FHA, Foreclosures and Foregiveness

whitehouseIt’s not often that I comment on anything being done in Washington on this blog. I am not apolitical, but I keep this place as local as I can, and usually Washington isn’t doing too much that I want to talk about. Take that comment as you like.

When the news popped up in my feed reader this morning that President Bush was making an announcement today about plans for the FHA and assistance for those facing foreclosure, I decided maybe it was time to discuss something going on in Washington because this actually does have a great impact on South East Michigan. It is, by no means, a cure-all to our woes, but it will give a many people who are struggling to make their mortgage payments some hope. And potentially it will relieve a few who have already lost their homes to short-sales from a significant IRS tax burden that follows the forgiven debt.

Outlined in Bush’s plan:

  • 1. The President Calls On Congress To Pass Federal Housing Administration (FHA) Modernization Legislation. The President’s FHA modernization proposal would lower down payment requirements, allow FHA to insure bigger loans, and give FHA more pricing flexibility. These reforms would empower FHA to reach more families that need help – first-time homebuyers, minorities, and those with low-to-moderate incomes – and offer more options to homeowners looking to refinance their existing mortgage.
    • The Administration Will Also Launch A New FHA Initiative Called “FHASecure.” The President has asked Secretary Jackson to pursue important administrative changes to give FHA the flexibility to help more families stay in their homes during this time of transition in the mortgage market. The FHASecure program will help people who have good credit but who have not made all of their payments on time because of rising mortgage payments. For the first time, FHA will be able to offer many of these homeowners an option to refinance their existing mortgage so they can make their payments and keep their homes. FHA will also charge mortgage insurance premiums based on the individual risk of each loan, using traditional underwriting standards, so it can expand access and help even more families.
  • 2. The President Calls On Congress To Change A Key Housing Provision Of The Federal Tax Code So It Does Not Punish Families Who Are Forced To Sell Their Homes For Less Than Their Mortgage Is Worth. Current tax law counts canceled mortgage debt on primary residences as taxable income. For example, if the value of a home declines and $20,000 of the homeowner’s loan is forgiven, the tax code treats that $20,000 as taxable income. The President proposes temporary relief to ensure that canceled mortgage debt on a primary residence is not counted as income.
  • 3. The President Announced That The Administration Will Launch A New Foreclosure Avoidance Initiative To Help Struggling Homeowners Find A Way To Refinance. Housing and Urban Development Secretary Alphonso Jackson and Treasury Secretary Henry Paulson will reach out to a wide variety of groups that offer foreclosure counseling and refinancing for American homeowners. These groups include community organizations like NeighborWorks, mortgage lenders and loan servicers, FHA, and Government-Sponsored Enterprises like Fannie Mae and Freddie Mac. The goal of this initiative is to expand mortgage financing options, identify homeowners before they face hardships, help them understand their financing options, and allow them to find a mortgage product that works for them.

Details still need to be worked out on these initiatives, and it appears that the Whitehouse is still looking for more ways to help consumers looking at losing their homes. They have stated that they are not looking to bail out Wall Street or the institutions who offered these loans.

We’ve personally seen a huge upsurge in the number of foreclosed properties in our market. The economy is hurting and bad things are happening to good people. But we are also seeing instances where banks were defrauded by people who knew better and participated in illegal scams to rob unsuspecting lenders. Money was easy to get, and now the banks are finding it is harder to collect.

2 weeks ago we did our first FHA loan in a couple of years. Those loans had fallen out of favor to cheaper 80/20’s and other hybrids that were churning along home sales. Now we are headed back a few years to tighter underwriting and government guarantees. I was happy that the FHA was there to back this recent buyer, and I feel more assured that the deal will go forward as we have already made it through the once dreaded FHA inspection. I suspect that I will be doing more FHA deals this year, which is fine with me. Glad to have that tool in the box.

[tags]fha, mortgage, foreclosure, tax relief, short sale, george bush[/tags]

Photo by James & Vilija


  1. says

    Sherry – Your comment got stuck in my spam folder. I just found it. Sorry! Yes, a few weeks does seem to be making a difference. Lets hope they keep working on it quickly.

    T – I am doing my first FHA in years right now too. Glad it is there.

    3C – Here’s hoping it’s soon. Ohio and Michigan could benefit.

  2. says

    The industry is not what it was several years ago. The economy has improved substantially. Inventories of bank owned and government owned properties are down. The banks no longer just give the properties away. True, bank owned opportunities were more abundant in the past. Today, several lenders enjoy selling their properties at market value. Opportunities will always be available however, for those who take the time to learn and understand the process.


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