The Mirec: FHA must expand failed US foreclosure plan-panel

LAS VEGAS Feb 5 A federal plan to helphomeowners facing foreclosure must be expanded after drawing atepid response from borrowers since its unveiling in August,panelists at just click the following document a bond organization meeting said on Tuesday.

A study circulated within the American Securitization Forumlast month proposed the Federal Housing Administration broadenits FHA Secure loan refinance program to stem moreforeclosures. The program should allow borrowers delinquent forany reason to refinance into an FHA loan, versus the narrowrequirement that borrowers face a higher interest rate.

The ASF proposal comes amid signs that falling home priceswill continue to push foreclosures higher. FHA Secure thus farhas (visit site) refinanced about 1,000 borrowers, making it a “failure” sofar, Rod Dubitsky, a managing director at Credit Suisse, saidon an ASF panel here.

The ASF plan, reported by Reuters on Jan. 27, “would allowanother loss mitigation alternative that’s not available toservicers today,” said Stephen Kudenholdt, a partner withThacher Proffitt & Wood and an author of the ASF’s federallysupported streamlined rate-freeze plan.

The ASF plan would be the only vehicle that would allow a”short refinancing,” in which a borrower refinances a loanwhose balance is more than the underlying property’s value,Kudenholdt said. The new loan would cover the lower home value,giving investors in the first loan a principal loss.

Whether accepting a loss of principal or a lower interestrate, investors generally agree that modifying loans is abetter alternative than foreclosure, especially in a marketwith falling prices.

Lenders have boosted modifications under their own plansand another written by the ASF, but the success has fallenshort of what’s needed to reduce foreclosure rates, panelistssaid.

The current FHA Secure program may be unattractive becauselenders may have a hard time selling the loans, Credit Suisse’sDubitsky said. FHA’s securitization arm, under pressure fromtraders, pledged to keep its FHA Secure loans out of itsstandard Ginnie Mae bonds, which are prized for theirliquidity.

Fostering a program to allow for short refinancings isimportant since homeowners without equity are at most risk fordefault, Dubitsky said. Concerns about defaults based on slatedinterest-rate increases should subside since mortgage rateshave dropped in recent months, he said.

With a short refinancing, “the borrower would be able tostay in the house,” Kudenholdt said. “It’s not a distressedsale” and that protects property values.

The current FHA Secure program is poised to help aroundonly 44,000 subprime borrowers, or 5 percent of those who aremore than two months behind in their payments, according to thestudy circulated by the ASF. The new guidelines would reach607,000 subprime borrowers, or 68 percent of those who areseverely delinquent, it said. (Additional reporting by Patrick Rucker; Editing by DanGrebler)