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 Legislative Status of H.R. 600 View next topic
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thetruthfromNC
Flash in the pan


Joined: 19 Nov 2008
Posts: 43

to SteveP
PostPosted: Tue Mar 03, 2009 3:37 pm Reply with quoteBack to top

you also said:
"As for the upfront MIP, the standard FHA loan would have about an additional $3400 added to the loan amount where as the SFDPA loan would have about astronomical $11900 upfront MIP added to the loan amount! (which further increases the actual LTV and loss severity on these SFDPA loans!)

Adding further pressure to the SFDPA premium up charge is the fact that the with such a high monthly MIP premium, SFDPA loans would experience a higher prepay speed which would mean the quality borrowers would refinance as quickly as possible leaving a smaller pool of remaining loans that would have to shoulder the anticipated defaults."

Increasing upfront MIP does not increase LTV and loss severity, only the base amount of the loan is insured by FHA. Also to help cover defaults and additional upfront MIP could be changed to being non-refundable, so only a portion of the normal 1.50 would be refundable.

My point is SFDPA is a scam, but FHA needs to create a 100% program like VA and USDA. Taking buyers out of the current market is only making things worse.

One dept of gov't (HUD) says stop this program because it costs too much even if it will reduce lending and another (treasury) says gives the banks billions to create more lending. SFDPA should have gone away(or better yet changed), but in 2010 when the market is better, not 2008, it just made thing worse by taking away buyers.
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catherine
Chocolate


Joined: 24 Oct 2007
Posts: 3202
Location: FLORIDA

Re: Legislative Status of H.R. 600
PostPosted: Tue Mar 03, 2009 4:25 pm Reply with quoteBack to top

any fee they are adding is a "pay for all the bad loans fee"

soon it will be 100% and have a job, credit won't matter

butts, sorry bodies in houses is all that is going to matter

Orlando or the vicinity was given 28 million to save some homes, they are taking that good cash to the slums and buying homes and then rent to owning the borrowers to get people in them

coming to a street near you....................
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Tobby
Cherry Bomb


Joined: 26 Apr 2008
Posts: 134
Location: Naples, Florida

Re: Legislative Status of H.R. 600
PostPosted: Tue Mar 03, 2009 5:23 pm Reply with quoteBack to top

Quote:
My point is SFDPA is a scam, but FHA needs to create a 100% program like VA and USDA. Taking buyers out of the current market is only making things worse.


I agree that SFDPA is a scam, and at best it should be replaced by a risk based 100% program. However, the default rates on VA and USDA are catching up to FHA. VA has built-in delays (remediation requirements), and USDA has little data since it was mostly used for "real" rural areas before 2007 with more stable employment trends.

What has been overlooked is the high correlation between defaults for those borrowers that can't come up with a few thousand dollars to qualify for an FHA loan. In other words the default rate between 96.5% and 100% financing should not be that much. But it is a significant amount. The cause of this differential is not the few thousand dollars, it is the lack of discipline to save/acquire those few thousand dollars that goes to the "character" or "creditworthiness" of the borrower.
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Do_the_math
The WhistleBlower


Joined: 14 Mar 2007
Posts: 2564
Location: Groovy Town

Re: Legislative Status of H.R. 600
PostPosted: Tue Mar 03, 2009 6:09 pm Reply with quoteBack to top

Sorry NC, but the entire principal balance is insured. The borrower only pays annual insurance on the base loan amount, not the total. Therefore, the entire mortgage amount (including UFMIP) must be included in the loss severity calculation.

Also mortgage insurance is currently 1.75% and annual premiums are .55% (purchase loans over 95% with amortization period greater than 15 years).

H.R. 600 proposes up to 3% upfront premium and 1.25% annual premium.

Based on this, the actual difference between the loans in Steve's example should be $9,365 and not $6750. (or 38.7% higher than initially estimated). However, H.R. 600 exempts borrowers with credit scores over 680 from paying higher risk based premiums associated with SFDPA. Hence, a certain of percentage of high risk loans would have potential for higher loss severity without a corresponding premium to offset risk.

But going back to loss severity, setting aside lost interest, costs, and advances, if the market value of the security were to decline 10% and the cost of sale was 10% the difference in loss severity between the regular FHA loan and SFDPA loan would be $9365.00 (which is 27.24% higher than
the regular loan).

