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Add some fuel to the “worst is already behind us” crowd’s fire, because April was the best month the battered Southern California housing market has seen in at least nine months.

Home sales in Southern California surged to their highest level since August of last year this past April, rising an astounding 21.9 during April compared to one month earlier, real estate information service DataQuick Information Systems reported Monday. While the monthly comparison is not seasonally-adjusted, sales typically rise by an average of 1.2 percent between the two months, the company said. Sales remained 19 percent below year-ago levels, and the bump in activity came despite record foreclosure activity within the state.

A total of 15,615 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties during April, DataQuick said.

And it appears that much of the buying activity has been centered on foreclosures; of all the homes that resold in April, 37.5 percent had been foreclosed on at some point in the prior 12 months, compared with a revised 35.8 percent in March and 4.6 percent a year ago. Across the six-county area, “foreclosure resales” ranged from 26.9 percent of resale activity in Orange County to 52.7 percent in Riverside County.

Not a jumbo conforming bounce
Perhaps more unexpected than the sales bounce was what didn’t cause it: new jumbo conforming loan limits appear to have had little to do with the rebound in Southern California housing. Last month’s upswing in sales was most pronounced for homes priced under $500,000, which accounted for two-thirds of the Southland’s sales gain over March, DatQuick said.

Riverside County, the epicenter of Southland foreclosure activity and price declines, actually posted the region’s only year-over-year sales increase — that county’s first in two years.

Zip codes showing relatively large annual gains in sales of existing houses included those in San Jacinto and Lake Elsinore in Riverside County, Victorville in San Bernardino County, Lake Forest and Anaheim in Orange County, Lancaster in Los Angeles County and Chula Vista in San Diego County.

“Quite a few more buyers stepped off the sidelines last month to snap up homes at substantial discounts relative to the market’s short-lived peak,” said Marshall Prentice, DataQuick president.

“We continue to look for evidence of a sales bounce in the mid-priced and higher-end markets along the coast. If the higher conforming loan limits are making a difference in those areas, it’s certainly not a large one, at least not as of the end of April.”

The median price paid for a Southland home was $385,000 last month, unchanged from March and down 23.8 percent from the peak median of $505,000 in April of last year.

Last month was the first in eight months that the median price in Southern California did not decline on a month-to-month basis.

For more information, visit http://www.dataquick.com.

Ahead of the scheduled markup of a housing package by the Senate Banking Committee this Tuesday, President Bush reiterated his stance that he would veto any housing package deemed a “bail out” of irresponsible borrowers or lenders. After meeting with Treasury Secretary Hank Paulson, Bush said Monday that he was committed to housing programs that “help people refinance and help people get the financial help necessary to stay in homes.”

“Our policy in this administration is [that] laws shouldn’t bail out lenders, laws shouldn’t help speculators, the government ought to be helping creditworthy people stay in their homes,” he said in remarks delivered at a White House press conference Monday afternoon.

The President lauded Paulson’s efforts to develop the HOPE NOW alliance and its associated loan modification programs, and said that he supported Congress’ efforts to push through legislation that would reform oversight of government-sponsored entities Fannie Mae (FNM: 28.95, -3.14%) and Freddie Mac (FRE: 27.01, +0.15%).

“We look forward to working with Congress to get a good piece of legislation to my desk that helps our fellow citizens, and helps us get through this housing issue,” Bush said. He did not delve into specifics of the current housing bill under consideration by Senate leaders, having threatened in recent weeks to veto the package over concerns tied to a proposed $300 billion expansion of the FHA-insured mortgage program.

An agreement close?
It’s yet possible that the President will agree to sign an amended housing package, sources told Housing Wire yesterday, suggesting that the administration may be softening its stance towards the bill ahead of an expected bi-partisan compromise negotiated last week.

Primary Republican opposition to the proposal stemmed from perceived taxpayer funding of the proposed FHA expansion, our sources suggested; restructuring the expansion bill to push the costs more directly onto the GSEs, as numerous media outlets have reported over the weekend, may solve some of those concerns.

“Senator Shelby and I are very close to reaching an agreement on this important piece of legislation, and are working with each other and other members of the Committee to resolve the few differences that remain,” said Banking Committee Chairman Christopher Dodd (D-CT). Dodd has been at loggerheads with Sen. Richard Shelby (R-AL), the ranking Republican on the Senate Banking Committee, whose opposition to the housing package was seen as the primary roadblock to any Senate passage.

