out, when people who lived wisely continue to live in their more reasonable ways? For the government, thus the people, to bail these people is a tremendous slap in the face to all the people in the country who have not tried to live above their means!!! It also allows these people to live above the people who have been financially smarter, because they will get subsidized help because of their irresponsibility. These people who have lived above their means will continue to live above their means via government subsidy, and learn absolutely nothing. Where is the slap on their hand or penalty for doing wrong??? How will they learn if they get bailed out? This is part of why the Bankruptcy hasn’t been helpful to our nation. It doesn’t make people accountable for their crazy spending! We have become a nation of wimps who refuse to speak the truth, and make others accountable for their actions!!! Hearing the truth about their financial behavior is the only hope of setting these people free. Any financial advisor will tell you that unless a person changes their spending habits, they will continue to have problems over spending. My question is, how is this going to help these people learn, so they won’t require assistance again? And who pays in the long run for all of these irresponsible people being bailed out by the government anyway? Government is you & me, so ALL citizens will pay for the incompetence of these irresponsible people. How is that fair to responsible people? What is the encouragement to be responsible for all people if they see the ones who have lacked responsible spending getting bailed out? Our country will continue to fall because we are failing to let people’s actions hit them! I do believe this could be the front runner to socialized government. We must not continue this response. We have got to stop stamping bad behavior be it physically or financially with “approval”! Their is way to much REWARD for bad behavior. Look around at so many of our government assitance programs, and you’ll understand why so many people are flocking to the United States…legal & illegal alike!!!
Chris Ward // Feb 26, 2008 at 12:27 pm
Actually if you read the requirements for FHA Secure, the government is not out to help everyone.
* The client has to have been making their payment on time previous to their loan adjusting in rate.
*After the loan has adjusted, they have to be behind in payments because the payment is “now” to high for them to afford.
You see, the government wants to help particular people caught in this crises.
*The ones that have demonstrated that they can make mortgage payments on time.
*And the ones, due to the the “amount” of change in their payment, can no longer afford to.
Many of these people new that their loan would change in two years, but most of them didn’t know how much.
Carol M // Feb 26, 2008 at 4:51 pm
Yes, I’m aware of the requirements for the FHA Secure. I am also aware that people who got ARM loans didn’t pay attention to the risks involved with this type of loan, but were more interested in getting a lower increase rate despite the risk of the increase rate going up. As well as not dropping the amount that they would buy a house for, thus being able to possibly get a fixed mortgage & payment they could afford without the risk involved with these type loans. Other people pay points for lower interest rate on their mortgages without causing a risk to a future possible much higher mortgage payment. These other people don’t push the limits by trying to get a lower interest on a more expensive home, but rather have the payment they know they can afford! If people who had chose these ARM loans had paid attention to the contract, they would’ve seen that there was huge risk associated with an open ended rise in the interest rate. That kind being different than the ARMS with a top out being so many points over a year or even the life of the loan. These type loans can be used temporarily for a short period in a way to get your spending & debt level under control together raising your credit score, and than refinancing to a standard fixed mortgage. There’s always the old fashioned way of cutting expenditures and saving money, stop using credit, etc. thus improving savings as well as credit score. I think I’m one of a deing breed, and unfortunately this is one reason our country is in such desperate condition. We are so desperate to have what we can’t really afford, so we have quickly taken advantage of our impoverished world neighbors. Now this tactic has backfired in our greedy faces. Our families are teaching their children to be self-absorbed greedy people not concerned with who they step on to get what they want. This is just another case of this, and not reading and understanding the mortgage contracts they read if they did in fact read it at all. A very big problem in the United States with people not reading what they’re signing, but just accepting whatever garbage whoever wants their signature is telling them is on it! Whatever happened to self-education? Have you heard the term “dumbing down of americans?”
Chris Ward // Feb 27, 2008 at 9:39 am
I’ve heard the term.
