Tuesday, November 3, 2009

FHA Streamline Refinancing – The Government Taketh Away in a Time of Need

After November 16th, HUD is making it a lot harder for borrowers to lower their mortgage payments through refinancing.


Once upon a time, in a land far, far away, HUD had some common sense.  They allowed borrowers with FHA loans to easily refinance to lower their interest rate and payment.

Then came the too big to fail banks & Wall Street, that huffed and puffed and blew the housing market away.

All the Prez’s advisors and all the Prez’s yes men, haven’t been able to put it back together again.

You gotta smile and make light of the situation as it’s better than beating your head against a wall.

The FHA Streamline program has been around since the 1980’s.  It allowed FHA borrowers to refinance their home loans with no appraisal, no income and no asset verification – a borrower just had to have made their last 12 months of payments on time.

The program made sense, as HUD was already on the hook for the loans if they defaulted, so why not make it less likely for these borrowers to default on their mortgages by making it easy to lower their rates and payments?  Makes a lot of sense.  VA does something similar for veterans, FNMA & FHLMC should have embraced this concept with the Obama Housing-O-Rama.

After November 16th though, HUD will now require income verification, asset verification, stricter payment histories and a borrower must have owned the home for a minimum of 6 months.

The worst change is that borrowers will no longer be able to roll closing costs or escrows into the new loan without a new appraisal.

How many more foreclosures do you think this will cause?  Let’s see, you’re upside down in your home, you’re struggling to make your mortgage payments and now you can’t lower your payment to relieve some of this stress without bringing a boatload of cash to closing that you don’t have. 

And our government is supposed to be protecting us and looking out for our best interests?

So why the change in policy? 

Well, HUD feels there are too many streamline refi transactions being done that are not in the best interests of borrowers.  I agree with that it’s happening as I’ve seen it and stopped several occurrences of it.  There are still some bad/desperate players in the mortgage industry churning loans to fill their pockets.  I just got a call today from a past client that was solicited on the phone for a FHA Streamline refi, being promised a 4.25% interest rate with “only” $6,000 in closing costs.  My quick analysis showed her that it didn’t make sense.  Talked myself out of a possible loan, but it wasn’t in her best interests.  I’m hoping she trusts me that much more and will now refer me that much more often and strongly.

Oh by the way, have you seen the bonuses recently paid to the same “experts” on Wall Street that put the housing market into this mess? 

Instead of trying to remove the few bad apples in the industry, HUD seems intent on throwing out the whole barrel of apples.

That seems to be our government’s new solution to every problem these days – instead of enforcing the laws already on the books to get rid of mortgage crooks, the Madoff Ponzi schemers and the Wall Street scoundrels, they just pass new laws that penalize everyone in entire industries. 

Seems it’s a whole lot easier to pass new laws than to put your friends on Wall Street and bank leaders in jail where they belong.

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