Is FHASecure Helping Anyone?

FHASecure was touted as the federal government's plan to rescue homeowners from the teeth of foreclosure. The official word is that the program is working; but has it truly had an impact on the foreclosure pipeline?  

The rock band Korn sang, "don't wanna talk about politics," and maybe the folks in charge at the Department of Housing and Urban Development (HUD) have the same philosophy. They're claiming that FHASecure has been a success, but they'd rather not mention the politics behind the program.

The lowdown on FHASecure

When FHASecure was launched last year, it was promoted as a rescue mission to save homeowners who were already skidding towards foreclosure. Notably, the program departs from a longstanding idea that the FHA should not help borrowers who are already past due on their payments. But with this program, delinquent borrowers can qualify for an FHASecure refinance within certain restrictions. For one, they can't be more than 90 days past due.  For another, they also have to show a previous history of on-time payments.

The program primarily reaches out to borrowers who've been hit hard by interest rate resets. It was initially estimated that FHASecure could steer more than 200,000 homeowners into mortgages carrying affordable FHA finance rates.

Numbers tell a different story

HUD Secretary Steve Preston recently went on the record to say that, during the current housing crisis, the FHA has helped more than 325,000 mortgage borrowers refinance. At first glance, that number might prompt a sigh of relief from the general public-relief that progress is being made, people are being helped, the crisis is being healed.

But the truth is hidden in semantics. Yes, there have been hundreds of thousands of FHA refinances. However, only 1.2 percent of these refinances were made to borrowers who had already defaulted. That would indicate that FHASecure has only plucked about 3,900 borrowers out of the foreclosure pipeline.

Critics, citing the program's ultra narrow focus, argue that FHASecure was never meant to tackle the foreclosure problem full force; instead, it was intended to be a political gesture that would stimulate good feelings about the Bush administration.   

Other factors at work

Proponents say the slow ramp-up is rooted in the way loans are processed. It takes a full two months to fund an FHASecure loan, so any FHA refinances begun recently won't appear in the numbers yet. Also, the feds have already addressed the program's narrow focus by expanding the eligibility requirements. Now, borrowers who are suffering from "temporary economic hardship" may qualify, along with those who've been hit with payment shock.

Even so, the numbers thus far are pretty dismal. Thankfully, FHASecure isn't the last hope for over-extended borrowers. Another FHA refinance program, called Hope for Homeowners, will be launched in October. Distressed homeowners have their fingers crossed that Hope for Homeowners will be the real deal.  Anyone who's facing foreclosure won't be impressed by more political maneuvering-they're waiting for a real rescue team to show up with workable, foreclosure-avoidance solutions.