DENVER—A top federal housing official said Tuesday Congress should pay for more counseling for homebuyers to prevent them from getting trapped by new, exotic types of mortgages.
Assistant Housing Secretary Brian Montgomery said the Federal Housing Administration also needs more flexibility to help higher-risk borrowers find safer, more viable options for loans amid a crop of riskier choices.
He and others are urging Congress to pass a bill that gives the FHA more flexibility on mortgage insurance premiums, increases the size of loans the FHA can insure in high-cost areas and allows for lower down payments.
The goal would be to allow more people to buy homes—and stay in them.
“The last thing we want to do is foreclose on a family,” Montgomery said.
He spoke during a home ownership forum in Colorado, where foreclosures are a persistent and growing problem.
Some have blamed the state’s foreclosure rate on looser lending standards, inflated appraisals and risky loans with adjustable rates rising faster than borrowers expected. It can be even tougher if illness, a job loss or other major event puts pressure on family finances.
Foreclosure rates for subprime loans—considered more risky than most loans—have been running about twice that of FHA-insured loans, according to the Mortgage Bankers Association. However, delinquency rates are about the same.
“The key is the FHA has a robust loss-mitigation program,” Montgomery said.
In Colorado, about 13 percent of loans this year are subprime loans, but they account for about half of foreclosures, said George Antoine, a regional economist of the Department of Housing and Urban Development.
In May, Colorado had 6,495 FHA-insured mortgages in which payments were at least 30 days late and 247 FHA-insured mortgages foreclosed, according to HUD.
The single-family loan foreclosure rate in Colorado now tops the national rate, according to the Mortgage Bankers Association. Though Colorado’s rate is nearly 1.5 percent, it was more than a full percentage point higher in 1990.
“If we can recover from those extremely high rates, we can certainly do it again,” Antoine said.
With thousands of adjustable-rate mortgages due to reset this year and next, there is still the potential for more families to be caught in unfavorable loans, he warned.
Montgomery stressed that it is important that homeowners seek help early.
A Colorado foreclosure hot line set up in October 2006 has received more than 16,000 calls, said Zachary Urban, who administers the hot line and is director of housing counseling at Brothers Redevelopment Inc.
Nationally, the FHA is on track to endorse 100,000 refinancings, or roughly double what it has seen previously. Montgomery took that as good news, showing that families were taking steps to avert foreclosure.
RealtyTrac Inc. lists Nevada, Colorado and Connecticut among the states with the highest foreclosure rates, although Colorado housing officials have said they suspect RealtyTrac’s tracking methods overcount cases.
