There are roughly 6 million FHA borrowers, and one million delinquent FHA loans, and FHA-HAMP is also available to borrowers that are not delinquent, but whose default is considered “imminent”.

The HUD Neighborhood Watch Website shows 171 FHA-HAMP modifications for the month of April 2010.  This number includes Trial Modifications and fully approved FHA-HAMP modifications and the “Help Topic” on the site, which was just updated by FHA this month, says that information included in the Servicer loss mitigation report on delinquent loans (those with status Codes 39 & 41) are included in the total number of FHA-HAMP actions shown on the report.

Just so everyone understands, Code 39 indicates a borrower has been approved for a FHA-HAMP trial modification plan.  Code 41 indicates a borrower has been approved for a FHA-HAMP modification and partial claim, after successful completion of the Trial Modification payment plan.

171 nationwide in April.  So, very well done there. Crackerjack work, I would have to say.

I checked the Treasury’s HAMP Report and it shows that the number of borrowers that received free housing counseling in April was 53,001.  And, how many since the beginning of HAMP?  Well… Treasury reports 545,318.  Roughly four million homes lost to foreclosure last year… which is pretty much since the beginning of HAMP, and only half a million got the free counseling?  A little more than 10%?  What the… did they have to win a drawing?

What in the world would we do without these programs?  Frankly, I’m surprised the foreclosure crisis hasn’t ended already.

Krista Railey, who is a mortgage industry expert, homeowner advocate, and fellow blogger… who is a friend of mine, by the way… although we have had our disagreements, as you may be aware… gave me the following statement in response to the report:

“No matter how you slice it, the FHA loss mitigation statistics are a disgrace.  You cannot get me to believe that out of over one million delinquent borrowers and over six million total loans that only 171 FHA borrowers wanted the FHA-HAMP program.”

FHA reported that the number of serious delinquencies decreased in April, however, drilling down into the FHA statistics for April reveals that the overall number of default and delinquencies actually increased, and that the increase in delinquencies was offset by a large number of new loans added in April (what a surprise that is… the end of the home buyer tax credit).  The increase in new loans offset the increase in the number of 30 and 60-day delinquencies as well as the number of foreclosures.

Krista Railey again, said the following:

“HUD’s loss mitigation statistics paint a picture of either ineptitude or dishonesty. What really gets under my skin is that taxpayers bailed out the banks and eventually taxpayers will have to bailout FHA.”

Krista and I have known each other for about a year now.  We first me when I worked with her to help create a detailed piece on a bill known as H.R. 600, which was threatening to bring back “seller-funded down payment assistance,” which sounds nice, but is really… as I learned from Krista back then… really a scam, and a harmful one at that.

Krista is an absolute stickler for everything compliance, and readers may know that she and I have argued over the situation at Green Credit, a company that was shut down by the California State Bar a few months back.  Krista views Green Credit as having been out of compliance for a whole litany of reasons that she has explained in her comments on Mandelman Matters on several occasions.  My response has been that the company modified a lot of loans and kept 2600 homeowners from being thrown out of their homes.

That being said, Krista knows just about everything about the intricate details of the mortgage industry… certainly a lot more than I do… and although I don’t know this for sure, I would guess she probably puts together 100,000 piece jigsaw puzzles just to relax.  I, on the other hand, don’t.

Krista also says, of the latest data:

“Even more curious is that codes 39 and 41 are not showing as delinquency status codes that are included in the total number of serious delinquencies.   FHA just updated the Help Topic this month, and has not satisfactorily answered my question as to why codes 39 and 41 are not showing as included in serious delinquencies.”

See what I mean?  When Krista drills down… she really drills down.  Go get ‘em, Krista!  You are more than welcome on Mandelman Matters anytime, even when its to kick my butt in one way or another.

Ergo bibamus!

Democratic Representatives Al Green, Maxine Waters, Robert Wexler and nine others in Congress are backing a bill now that would restore a practice that was banned as of last October, called “seller assisted down payments”. They claim that we need to stimulate our housing market by allowing people to buy homes without having to come up with a down payment. The best part is the mortgages will all be FHA insured, so when the defaults start rolling in, at least taxpayers will be on the hook to foot the bill… again.

How can this be happening?

HR600 is about “Seller Assisted Down Payments,” which is a euphemism for a scheme that enables people who cannot save enough money to make a down payment, to qualify for FHA insured mortgages.

The process works like this: The seller “donates” enough money to satisfy a 3.5% down payment on the home he or she wants to sell to a nonprofit corporation. That nonprofit then turns around and provides the buyer with a “grant” to satisfy FHA’s 3.5% down payment requirement. The seller gets their “donation” back by simply inflating the sale price of the home by 3.5%, thus creating a mortgage with no equity or negative equity.

