Reports of Administration Talks to Loosen FHA Underwriting for Refis

Representatives of the Bush Administration reportedly were actively debating this week whether to loosen FHA’s underwriting requirements in order to permit more troubled subprime borrowers to refinance into more affordable fixed-rate FHA loans.

According to reports, the talks revolve around the FHA’s current underwriting requirement that borrowers can’t have missed a loan payment in the previous six months, regardless of whether they are current at the time of applying for a new FHA mortgage. It was unclear whether the administration’s latest mortgage relief initiative would be channeled through FHASecure or the regular FHA mortgage program.

FHA’s Share of Mortgage Originations Rose to 8% in Early 2008

Preliminary numbers compiled by Inside Mortgage Finance suggest that FHA’s share of new mortgage originations has jumped from 5 percent in the fourth quarter of 2007 to 8 percent in the first quarter of 2008.

FHA’s share is expected to grow faster with the advent of higher loan limits and tougher underwriting from competing Fannie Mae and Freddie Mac loan programs. But despite the gains in FHA business, most of which is attributable to borrowers rushing to refinance out of conventional ARMs, relatively little of the growth can be attributable to the much ballyhooed FHASecure program, which allows delinquent borrowers to refinance into new FHA loans.

According to the latest numbers from FHA, only 1,042 delinquent conventional mortgages have been refinanced into FHA since October – or about 1 percent of the total conventional to FHA total refi volume. Inside Mortgage Finance is hosting an audio conference on FHASecure today at 3 pm ET. Click here for more info.

FHA Under Pressure to Modify FHASecure

With more mortgage players looking to use the FHASecure program to refinance troubled borrowers, FHA is coming under increased pressure to loosen the underwriting requirements of the closely-watched initiative.

And there is growing speculation that FHA may announce some significant enhancements to FHASecure in the next few weeks. Specifically, mortgage servicers are hoping that FHA will expand the types of delinquent borrowers that qualify for a refinance beyond those dealing simply with interest-rate adjustments and higher payments.

Such a change would need to include increasing the number of late or delinquent payments borrowers have outstanding at the time of a refinance, advocates of loosening FHASecure say.

Possible changes in the FHASecure program will be covered in an audio conference that Inside Mortgage Finance is hosting on Wednesday, March 12, at 3 pm EDT. Click here for more info.