The Reason Why Federal Government Insure Homeowner’s Mortgages

by San Antonio Attorney

The primary goal of the United States Housing and Urban Development is increasing the homeownership among Americans living on the poverty line.  This will give insurance for people who cannot be approved for processing loans due to their low credit scores.  These loans will then be issued by private lenders and approved by the HUD.

Families belonging to the minority group use this service.  According to HUD statistics, almost half of the home purchase loans done by Hispanics and Blacks are mortgages that have been guaranteed by the house agency.

If a borrower defaults on a loan, HUD compensates the lender from a mortgage insurance fund.  Borrowers pay a long-term premium to feed this fund as part of their government-backed mortgage.

The federal agency requires the lenders it works with to take several steps before resorting to foreclosure.  Lenders must attempt to meet with the borrowers in person, inform them about free housing counseling and consider eligibility for reduced payments, among other things.

Due to worsening recession, the mortgage insurance by the agency was decreased to $4 billion from the original insurance fund of $21 billion last 2007.

As a measure to replenish the depleted fund, HUD initiated the packaging of its delinquent mortgages that were even declared non-salvageable.  These packages were then sold to private investors at auctions.

The loans are sold at a reduced price, following a condition that will defer the buyer’s fate of foreclosure until the next year.  However, once HUD will sell the mortgage, there is no longer an existing insurance.

According to critics, HUD’s lending partners often refer loans for sale without ticking all the boxes in the form.  One plaintiff revealed an account of his experience of negotiating a loan modification when he already received a notice from HUD that his mortgage has been sold to someone else.

Leave a Comment

Previous post:

Next post: