CHANGE FHA

Created in 1934 to insure mortgage, FHA, a department of the Housing and Urban Development (HUD) has served the housing buying public very well. During the recent real estate bubble, FHA became almost irrelevant. Alternative lending programs that did not require mortgage insurance(80/20, 100%) took lost of business away from this single product entity. Following the carnage that has hit the housing market, FHA seems to be the government's answer to all the problems:

FHA Secure: this insurance program was designed to help sub prime ARM borrowers to get a fixed rate mortgage even if they were delinquent in their payments. As usual and simply because FHA depends on lenders to fund the loans, the program did not hit the intended target. It was temporary (expires 12/31/2008), costly and voluntary. Very few lenders embraced this program during its short lived span, and those who did made it so expensive that few borrowers actually benefited from it.

Hope for Homeowners, (H4H): this is the new tool heralded by the government as the program that will foster home retention. Born July 31,2008 as part of the Housing Recovery Act, it went into effect October 1, 2008 with grand fanfare. Almost three months since its introduction, H4H has not seen a single closing. In a testimony before Congress, Mr. Pearson, the head of HUD declared it a failure. He noted that only 312 "applications" were taken nationwide. Considering the number of daily foreclosures that average 5,800, that total represents less than 10%! There are no lenders willing to buy these loans, and they do not have to. In the meantime, politicians are all over the map telling homeowners that there is a program out there that will help them. If there was a lemon law for laws passed by Congress, the H4H is one of them. It must be sent back there to be re-written right away.

Change FHA's charter: as a mortgage insurance branch of the government, FHA can only insure if there are lenders willing to originate these loans. Since the current market conditions where even credit worthy borrowers are turned down, where businesses cannot borrow, the government can either mandate that Fannie and Freddie issue lending guidelines and buy these loans, or give FHA the authorization and means to both buy and insure these mortgages.
Fannie and Freddie are now owned by the government, i.e. all the taxpayers of this country. Buying these loans will fit beautifully in their role of promoting home ownership.
Tough situations call for tough measures, after 74 years of only insuring, FHA has learned enough to be able to originate. If we bailout the banks that now refuse to lend, why not take some of the funds and lend them directly to those who need them?

Change is all over: Detroit must change, banks must change and we all agree with these premises, why can't FHA change?