Another Bailout Coming for the Banks Disguised as a Bailout for Homeowners

From the WaPo:

Officials with the Treasury and the Federal Deposit Insurance Corp. are crafting a plan under which the government would guarantee the mortgages of as many as 3 million homeowners now struggling to avoid foreclosure, according to three sources familiar with the discussions.

Under the program being discussed, the lender would agree to reduce borrowers’ monthly payments, for example by lowering the interest rate or principal of a mortgage loan, based on the homeowner’s ability to pay. These reconfigured loans could help homeowners avert foreclosure.

To attract financial institutions to the program, the government would then guarantee to repay the lender for a portion of its loss if the borrower defaulted on the reconfigured loan.

The mortgage guarantee program would vastly expand the role of the Treasury Department in helping homeowners, while at the same time ensuring some return for lenders.

It would cost between $40 billion and $50 billion, sources said.

The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.

While Treasury and FDIC officials have reached an agreement on the principles of the program, the White House is resisting, according to the sources, who declined to be identified because the negotiations are ongoing..

Wait, what? I thought the FHA Secure program was such a grand success, according to HUD.  Yet reports show that the true number of homeowners helped under that program was unfortunately low which I predicted in Aug of 2007. The July bailout bill gave us Hope for Homeowners, which requires voluntary principal balance reductions on the existing loans and gave the homeowner a new FHA-insured loan. Housing Wire reports that so far, H4H has few takers. But not for lack of interested homeowners. Instead, it’s the investors:

The problem, however, may not be lenders, who say they’re more than willing to begin processing the loans. Instead, the problem sits with third-party investors that have thus far proven unwilling to take the minimum 10 percent haircut required to put borrowers into the program, plus an upfront premium payment–losses are actually far greater for investors who participate, given that the 10 percent figure is based on a current appraisal, and not original LTV.

John Sorgenfrei, president of Florida-based Assurance Home Loan, Inc., said he receives calls from eight to 10 borrowers daily about participation in the program. For the time being, he has been forced to make them wait, as no investors so far have bought into the program..

We’re burning through the 700 billion Troubled Asset Relief Program (TARP) money pretty fast.  The 40 to 50 billion tossed out for this new plan seems sadly low.  Who is feeding the politicians the dollar amounts?  This is not nearly enough money. It may keep the banks alive for a few more months but to what end?

Do you think this latest proposal seems more like another bank bailout? It’s hard to say until we see the guidelines. With FHA and H4H, income must be fully documented and homeowners must qualify. Once again, this may shave off a fair number of homeowners who won’t be able to document income needed to qualify.

It might be wiser to just start talking about nationalizing the entire banking system at this point.  I mean, how many bailouts will it take before taxpayers own the banks?

FHASecure: A Helping Hand for Those Who Did Not Refinance in Time

Update January 9, 2009:  This program is no longer available effective December 31, 2008.

[photopress:piggydrown.jpg,thumb,alignright]This afternoon I received our Mortgagee Letter from HUD with the nitty gritty on FHASecure.   Since our company is a HUD Approved Mortgagee lender (we’ve been providing FHA financing since our inception back in 1976); we are also approved to help distressed home owners who have adjusting ARMs via a FHASecure refi.

FHASecure is “a temporary program designed to provide refinancing opportunities to homeowners

FHA Secure: A Political Power Move Disguised as a Helping Hand to Those in Need

Bush offered America some presidential words this morning to let us know he’s on top of this whole subprime meltdown, credit crunch, liquidity crisis. On his agenda: An FHA bailout in the form of a new feel good loan program: FHA Secure. Let’s pause for a moment and reflect back on how well HUD is currently doing. First of all, in order to originate an FHA loan, the stack of paperwork, hoops to jump through, policies and procedures, exceptions to the policies and procedures, and updates to the policies and procedures, are, shall we say, astronomical, and I’m just talking about qualifying the applicant, let alone underwriting and the appraisal process.

One reason (of many) why brokers pushed subprime loans was because the borrower who qualified for an FHA loan couldn’t get that loan with a broker. Why? Because it also takes an enormous amount of effort for a mortgage broker to become an FHA-approved lender. It’s the small details that really count to HUD, such as annual HUD audits, net worth requirements, submitting audited financial statements, presenting a quality control and compliance plan, and paying your loan originators as W-2 employees. Many brokers pay LOs as 1099 workers. For some small to medium sized broker firms, it was a business decision: make more money selling subprime and leave the hassle of originating FHA loans to the banks. “See ya, wouldn’t want to be ya