FHA Home Loans and the Housing Recovery Act

You can't turn on the TV these days without seeing a news story about the U.S. economy in general and the housing market in particular.

Starting in 2007, we began to see record numbers of home foreclosures, a trend that continued into 2008 and shows no sign of slowing. But for many homeowners, help is on the horizon. And it comes in the form of FHA refinance loans.

Housing and Economic Recovery Act

The recently passed Housing and Economic Recovery Act of 2008 will help "at least 400,000 families" who are struggling with their mortgage payments and facing foreclosure. It will do this by providing FHA-insured refinance loans to switch the homeowners from high-interest ARM loans to fixed-rate mortgages with lower rates. For those accepted into the program, the end result will be a lower monthly payment and more desirable fixed rate that will no longer adjust / increase.

History of the FHA

The Federal Housing Administration was created in 1934, during the Great Depression, to make home financing available to a greater number of Americans. The FHA does not actually make home loans to consumers. Instead, they insure certain loans made by private lending institutions.

You've probably heard the term "government-backed financing" before. The FHA loan program is an example of this. By having government insurance in their favor, private lenders are more willing to offer mortgages to borrowers they normally wouldn't qualify (due to credit problems or other qualification issues). The lender is assured of getting their money back on the loan, even if the homeowner defaults and stops making payments. That's what the FHA insurance does.

The Refinancing Angle

Traditionally, the FHA loan program was focused on helping buyers in the purchase of a home. But as a result of the aforementioned Housing and Economic Recovery Act, the program is being opened up to homeowners who want to refinance. According to the HUD website, "an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages." The program is slated to begin in October of 2008.

To find out if you are eligible, visit the HUD website or refer to this article. You have to go through an FHA-approved lender to apply for the FHA refinance loan. (Remember, the FHA does not actually offer the mortgage refinance loans. They only insure the loans made by private lenders.)

Getting Away from ARM Loans

The goal of this new program is two-fold. It is designed to help struggling homeowners who have adjustable-rate mortgages (ARMs) convert to fixed-rate mortgages. It's also designed to lower their mortgage rates in the process. While the ARM is not inherently evil -- and can even be a good thing if used wisely -- it has played a big role in the subprime mortgage crisis. This program is designed to give homeowners a way out of their ARM loans by refinancing to fixed-rate loans. At the same time, many people will lower their monthly interest rates. Lower rates and less uncertainty -- a double win.

What's the Catch?

Sadly, the federal government rarely passes legislation designed to help American citizens without putting something into it for their corporate friends. Such is the case here. We recently blogged about the status of Freddie Mac and Fannie Mae and how the government plans to bail them out. Well, the bailout is essentially written into this act as well. Pretty slick, huh?

One thing is certain -- our economy cannot handle foreclosures at the rate they've been happening lately. So the Housing and Economic Recovery Act could be a great thing. Only time will tell.

Housing Market Recovery - 3 People to Ignore

There sure are a lot of people talking about the housing market lately, particularly on the subject of housing market recovery and economic rebound. When you look at recent trends in the real estate industry, it's easy to understand why there is so much buzz.

But it's also important to understand the difference between information and misinformation when it comes to housing market recovery -- or any other economic topic, for that matter. A home buyer in today's economy will be bombarded with conflicting information from all sides. The housing market is good. The housing market is bad. We are in a recovery period. We are still plummeting. Prices are climbing. Prices are dropping. It's enough to make you crazy.

But you can keep yourself sane by knowing which information sources to take with a grain of salt. To that end, here are some people worthy of skepticism when it comes to the housing market recovery and similar topics.

1. President George W. Bush

The president likes to say that we are going through a "rough patch." A bit of a hiccup, eh George? Now, I understand the need for positive thinking at such high levels. But a president who doesn't recognize and/or admit a full-on recession ... well, that's just scary.

There are other reasons George W. Bush cannot be trusted on the subject of housing market recovery and similar topics. For one thing, the subprime mortgage lenders helped pay for his presidential campaign. Yes, the same lenders who helped drive the country into a foreclosure crisis.

For example, it is a matter of public record that Roland Arnall (a billionaire executive from the Ameriquest subprime lending company) was one of Bush's top fundraisers. So any proposed legislation that would have curtailed the days of "subprime lending gone wild" met with stiff resistance from the then-Republican-controlled Congress and White House.

Ameriquest has also settled a lawsuit that accused them of deceptive lending practices. What does GW do? He appoints Ameriquest founder Roland Arnall to be ambassador to the Netherlands. Seriously, George? Are you sure you didn't mean to say the "nether regions"?

So when you see President Bush or one of his mouthpieces talking about the economy as a whole, or housing market recovery in particular ... take it with a grain of salt.

2. Anyone From Fox News

Sorry, right-wingers, but Fox is the most biased, one-sided news program on television in the United States. Come on now, admit it. When is the last time you heard them say anything good about a democrat, or bad about a republican? Fox News also loves to crank up the shock value, and they are widely known for shaping the "facts" to suit their transparent agendas.

So when you see anyone from Fox News talking about the housing market in any way, shape or form ... take it with a grain of salt.

3. The National Association of Realtors(r)

It always amazes me to see most news outlets in the country citing a nationwide drop in home sales, while at the same time the NAR proclaims a national rise in home sales. Now, I'm not accusing them of lying, but there is something to keep in mind here. Most of the data they use for their national "analysis" of the housing market is proprietary data from within their own organization. In fact, the NAR just went through a prolonged lawsuit with the Department of Justice over the management of their data, and whether it violates antitrust laws.

So when you see this organization (who has a vested interest in home sales) talking about housing market recovery ... take it with a grain of salt.

A Final Word of Advice

In closing, I would also warn you against giving too much credence to the real estate commentary of your neighbors, your coworkers, your hairdresser, the checkout guy at the grocery store, or your sister's husband's former college roommate who knows a guy who knows a girl who once worked for a real estate company.

In real estate, as with everything else in life, there are many people who mistake their opinions for fact. There are also many people who skew the facts to serve some kind of personal agenda. And with the speed and reach of the Internet, it doesn't take much to create full-fledged hysteria about the housing market or any other topic.

Dig deeper for the truth. Be a smart and skeptical consumer. Take what other people say with a grain of salt. Do your own research and form your own opinions. When somebody makes a statement about the housing market, ask yourself where their interests lie. Be a rational, free-thinking, intelligent individual. The economy can only benefit from having more people like that.

Brandon Cornett is the publisher of the Home Buying Institute, which educates consumers on how to buy a home, how to choose a mortgage, how to stop foreclosure and related topics. Learn more about this topic at http://www.homebuyinginstitute.com