However back in the day, you could have an ARM or a fixed. Which one do you want? Those days are long over. There are a great multitude of loan products available now. The careful planning on how to use them should come with a greater responsibility. In our area, loan officers were just required recently to get licensed. It’s only 20 or 30 years overdue. Training on how to properly advise someone, when considering a mortgage has never been required, and still is not today! Nope. The quantity of knowledge neccessary today, to obtain a license, is still concentrated mostly on compliance with the laws governing “disclosure”. Did you get all the forms signed and provide copies to the client within the proper time frame. Compound that problem with lenders providing mortgages to the public with less requirements and higher debt ratio allowances, and well….obviously you’re seeing the results. The country is now finally starting to look at our job as a profession, and hopefully starting to treat it as such. Increasing the level of requirements neccessary to have such a position and instilling ethics into it, will certainly help. I don’t expect my clients to know even a fraction of what I know about mortgages. They trust me to advise them properly and position them for success. That is a large resposibiltiy that “should” require a certificate guarantying a level of knowledge. This traing should also include a code of ethics. There would still be rogues that didn’t conduct business the right way, just as there are in any other profession. There just wouldn’t be nearly as many in the mortgage industry as there are today. Even with tightening of lending requirements going on now, a loan officer can still sell a consumer a loan that they can’t afford to repay.
Carol // Feb 27, 2008 at 2:55 pm
Of course, but there still needs to be recognition that there’s a reason these people’s credit score isn’t allowing them a more conventional prime loan. Usually people with this type of mortgage have over spent in the past, have high debt, etc, and so bailing the multitudes out of these fixes won’t make them learn to be more responsible in the spending habits. Rather the opposite, unless there is some form of accountability. It is important to not just wipe away a debt they owe, this will in the end just lead to continued financial abuse! I do understand that mortgage officers are not always above board on things, but erasing a debt and passing off to whomever will not straighten these people’s spending habits out. With this plan there is no long range effect….just immediate relief for a trouble system that got greedy as well. They didn’t care who they lent money too, as long as they got it. They just didn’t look at the possibility of this disaster coming to a head like this. Everyone knows despite the credit problem by millions and millions of people, credit card companies etc have continued this downward spiral by continuing to give credit. This plan will only secure the banks and leading institutions don’t have catastrophic loss, but it will do nothing for the millions who ill-spending! It will continue to happen until we reconstruct the financial lending system.
Toby Barnett // Feb 28, 2008 at 4:52 pm
But the problem has spread farther than just bad lending practices and irresponsible borrowers and into the greater US economy. The effects are widespread enough where the government has been taking drastic measures to stabilize the economy. I agree that people need to learn from there mistakes but we, as a nation, just can’t turn our backs on citizens that need help.
Carol // Feb 28, 2008 at 9:00 pm
I understand what you are saying, but the government isn’t everyones answer to their irresponsible behavior. Who do you suppose is going to bail the US out when this continues on? Our country needs to extend mercy, but not further problems by exceusing these peoples debts! That will be no more effective than the bankrupty laws at helping people gain control. It has just furthered the problem, and now we have an even higher bankruptcy. I personally know people who instead of slowing down spending when things started to become unmanageable actually went and continued to spend on credit cards and went and bought brand new vehicles, etc. That’s one example of the way people are doing. Does any of that make sense? No. I’ve been in very hard financial perdicaments, but I cut back, did without, etc and paid my ex-husbands bills until things were paid. We didn’t buy buy buy. So you aren’t going to find an understanding person here or anywhere near me. Times are way too hard to be sympathetic to people who dug their own grave. What happens to the people when they can’t pay the rent? They get evicted. I have a few children who have lost jobs, and couldn’t pay rent. That’s even more understandable than this. so how do we justify a dismissal or forgiveness of their stupidity? Throwing money at people has never worked, and when the government is going to catch on to this one is beyond me. As far as we as a nation turning our backs on these citizens…It’s not a matter of turning our backs on its citizens(something of which this country seems to be really great at). It’s a matter of teaching people that there is consequences for their actions. In most cases these people probably should never been allowed to get mortgages, or at best definitely not been approved for an ARM loan. Again, this is not all citizens problem. How do you supposed that we explain why the government bailed these people out? And why they didn’t rescue all the other unfortunates? Take for instance neighbor John Doe up the street who lost his house after he went through losing his mother to Alzeheimers, his wife to cancer, a job loss in mid-life, and trying to start a new career over at 50-ish without much luck given his age & being over-qualified for most jobs. You explain to the tens maybe hundreds of thousands who’ve already lost their homes due to unfortunate happenings such as stated above. They if anyone should’ve been the ones who were assisted, not some non-reading, crazy spenders!!! Sorry, but you can’t sell this one to me, and hopefully no other sane person. I do my thinking for myself, and I also read what I sign!!!