Dodd characterized as “optimistic” the chances that his committee would successfully mark up and send a bill to the Senate floor for consideration this week.

The agreement between Dodd and Shelby allegedly includes subsidizing the expansion of FHA lending using an affordable housing fund to be financed by both Fannie Mae and Freddie Mac on a sliding scale that would reduce over time, Bloomberg News reported on Friday.

Disclosure: The author held no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Effective August 1, 2008 Freddie Mac will NO longer allow financing where a borrower owns more than 4 financed properties, the previous number of properties allowed by Freddie/Fannie was 10.  This is a significant change and will impact anyone who has 4 or more financed properties.

If you or someone you know owns more than 4 properties (including primary residence, 2nd home and investment properties) it is important to immediately consider the following:

 1. If you own more than 4 financed properties and any of your loans are on an adjustable rate you have a 30-45 day window to get those loans refinanced to a 30 or 15 year loan.  If you do not do this now you will be stuck with an adjustable rate loan indefinitely.  If the terms on your adjustable rate are not good then you need to refinance now.

2. If you are looking to purchase a property you need to do it now!  If you already own 4 or more properties and are looking to purchase a new one and wait you will find it much more difficult to obtain financing and will most likely encounter higher rates and greater down payment requirements for using a bank that does not follow Freddie Mac and Fannie Maes guidelines.  

These new guidelines will have a huge impact on many of us as we build our investment portfolios.  If you have any questions, need to refinance or buy a property before the deadline, contact me right away at Maria@SolerEnergyProperties.com or 602-366-5073.

Both Fannie Mae (FNM: 28.95, -3.14%) and Freddie Mac (FRE: 27.01, +0.15%) may be undercapitalized relative to the market risk they are now being asked to take on, according to surprising remarks by Office of Federal Housing Enterprise Oversight director James Lockhart last week.

“The legislation that created OFHEO in 1992 requires the agency to set very low minimum capital requirements and greatly limits OHFEO’s flexibility with respect to risk-based capital requirements,” Lockhart said in remarks at the 44th Annual Conference on Bank Structure and Competition in Chicago on Friday.

“That approach, under which we operate today, has significant weaknesses.”

Chief among them, Lockhart suggested, were that the current legislation prevents OFHEO from establishing what he called “truly risk-based capital requirements.”

“OHFEO must use a stress test model that omits key Enterprise risks, including operations and basis risks,” he said. The current model doesn’t account for severe interest-rate stress emanating from low-rate environments, Lockhart said, nor does it account for credit stress as severe as the current downturn, he argued.

The OFHEO director’s remarks were the sharpest criticism yet by government officials to suggest that Fannie and Freddie will continue to face capital constraints, despite fresh capital raises from both GSEs and OFHEO’s own recent decisions that have reduced prior capital surcharges. Numerous analysts, including those at UBS, have suggested in recent months that capital challenges at both GSEs would be likely to limit their ability and willingness to step in and purchase more mortgages — particularly in the most frozen of mortgage markets, including Alt-A and subprime.

“Legislation needs to be enacted soon that would reform supervision of Fannie Mae and Freddie Mac,” Lockhart said, “and, specifically, give a new agency authority to set capital requirements comparable to the authority the bank regulatory agencies possess.”

Lockhart suggested a more modern, Basel II-type approach to capital modeling was needed going forward. He also suggested that Fannie and Freddie could have taken a counter-cyclical role in the housing markets that might have prevented the massive housing and related asset bubble that has roiled financial markets in the months since it first popped.

“[G]iven the Enterprises’ balance sheets, they might have refrained earlier than September 2007 from purchasing AAA-rated private-label MBS backed by subprime and Alt-A loans that did not meet the bank regulators’ guidances on subprime and nontraditional mortgages,” he said.

All of which begs the question: how much capital?

It’s a question analysts and Senate leaders alike have been bandying about as of late, with no clear answers emerging from the scrum. Most, however, seem to agree that more capital will certainly be needed if both Fannie and Freddie are to jump in and start greasing the wheels of the most frozen corners of the secondary mortgage market.

The Senate is set to debate a housing relief package this week that would, among other proposals, push a long-stalled GSE reform proposal through Congress. The GSE reform bill would establish a new agency to regulate Fannie and Freddie, while giving the new agency much broader powers to regulate and establish risk-based capital requirements.

While President Bush has said he will likely move to veto the package, due to a $300 billion proposed expansion of the Federal Housing Administration’s mortgage insurance program, he has repeated expressed his support for the GSE reform bill.

