By Fred Lucas
March 7, 2012
(CNSNews.com) – Wth no authorization from Congress, President Barack Obama has announced that his administration--through the Federal Housing Administration--will insure refinanced mortgages for 2 to 3 million borrowers without verifying their income or even if they hold a job, according to the Department of Housing and Urban Development (HUD).
Obama announced his latest mortgage program at a White House news conference on Tuesday.
Any American with a mortgage insured by the Federal Housing Administration (FHA) endorsed on or before May 31, 2009 and who is current with their mortgage payments would qualify, according to HUD.
No additional underwriting, or examining the verification of income, employment status or creditworthiness, will be done.
“Basically that’s because they already have an FHA loan and that’s just refinancing the same loan,” HUD spokesman Lemar C. Wooley told CNSNews.com.
Wooley further explained in an e-mail, “Even if their circumstances have changed, they are still managing to be current on the original higher priced mortgage, so that’s the proof to the FHA that they can handle the lower payments.”
“The streamline refinance process is only available for FHA-insured mortgages that are performing – the borrower is paying the mortgage,” Wooley said. He added, “By not requiring verification of income and other underwriting requirements, FHA reduces the cost of the transaction, as well as the time it takes – all to the mutual advantage of the borrower, the lender and FHA.”
Underwriting is generally done for both initial mortgages and refinancing, said Reed Piano, managing director of the National Association of Mortgage Underwriters. He said the normal mortgage underwriting process checks “employment verification, income verification, analysis or thorough examination of a borrower’s creditworthiness based on a lender’s requirements, any federal or state requirements.”
When an institution does the underwriting for a mortgage, it is "validating the entire process. They are validating the appraisal, the title, the credit, income verification, pretty much everything from A-to-Z and they’re seeing if the file is good and meets the requirements,” Piano told CNSNews.com.
The White House estimates 2 million to 3 million FHA borrowers are eligible. “While it is always difficult to estimate participation in these programs, this will result in significant monthly savings for hundreds of thousands of families,” a White House news release said.
“Today we’re taking it a step further--we are cutting by more than half the refinancing fees that families pay for loans ensured by the Federal Housing Administration,” Obama said at the press conference on Tuesday. “That’s going to save the typical family in that situation an extra $1,000 a year, on top of the savings that they’d also receive from refinancing. That would make refinancing even more attractive to more families. It’s like another tax cut that will put more money in people’s pockets. We’re going to do this on our own. We don’t need congressional authorization to do it.”
Banks issuing loans to borrowers who could not afford them led to the housing crisis in 2008.
Asked if a lack of underwriting requirements for this refinance program could create similar problems, Piano, with the National Association of Mortgage Underwriters, said it was too early to know.
“There’s always a possibility that it could create problems. Lenders need to be always cautiously optimistic,” Piano said.
“It’s a little too new to know what the president’s plan is going to entail,” Piano said. “From an underwriter’s perspective, they’re kind of the last person in the process. They’re going to determine ultimately if the loan is going to get approved. As long as the underwriter is doing their job, that’s going to help in the process. But again, they’re following whatever regulations and requirements are already set forth. If requirements are low, one has to be reasonably cautiously optimistic that it doesn’t present problems in the future.”
The FHA fees will be cut to encourage more people to refinance while interests, now, are very low. The FHA currently charges an upfront mortgage insurance premium of 1 percent of the balance each year, which will be lowered to .01 percent, according to the White House. Further, there is an annual fee of 1.15 percent for each year of the refinancing, which will be cut to 0.55 percent.
HUD estimates the program will save the FHA-insured borrower about $3,000 per year -- ($1000 of which will come from the lower refinancing fees mentioned by President Obama) -- or $250 per month.
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