FHA Secure is being touted as the solution to the maddening mortgage adjustable rate mortgage crisis. It remains to be seen if a government loan will really solve the mortgage crisis or if the crisis was really a spend like there’s no tomorrow attitude.

A new federal loan program designed to help borrowers cope with rising payments on adjustable-rate mortgages is kicking into gear.

An estimated 80,000 borrowers nationally are expected to take advantage of the FHASecure loan program, said Ben Johnson, director of the Denver Homeownership Center with the Federal Housing Administration.

Another 160,000 or so are expected to use other FHA loans to escape their unaffordable mortgages.

The first Colorado borrowers in the program should start receiving their new loans in early November.

Critics say the program doesn’t go far enough to help homeowners.

FHASecure loans, unveiled by President Bush in August, are designed to shift borrowers who can’t afford higher payments on their ARMs into more traditional FHA-backed loans.

But they aren’t a shoo-in. Borrowers facing a reset must have stayed current on their payments for at least six months, although those who have fallen behind because of a reset to a higher interest rate are eligible.

Loans are underwritten to FHA standards, which limits how much can be financed. In Denver-Aurora, the FHA cap is $308,370.

The FHA will insure a mortgage for up to 97 percent of a home’s appraised value. If the borrower can’t come up with the down payment or the loan is worth more than the home, the current mortgage provider must be willing to accept a second mortgage for the difference, including any prepayment penalties or other fees.

Borrowers must also demonstrate an employment history and that they can afford the payments on the new loan, based on an interest rate that will come in somewhere between the initial rate offered on the ARM and the higher adjusted rate.

Critics charge that FHASecure and other administration efforts represent a Band-Aid on an open wound. There were 223,538 foreclosure filings in the U.S. in September, according to RealtyTrac.

“Unfortunately, the bottom is falling out of our housing market much more quickly than the administration is willing to stem the tide of foreclosures,” Sen. Charles Schumer, D-N.Y., said Wednesday.

Schumer was responding to an announcement Wednesday by Treasury Secretary Henry Paulson Jr. of a new alliance with mortgage servicers, housing counselors and government agencies to help an estimated 2 million borrowers who face higher payments on their ARMs – not all of whom would qualify for FHASecure loans.

“A combination of stagnant or falling house prices, low- down-payment mortgages and resetting adjustable-rate mortgage rates are creating real challenges for many American homeowners,” Paulson said in a statement.

The Hope Now program will work to establish best practices in housing counseling and launch a mass-mail marketing campaign next month to reach struggling borrowers before they fall off a cliff.

As it reaches out to help borrowers, the FHA also has cracked down on seller-financed assistance programs.

The programs, which claimed to be charities, inflated home sales prices, allowing the minimal 2 percent to 3 percent down payments to be wrapped back into the FHA loans and increasing the risk to buyers and the government.

Source: Denver Post

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