Regular FHA loan Sale Price: $200,000, Base Loan @ 96.5%: $193,000, Total Loan with 1.75% UFMIP: $196,377 (UFMIP cents paid in cash).

SFDPA loan: Sales Price adjusted for DP Contribution $207,000., Base Loan: $199,750 (rounded down to nearest $50), Total loan with 3.0% UFMIP: $205,742. (UFMIP cents paid in cash)

Difference: $9365.00 (4.77% higher than regular FHA loan).

10% market decline on $200,000: $20,000 = $180,000 new value. Less 10% cost of sale: $18,000, gross proceeds: $162,000.

Loss on regular loan: 196,377 less $162,000 = $34,377, combined losses on 100 loans with 3% default rate = $103,131.00.

Loss on SFDPA loan: $205,742 less $162,000 = $43,742, combined losses on 100 loans with 7% default rate = $306,194

Not accounting for principal reduction, increases to the balance from lost interest, advances, and expenses or excess property damage, the losses in this examples would be slightly over 296% greater for the SFDPA loans, which is almost 3 times the regular loan.

When the bubble was expanding and prices were increasing, loss severity and claims were obviously much lower. However, now that prices are adjusting to realistic, affordable levels loss severity and claims are magnified. You can't use statistics from 1998 to 2007 (bubble year) to judge the success of any mortgage program. These statistics are not comparable to today's market dynamics.

As to the 94% success rate (in an expanding, bubble market), I don't see where this claim is possible based on current FHA delinquency and default rates as reflected in the data available on HUD's Neighborhood Watch site. According to the data, the delinquency rate is just over 19% and the combined delinquency/default rate is over 20%. That is 1 in every 5 borrowers that are either losing their home or at risk of losing their home.

Now, if loans involving SFDPA have a substantially higher default rate than regular loans, and 40% of purchases involved SFDPA how could the success rate possibly be 94% when the FHA delinquency/default rate is 20%?

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SteveP
Cherry Bomb


Joined: 13 Sep 2008
Posts: 145

Re: Legislative Status of H.R. 600
PostPosted: Tue Mar 03, 2009 7:07 pm Reply with quoteBack to top

DoTheMath, well put!

One idea that might be mutually beneficial to homebuyers without down payments as well as being beneficial to FHA is implementing a loan to facilitate the sale of a HUD REO iniative. Specifically, HUD could offer 100% FHA loans with little to no income or credit qualification standards. There would be so much demand, FHA could probably net 10% above current appraised value for each REO sold. Moreover, demand would be strong enough that the properties could be sold without having to pay high real estate commissions. FHA could further contract with a centralized processing center to originate these purchase loans at an all inclussive (origination, appraisal, title, settlement, etc) for less than 2K each so that seller paid closing costs would be minimized and in turn increasing HUD's recovery on their REOs.

These purchase loans would obviously be very high risk so for the sake of argument, assume they have an astromical 20% default rate. If HUD sells 10,000 REOs under this program, 2000 loans would default and return to REO status. Those 2000 REOs would then be re-sold under the same program where as 400 loans would default and return to REO status. Those 400 REOs would be resold where 80 loans would default and return to REO status, etc, etc till the REO pool is fully liquidated.

This process sounds insane but it was used successfully in the real estate collapse that occurred in the Louisiana and Texas Oil belt in the 80's. One positive side is this process provides a way to sort out the irresponsible 20% of the lowest credit traunch of home buyers while providing a home to the other 80% as opposed to excluding the group all together.

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Do_the_math
The WhistleBlower


Joined: 14 Mar 2007
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Re: Legislative Status of H.R. 600
PostPosted: Tue Mar 03, 2009 11:18 pm Reply with quoteBack to top

SteveP wrote:
DoTheMath, well put!

One idea that might be mutually beneficial to homebuyers without down payments as well as being beneficial to FHA is implementing a loan to facilitate the sale of a HUD REO iniative. Specifically, HUD could offer 100% FHA loans with little to no income or credit qualification standards. There would be so much demand, FHA could probably net 10% above current appraised value for each REO sold. Moreover, demand would be strong enough that the properties could be sold without having to pay high real estate commissions. FHA could further contract with a centralized processing center to originate these purchase loans at an all inclussive (origination, appraisal, title, settlement, etc) for less than 2K each so that seller paid closing costs would be minimized and in turn increasing HUD's recovery on their REOs.