Maybe we should suggest the program not require documentation of income or employment too, heck… perhaps we should eliminate credit checks while we’re at it.

Of course, the nonprofit doesn’t offer this service for free, and not coincidentally, the companies that are the largest providers of this service, AmeriDream and the Nehemiah Corporation are also the major supporters of this legislation, along with eleven congressional Democrats, one Republican, and the National Associations of Realtors, Homebuilders, and Mortgage Brokers. (Gee, now there’s a surprise.)

Here’s how MapLight.org described the proposed bill:

H.R. 600 aims to reinstate DPA seller-financed down payments for single-family housing mortgages. The DPA was dissolved last October as part of the Reform Act because of evidence that showed home buyers who used seller-financed down payments were more likely to default on their loans.

However, supporters of this bill claim that the influx of vacant and foreclosed homes that resulted from this crisis has left a vacuum in the housing market and actually made it a great time to invest in real estate. By reinstating the DPA temporarily, low-income housing supporters like AmeriDream and the Nehemiah Corporation believe that thousands of families could take advantage of the depressed housing prices and reenter the hosing market. They also claim that this can be done without any increase in taxpayer funding.

Yes, you read that correctly. The supporters of this bill have decided that NOW is a “great time to invest in real estate,” and that the best people to take advantage of this fabulous opportunity are those that can’t come up with a 3.5% down payment. They also point out that this will be accomplished without any increase in taxpayer funding, which is true, assuming no one defaults, of course.

And why would anyone worry about this group defaulting on a mortgage that’s virtually assured to be underwater from day one?

Why would we want to re-create a program that puts people that can’t save enough money to satisfy a 3.5% down payment requirement, into FHA insured loans. After all, a 3.5% down payment is far below the normal requirements, and if someone can’t save that small amount, how can we expect that person to have the financial where with all to keep a home when life doesn’t go as planned?

The bill’s supporters are far from being disinterested parties, as each would benefit from the homes that would be sold as a result. However, none of these groups would pay the price when 28% percent of these properties end up in foreclosure, which is the percentage of seller assisted down payment mortgages that defaulted in 2007, roughly three times the default rate on FHA loans that were not initiated with seller assisted down payments.

In addition, because seller assisted down payment loans are inflated by 3.5% over the appraised value of the property in order to compensate the seller for making the “donation” to the nonprofit corporation, buyers have no equity or negative equity from the day they sign the papers.

Don’t we already have enough of a problem with mortgages being underwater? Why would we want to create more of them?

Congress banned this practice last July (2008) and President Bush signed into law H.R.6694, but backed by a group of Democrats in the now Democrat controlled congress, this attempt to circumvent these previously outlawed practices is again being pushed through committee.

Unfortunately, it is the tax payers at risk here, and considering the disaster that is today’s housing market, it is frankly inconceivable that such a scheme would be revived by congress in the name of “helping homeowners,” or “stimulating our economy”.

Why isn’t the media covering this legislative travesty in the making? Because its proponents have positioned this bill as being part of much needed economic stimulus that doesn’t increase taxpayer funding, which might not be so objectionable if it were true. And aren’t these types of practices many of the same ones that got us into this mess to begin with? Haven’t we, as a nation, learned what NOT to do yet?

Considering the mortgage induced economic crisis we are still in the midst of today, it seems inconceivable that such an effort would even exist… let alone be a bill discussed in a congressional in committee today. Consider the following facts taken from a Government Affairs Update produced and distributed by The National Association of Realtors last July:

1. FHA is the only mortgage program that has allowed seller-funded down payment assistance.

2. Seller-funded down payment assisted FHA loans have a very high default rate. In FY2007, the default rate on seller-funded down payment loans was more than 28%, roughly three times the default rate on FHA loans without seller-funded down payment assistance.

3. The FHA does not collect enough in premiums to sustain a 28% default rate on its loan portfolio without the need to raise premiums for all FHA borrowers or receive a federal subsidy for the first time in the 71-year history of the FHA program.

And, Warren Buffet, writing on the topic of homeownership had the following things to say:

The housing mess teaches that home purchases should require “an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income.” That income must be verified, of course. “Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition.”

Rep. Maxine Waters and her peers say the legislation is important because it helps African Americans and other minorities who cannot come up with a down payment to “realize the dream of homeownership”.

Throughout the last century, Americans saved up enough money to put down on a home, and until they did, they rented or lived with family members. Now it’s considered a good idea to allow people to purchase homes without having to save up enough for the down payment… on an FHA insured mortgage that’s underwater from the outset? Really?

Because from what I’ve seen over the past two years, it doesn’t sound like a dream, it sounds more like the American Nightmare.