Disclosure: The author held no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Fifth Third, the mid-western super-regional bank implemented new FICO requirements for FHA loans originated via its wholesale channel.  The new minimum FICO for all FHA loans is now 580.  Previously the bank had used “common sense” underwriting with no actual minimum FICO required (although the effective FICO for “make sense” deals was 520).

Other banks have rolled in similar higher-FICO guidelines on their FHA deals of late going from a “common sense” overall file risk assessment to more stringent FICO-driven guidelines.  

Interesting that as Fannie and Freddie make “feel good” changes to reduce LTV restrictions in declining markets the funnel is being squeezed from another angle with tougher FICO requirements on FHA deals.

Here’s the (PDF) straight-forward notice from 5/3.  (hat tip Chris for the 411)

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Luxury home prices in Los Angeles, San Diego and San Francisco all posted modest declines in the first quarter of 2008, as banks pulled back on lending even to high net-worth households, proving that no segment of the housing market can escape the pricing corrections taking place throughout much of the state.

According to First Republic Bank, a Merrill Lynch & Co. (MER: 48.58, -0.55%) unit that provided price estimates in a survey released Monday, the average luxury home in Los Angeles stood at $2.35 million by end of the the first quarter — off 2.2 percent from fourth quarter’s average. San Diego-area luxury homes saw a similar 2.2 percent quarterly slide, falling to an average of $2.06 million, while San Franscisco’s luxury market dropped 0.8 percent to $3 million.

“Values of luxury homes in California have declined slightly in price after many years of strong appreciation,” said Katherine August-deWilde, president and COO at First Republic Bank.

Agents said the lower end of the luxury market is weakest because move-up buyers are staying put. “The market is slow until about $4 million, but the moment you hit that threshold, there is consistent, pent-up demand,” said Barry Sloane of Sotheby’s International Realty in Beverly Hills. “The higher the price, the greater the demand, and the more sales there are. It’s extraordinary.”

In Orange County, Calif., prices for inland properties have fallen, while homes in beach communities have retained their value. Throughout the region, buyers are focused on getting a deal.

“Today, it has to be perceived as a bargain,” said Gary Legrand, President of Surterre Properties in Newport Beach. “We just had three deals with multiple offers because the properties were considered a good value. When the price is right, buyers are jumping in.”

In San Francisco’s Bay Area, some agents took strong issue with the suggestion that prices were falling — even by a little bit — for luxury homes in their area.

“I have a hard time reconciling that the market is down in San Francisco,” said Val Steele of Sotheby’s International Realty in San Francisco. “The luxury market is as strong as ever. Our biggest problem is lack of well-done properties.”

“We’re still seeing multiple offers and homes going over the asking,” said Anne King of Keller Williams Realty in Palo Alto. “We just had a $2 million sale that went 10% over and it was only on the market for 11 days. We haven’t seen decreases in prices at all. It is still a seller’s market in this area.”

Numbers being what they are, however, prices of luxury homes in the Bay Area have fallen — even in San Francisco. It seems likely that such price drops aren’t exactly music to the ears of sales agents, whose income largely depends on what price a property can sell for; but the problems may be tied to a lack of availability for so-called super-jumbo funding as much as to a needed correction in housing prices state-wide.

As the housing and mortgage mess has worn on, liquidity in the mortgage market for loans above the traditional $417,000 conforming limit has all but disappeared; recently-passed legislation, included in the Economic Stimulus Act, boosts conforming limits to as high as $729,500 in certain key areas.

But even the boosted loan limits are likely to be of little assistance to luxury home buyers in California’s most expensive housing markets, where prices can average well into the millions.

Disclosure: The author held no positions in MER when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Some market participants are playing a high-stakes game of poker with their mortgage-related losses, choosing to keep losses on their balance sheet rather than recognizing losses on an income statement, a report at Bloomberg News claimed on Monday. The report alleges that banks and securities firms are “failing” to acknowledge at least $35 billion in losses on their balance sheets, an amount equal to 25.4 percent of the $139 billion in write-downs hitting earnings.

The issue here is how to value losses in assets held for trading versus held for investment purposes — institutions can classify assets into either category, although the election to carry a security in one category versus the other has distinct implications for reported revenue.

From the story:

Taking losses on a balance sheet instead of an income statement is acceptable under accounting rules, which make a distinction between so-called trading books and long-term investments. Changes in value on the trading side go straight to revenue. Changes in the value of bonds held for the long haul can be marked down on the equity line of a balance sheet, as long as the declines aren’t considered permanent.