These purchase loans would obviously be very high risk so for the sake of argument, assume they have an astromical 20% default rate. If HUD sells 10,000 REOs under this program, 2000 loans would default and return to REO status. Those 2000 REOs would then be re-sold under the same program where as 400 loans would default and return to REO status. Those 400 REOs would be resold where 80 loans would default and return to REO status, etc, etc till the REO pool is fully liquidated.

This process sounds insane but it was used successfully in the real estate collapse that occurred in the Louisiana and Texas Oil belt in the 80's. One positive side is this process provides a way to sort out the irresponsible 20% of the lowest credit traunch of home buyers while providing a home to the other 80% as opposed to excluding the group all together.


FHA does allow only $500 down for their REOs. However, I agree that a special pilot program to help move some foreclosure inventories. However, I wouldn't want to see practices that inflated prices or created more defaults. Federal law requires that government insured loans be sustainable.

Any 100% program should have strict qualifying criteria, limit DTI, require a residual income test, require liquid reserves, limit increase to housing, require homebuyer education, require an approved budget, and be recourse to FHA in the event of a claim (kind of like a VA entitlement). Also, loan limits should be tied to area incomes and not sales prices and seller contributions should be limited. But that is my opinion. I'd also like to see FHA bring back 85% non owner occupied loans to stimulate rental property investment. But that is fantasyland stuff.

For those who would have liked FHA to have a 100% pilot program, be sure and thank Nehemiah and Ameridream for hiring lobbyists to prevent passage of H.R. 3043 which would have authorized FHA to create a limited 100% pilot program.

Then again, we could let the market correct and return to encouraging borrowers to save the minimum down payment and put some skin in the game. Wink

I am surprised that lenders have not created special foreclosure programs.

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loanaweb
Dud?


Joined: 22 Apr 2009
Posts: 1

All good points
PostPosted: Wed Apr 22, 2009 6:24 pm Reply with quoteBack to top

I am glad you everyone has given this issue some consideration, however, the name of the blog was "status of HR 600". Now I have seen everyones point of view but still do not know the status.
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Crow
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Joined: 04 Nov 2008
Posts: 154
Location: U.S.A.

Re: Legislative Status of H.R. 600
PostPosted: Thu May 28, 2009 10:41 pm Reply with quoteBack to top

I agree w/DoTheMath and others who recognize seller funded DPA as money laundering, and bad for the economy. The IRS called these programs a scam, too, mainly because they are operating as 'charities' when they are not. The whole thing reeks.

Anyone know the actual status of HR 600? I hope it has no chance of passing, but I also have no faith in congress to do the right thing in the end. It was a miracle congress banned DPA's in '08. It is probably too much to ask, to see two miracles in one lifetime.

IMO the fact that all these crazy loans and 'programs' have to be used, to get people into houses, tells me the prices are still too high. Many Americans are still in denial about that, unfortunately. The old rule of not spending more than two, maybe three times your annual salary on a house, or a quarter of your monthy income on a rent or mortgage pmt, are still good rules of thumb.

There is no way the lending industry could've thought it was plausible to sell houses of a quarter or half million or more to people making $50,000 a yr or less, but they did. A fake down payment 'gift' is not going to remedy that problem. While we can't regulate human stupidity, we certainly can and should regulate financial institutions and any other industry that has the power to take out the economy if left unchecked. That's the consequences of acting irresponsibly for these industries--they will get regulated. (And very likely, the regulation will be poorly enforced, as usual.) People should not be allowed to graduate high school without being able to identify mortgage scams (legal or illegal kind), know how to wisely use a credit card, etc. But then all those loan sharks would have to get real jobs.
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Traceymom1
Dud?


Joined: 05 Nov 2009
Posts: 3
Location: Georgia

what ever MOE-RON
PostPosted: Thu Nov 05, 2009 4:07 am Reply with quoteBack to top

I put numerous people in homes using DPA's and they are still in them and doing well,, this is like most everything else, the prolem is when it is abused and our govt doesnt have the nerve to punish those caught abusing it.
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silversword
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Mort [Death] Gage Fraud
PostPosted: Mon Jul 19, 2010 3:19 am Reply with quoteBack to top

" Under democracy one party always devotes its chief energies to trying to prove that the other party is unfit to rule-and both commonly succeed, and are right... The United States Corporation has never developed an aristocracy really disinterested or an intelligentsia really intelligent. Its history is simply a record of vacillations between two gangs of frauds."
H.L.Mencken (1850-1956)
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