With just 64 refinancings of underwater loans to date, to call the Federal Housing Administration's Hope for Homeowners program a disappointment would be generous.
But Banker's Portfolio, which specializes in auctioning repossessed real estate and portfolios of seriously delinquent loans, hasn't given up on H4H. The Irvine, Calif., vendor has lined up four government-approved lenders to facilitate H4H refis and is testing portfolios for several mortgage investors to see if their conventional loans qualify for the program.
In the wake of the subprime meltdown and rising foreclosures, Congress passed legislation in late 2008 authorizing the FHA to refinance up to $300 billion of mortgages to help at-risk borrowers keep their homes.
Banker's Portfolio said it has filtered $10 billion of mortgages through its proprietary "decisioning engine," finding that $4.2 billion of them have a high probability of qualifying for an H4H refi. "We just crossed the $10 billion mark" with a 42% pull-through rate, said Joel Harrison, director of business development. He expects to close his first H4H refis in August.
He expects more mortgage investors to sign up for the program as it gains momentum, which means Banker's Portfolio will have to bring on another five to 10 lenders to deal with the volume. "Asset holders are very excited about participating," Harrison said, but they want to see a track record first.
Under H4H, an asset holder or investor is required to write down the mortgage to 96.5% of the home's value, and any subordinated liens must be extinguished. The Department of Housing and Urban Development is authorized to pay incentives to second-lien holders for releasing their liens. A 90% loan-to-value is required for borrowers with credit scores below 500.
Despite the writedown, the investor converts a delinquent conventional loan into a new FHA-insured loan and transfers all the risk of future losses to the FHA.
In addition, the new FHA mortgages can be packaged into mortgage-backed securities guaranteed by the Government National Mortgage Association. (Investors that work with Banker's Portfolio have to pay a forward commitment fee for the Ginnie Mae securitization.)
The company's goal is to complete $25 billion in refis by Sept. 30, 2011, when H4H program is set to expire. "The need is still there," Harrison said. "The only thing we are fighting is time."
The FHA is set to roll out a refi option to prevent strategic defaults by underwater borrowers who are still current on their conventional mortgage. Lender partners of Banker's Portfolio will be able to offer this option, Harrison said. "They will review it and determine if it meets their needs and provides a good solution for all parties," he said.
Congressional auditors from the Government Accountability Office interviewed investors and found a lot of interest in the new refi option. But given all the requirements, investors don't expect many homeowners to qualify. Servicers will have to write down the first mortgage by at least 10%.
The loan-to-value ratio on the newly originated FHA mortgage can't exceed 97.75%. If there's a second lien on the property, the combined LTV cannot exceed 115%.