In other words, more than a few market participants have taken more hidden hits to their balance sheet as the assets they hold have tanked in value — but those losses haven’t been reflected in reported income, because the bank allegedly expects the assets to rebound in value at some point.

Will they? The answer to that question depends on the nature of the securities themselves.

According to the report, Citigroup Inc. (C: 23.45, +1.43%) took a very quiet $2 billion hit to equity on its balance sheet during its first quarter earnings, tied to mortgage-backed securities; the number, however, wasn’t mentioned in an earnings call with investors, since it didn’t impact earnings. ING Groep NV (known in the States as simply ING Direct) made similar elections, placing 3.6 billion euros — $5.6 billion — worth of lost value onto its balance sheet, while only reporting $80 million euros worth of a hit to income, Bloomberg reported.

Washington Mutual Inc. (WM: 10.30, +2.39%) and Merrill Lynch & Co. (ML: 0.00, N/A) took much of the same approach in reporting their first quarter numbers as well, among numerous others.

The question, of course, is exactly what sort of assets are remaining on the books in the belief that asset values will recover. Not all market participants have made it easy for investors to suss this out of the earnings reports, which HW’s sources suggest is driving much of the speculation; and it’s worth nothing that there is nothing inherently wrong with marking a class of securities down and expecting values to recover at some point in the future.

“Without question, some of these securities have been battered in ways that have nothing to do with their fundamental value,” said one source, a certified financial analyst who asked not to be named.

But some analysts remain unconvinced, and are suggesting that with more losses yet in the pipeline for many of the world’s largest financial institutions, the need for more capital is paramount:

Declines in asset prices have spread beyond subprime though, affecting other mortgage bonds, securitized car and student loans, leveraged lending that backs private equity buyouts and credit derivatives. When all that is included, the IMF estimates that total losses from the U.S. subprime debacle will reach $1 trillion, of which $510 billion will be born by banks. That means some $130 billion in losses remains to be taken.

“The $100 billion hole between writedowns and capital raised so far needs to be filled,” said Michael Mayo, a New York-based analyst who tracks the financial-services industry at Deutsche Bank AG. “If you don’t fill that hole, with the 20-to-1 leverage existing on average out there, you need to de-lever $2 trillion of assets. You can do that or raise more capital.”

Despite the pretty big numbers being thrown around, most of the sources that HW spoke with about the story suggested that caution was needed.

“We don’t know exactly which assets are marked where, and at which institution, so it’s probably shooting the moon to suggest that most are improperly categorized, but I can certainly understand the concern,” said one source, an executive at a bank who noted that sensitivity to the roots of the Japanese economic crisis was likely driving much of the speculation.

In the Japanese decade-long downturn of the 1990s, many economists have pointed to delaying inevitable losses at key financial institutions as one of the drivers that lengthened the crisis.

Disclosure: The author held no positions in any publicly-traded companies mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

In recent years, fixed-rate mortgages have lost popularity as interest rates sank and home buyers were unwilling to pass up the opportunity to save on their mortgage payments even over the short term. The situation has begun to shift, however, and it’s time for buyers to take a closer look at the classic, fixed-rate mortgage as a serious option.

The ARM (adjustable-rate mortgage) and all of its exotic and hybrid relatives has become the norm for simple economic reasons. In order to allow consumers to lock in an interest rate over a 10- to 30-year period—standard fixed-rate durations—banks and other lenders had to demand a higher interest rate overall. Remaining solvent is key for everyone in the money business, and it would not work for a lender to offer the lowest rate available and promise to maintain that rate without increase while interest rates overall are fluctuating wildly. Thus lenders have to make sure that rising rates won’t catch them short. Money lent at 6% for 30 years is tied up with no hope of more income being gained from it.

ARM’s, on the other hand, allow lenders to maximize profit at a time when rates are rising and allow borrowers to minimize risk as they can be assured that, depending on the formula they’ve opted for, their rate will be the lowest possible at any given time. A 3/1 ARM remains static for three years, then adjusts every year after that. If rates are rising, that’s three years at a lower rate before the borrower has to play catch-up at a higher rate. A 5/1 ARM is static for five years, and so on. The first number in the formula represents a variation on the fixed-rate mortgage, as it specifies the number of years during which the rate and payments will be locked in at the original contract level.