Carol // Feb 28, 2008 at 9:07 pm
I also wonder how much of all this is due to the far reaching results hitting higher up the financial ladder. I don’t think there’s as much concern about these unfortunates until it digs in the wealthiest classes pockets. It certainly isn’t the little guy or the middle class who are doing the irresponsible loaning practices!
Toby Barnett // Feb 29, 2008 at 11:55 am
Carol, it seems that you have a better grasp on your financial position than others did and/or do. But to take it the extreme of enforcing some sort of punishment, letting people get foreclosed on and kicked out of their home, instead of offering assistance is to much in my opinion. Also, FHA Secure and “bail out” plans are not going to be available for everyone so the idea that the American public is footing the bill for so many is not true.
Your example of John Doe: it is unfortunate that people experience various other hardships which go unrecognized but the reality is they do not make up a large portion of the economy. It sounds harsh but it is reality; if 10 million families where loosing their home to medical reasons it would make the government stand up and take notice but when the numbers are so low it just gets looked over.
Another note, the US has been helping others for a long period of time, inside and outside US borders. And help is what a leading country should do despite what others may think of that help. If a nation refuses to make fiscal decisions to help its citizens and economy how is it supposed to move through problems and grow as a nation?
It also seems that this conversation has definitely moved off topic of FHA Secure availably for Washington residents, wouldn’t you say?
Carol // Feb 29, 2008 at 12:55 pm
No, I don’t believe it has moved off the topic. There is assistance to assist people, than there are handouts. Assistance helps people, handouts don’t. This is obviously another tactic of the liberal thinking we see in Washington. They are not looking at the repercussions to this decision. This will not harness in people’s wild and irresponsible behavior. There is no sting that encourages change if they have there damages just wiped away. Helping people isn’t always FREE handouts or write-offs, but difficult decisions to make individuals responsible for their actions. This is done by temporarily assisting them through a temporary relief, but definitely not forgiving of a debt. These people need to be held responsible by having them continue to pay maybe for a longer period of time, but not just wiping away their debt. So your thinking is if alot of people fall into a poor decisions it makes it alright to forgive them all? I mean because there’s so many of them? Sorry, that just makes about as much sense as some of the other lame decisions we see coming from our leaders in Washington, ie. amnesty years ago was supposed to stop the problem with illegals coming in. But in actual fact all that did was pat them on the back, and encourage more illegals to come in. This is a proven fact. History shows us that what behaviors we want to encourage we need to reward, and what behaviors we want to extinguish we need to discipline. So how do you figure this will bring about any different results? Sorry, but there’s a unseen self-serving benefit here somewhere!
Toby Barnett // Feb 29, 2008 at 2:32 pm
Maybe it is because Chris and I both work within the real estate industry that our perspective varies from yours. Either way, contrary to all opinions, the government feels that is in the best interest of the national economy to help the families which fall into the ARM category.
“So your thinking is if alot of people fall into a poor decisions it makes it alright to forgive them all?”
Right or wrong is makes no difference at this point. The FHA Secure, FHA Modernization and Project Life Line are being or going to be used to help people in home loan crisis.
Carol // Feb 29, 2008 at 7:04 pm
We’ll just have to wait to see what if any backlash results from this… National economy or not!
Carol // Feb 29, 2008 at 7:07 pm
I’m sure part of your different view as you say is due to your career in the real estate industry. That has to change the way you view things.
Edna // Apr 22, 2008 at 8:14 pm
Please call me about fha secure.
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