For the past decade, mortgage interest rates have dropped rapidly in response to several factors. As a result, the housing market has boomed, creating the “bubble” of rapid price increases and rabid new-home construction. With rates in the neighborhood of 5%, many buyers who couldn’t afford a $200,000 mortgage at a higher rate jumped into the market and locked in as many as 5 years at the lowest rate they could negotiate.

But the interest rate appears to have bottomed out. The current trend is upwards, with Freddie Mac, the country’s largest secondary market mortgage company, reporting May, 2006, interest rates at 6.22% with a distinct upward trend apparent over the past six months with a low of 5.76% in January. Given the direction mortgage interest rates are taking, home buyers who agreed to a 3/1 ARM a year ago may well be in for a shock in another year when they find that their payments will be adjusted drastically to accommodate the difference. Meanwhile, those buyers are in a negative amortization situation, where they will owe more after each payment than they did prior to sending in the money.

Meanwhile, fixed-rate mortgages have seen very minor interest-rate changes since 1971. They have hovered 7.31 % in April, 1971 and 6.60% in May, 2006. That’s 6.6% locked in for 30 years as opposed to 6.22% locked in for only 3 to 5 years with an unknown change to follow at the end of that period. Given that 1981 saw fixed-rate mortgage reach an all-time high of 16.83%, and given that inflation is nearing crisis levels now as it was then, there is no guarantee that that 5.x% ARM won’t jump to double-digits somewhere down the line.

Why is this critical? Because most home buyers in the current market are over-extended, having borrowed the maximum they could manage while interest rates were low enough to keep their mortgage payments within reach of their incomes. Judging by the foreclosure rate, few of them were wise enough to set up a saving plan that would ensure that when the rates rose and their mortgage payments jumped they’d have the money to either pay off the mortgage in its entirety or accommodate the higher numbers.

Refinancing has become a way of life for many borrowers. This might be the right time for a refi if your mortgage payments will be beyond your ability to pay should the rate go to 9%, 10% or higher. Now is the time to make the calculations, take a hard look at the situation, and think about locking in that slightly higher but infinitely more stable 7.31% for as many years as you think you’ll need. Make an appointment with your lender or a trusted accountant and be merciless in your judgment. The cost of a refi with a long-term fixed-rate mortgage as the goal might be just what you need to keep you and your family in your home and out of bankruptcy.

This blog is posted by www.FloridaLoanSpecialist.com for your convenience. Need Financing? Call Christina Felgenhauer @ 239-699-1462 or email Christina@FLS-Service.com  Professional, Fast, Reliable!!

More and more people are looking to refinance their homes to convert their ARM into a fixed mortgage rate. And why not? Refinancing can save you a bundle of money over the life of your mortgage loan. The only problem is that if you do not refinance correctly, you could end up losing money on the deal. To prevent this I am presenting the top 5 refinancing mistakes that people make. Learning these mistakes can make sure that you get the most out of your refinancing.

Failing To Choose The Best Refinance Loan   There is more than one refinance loan out there. There are fixed-rate loans, adjustable rate refinance loans, hybrid loans, etc. The loan that is best for you is going to depend on your situation. For example, in some cases a 15-year term is better than a 30-year term and vice-versa. It's easy to find out which refinance loan is best for you. Just contact me for a free no-obligation customized quote and see which loan is best for your particular situation.

Not Doing A Break-even Analysis   For refinancing to make sense, you have to see how long it will take for you to realize your savings. To do this, you need to do a break-even analysis. A simple way to do this is to divide the total cost of the loan by the monthly savings. This will give you the number of months that you will have to stay in the property to break-even on your refinancing costs.

Paying Too Much For Mortgage Insurance   Mortgage insurance, or PMI adds a lot to your mortgage payment. But you don't have to pay PMI if you have an 80% equity stake in your home. If you refinance at less than 80%, then you could wind up paying too much for PMI. So, if you already have 80% invested in your home you should not refinance below that level. In other words, don't cash out above the 80% level.

Fixed vs. Adjustable Rate   When most people think of refinancing, they think of refinancing at a fixed rate. But in some cases an adjustable rate can actually save you money - even if interest rates go up. Adjustable rates are not always easy to follow, but you can contact me to help you decide if an adjustable rate can save you money over the life of the loan or if a fixed rate is best.

Not Shopping Around For Other Refinance Lenders   For convenience, a lot of people simply refinance with their current lender. This can be a mistake because your current lender may not have the best rates and may not be able to offer you all the refinancing programs available. A Mortgage Broker like me has the ability to obtain wholesale rates and get you the best deal for your situation by shopping many different lenders and options. 

As Senate leaders continue to hash out a housing rescue proposal expected to reach a key committee vote later this week, officials in the Bush administration are touting the growing success of a Federal Housing Administration program launched last August. Called FHASecure, housing officials last week said that the product has helped 200,000 homeowners refinance their mortgages and avoid foreclosure.

“Over the past several months, FHA has been working to help families who want permanent relief from their high cost subprime mortgages,” said Deputy Secretary of Housing and Urban Development Roy Bernardi. “We are proud to have helped these struggling homeowners keep their homes.”

Applications for FHASecure loans are largely what has driven a huge spike in FHA application volume during the past three months, with numerous brokers reporting to Housing Wire that the FHA-led program is often the only resort many subprime borrowers have available to them when looking to refinance and avoid potential problems.

“It’s either that [FHASecure] or hard money,” said one broker, who asked that his name not be used. “There isn’t much else out there right now.”

In the past three months, FHASecure has insured twice as many loans as the program did in the program’s first six months. From September 2007 to February 2008, FHA insured 100,000 refinanced mortgages under the program; since February, FHA has backed another 100,000 loans, it said in a press statement last week.

“The Bush Administration’s FHASecure product has quickly proven to be a responsible solution for 200,000 American families who are in the right house, but the wrong mortgage,” said FHA Commissioner Brian D. Montgomery. “These homeowners have found affordable relief from their exotic loans, and FHA is on pace to help a total of half million families keep their homes by year’s end.”

Administration officials are pumping up the program as a counterpoint to current housing proposals being debated on Capitol Hill, sources within the administration told Housing Wire on Monday morning. A bill under consideration in the Senate, and one already passed by the House, would authorize the FHA insure an additional $300 billion in refinanced mortgages. Critics suggest that the bill amounts to placing the burden of bad loans onto the shoulders of taxpayers, and President Bush has already threatened to veto the package, calling it a bail-out of irresponsible borrowers and lenders.

Who’s being helped?
Despite the administration’s suggestion that the FHASecure program is sufficient to backstop troubled subprime borrowers, it’s clear that the program has not met its original objective of helping homeowners in trouble avoid the loss of their home. Via CNNMoney:

… only a small number of the people so far helped by FHASecure - about 3,000, according to FHA - were those in imminent danger of losing their homes. Instead, they were borrowers who were current on their payments who wanted to refinance out of high-cost loans.

“[The original targets] make up only a small portion of the [200,000] people who got FHASecure loans,” said HUD spokesman Steve O’Halloran. Instead, he said, “FHASecure became our de facto refinance product.”

The numbers track with earlier coverage here at HW that first suggested last December that the housing program wasn’t helping troubled borrowers per se, but instead those looking to avoid trouble and/or secure a lower-cost, government-guaranteed mortgage.

FHASecure was sold as a program to primarily help 240,000 delinquent subprime borrowers hit hard by resets avoid foreclosure when it was originally introduced last year, but some sources at HUD that spoke with HW said the shift wasn’t necessarily a bad thing.

“We’re capturing those borrowers who are good credit risks, who have made their payments on time and are simply in the wrong mortgage,” said one official, on condition that his name not be used. “We’re not in the business of assuming bad credit risk.”

But the FHA is certainly creeping towards assuming what one source characterized as “riskier risk.”

Perhaps looking to head off further changes to FHA-insured mortgage programs, the Bush administration announced a broad expansion of the FHASecure program on May 7. The expanded guidelines target more delinquent borrowers, including currently delinquent borrowers post-rate reset who have missed payments prior to their reset — a pretty broad change in program guidelines, clearly designed to make it so that more delinquent borrowers can clear the underwriting hurdle.

Under the new guidelines, borrowers in situations where LTV is 90 percent or less can have a 90-day late payment on record prior to their rate reset and still qualify for refinancing under the government program; all delinquent borrowers in reset ARMs, regardless of LTV, may have a 60-day late payment on record prior to reset and still qualify, according to a mortgagee letter outlining the expanded underwriting standards.

Previous guidelines did not allow borrowers to have late payment histories prior to their rate reset. it’s unclear how many more borrowers are expected to qualify under the expanded FHASecure guidelines, but consumer advocate groups have suggested to numerous press outlets that the expansion won’t be enough.

HUD officials, however, take the stance that those refinancing via FHASecure are those that would have needed help eventually.

“We’re trying to be proactive, and help those that can be helped,” the same official suggested.