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It’s as bad as many thought. The results of the Federal Housing Administration’s (FHA) annual independent audit were released yesterday after being delayed for about a week. The Federal mortgage insurer’s cash reserves have fallen to 0.53%, well below the 2% limit set by Congress.

If you’re a regular reader of this blog you’ll know that we’ve been documenting the FHA’s troubles for most of the year, and have at times referred to them as “The New Subprime,” and the probable recipient of the “Next Taxpayer Bailout.”

Finally!

We’ve read over a couple articles and blog posts today about the FHA’s new, stricter guideline for their streamline refinance program, due to go into effect next week. The advice from mortgage brokers is to submit your refi application A.S.A.P. in order to take advantage of the “old” requirements. Beginning on November 17, 2009, it’s going to get tougher for homeowners to refinance under the FHA’s streamline program. To that, we say “it’s about time.”

An FHA streamline refi allows existing FHA borrowers to refinance into a new FHA loan with limited terms and conditions to make the process easier.

UPDATE6: It’s a done deal. President Obama signed the “Worker, Homeownership and Business Assistance Act of 2009″ which institutes an extension and an expansion of the homebuyer tax credit.

The tax credit, which was due to expire on December 1, 2009, will allow first-time buyers to claim 10% of their home’s cost, up to $8,000. Buyers must sign their contract by April 30, 2010 and close by June 30, 2010 to qualify:

An opinion piece in the Wall Street Journal today warned readers that Ginnie Mae and the Federal Housing Authority (FHA), because of their growing influence in the mortgage market, are quickly becoming a growing financial liability to American taxpayers:

Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this “phenomenal growth.” Ginnie Mae’s mortgage exposure is expected to top $1 trillion by the end of next year—or far more than double the dollar amount of 2007. (See the nearby table.) Earlier this summer, Reuters quoted Anthony Medici of the Housing Department’s Inspector General’s office as saying, “Who would have predicted that Ginnie Mae and Fannie Mae would have swapped positions” in loan volume?

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The Department of Housing and Urban Development (HUD) along with the Federal Bureau of Investigation (FBI) has issued a special warning for homeowners over the age of 62. With the number of reverse mortgages, also know as Home Equity Conversion Mortgages (HECMs), drastically on the rise, the opportunities for fraud are immense.

“According to HUD, the number of HECM loan originations insured by the Federal Housing Administration rose from 7,923 in fiscal year (FY) 1999 to 112,013 in FY 2008, representing an increase of more than 1,300 percent. HUD-[Office of Inspector General]OIG anticipates that the number of HECM originations will rise significantly in 2009 due in part to an increase in HECM loan limits from $362,790 to $625,500. The increasing senior victim population –– currently worth $4 trillion in home equity and estimated to grow by 10,000 people per day through 2011 –– coupled with program vulnerabilities, such as the lack of income, credit, or employment qualifications, creates significant opportunities for fraud perpetrators.”

UPDATE5: IT”S OFFICIAL — for the time being at least. HUD announced the finalized details of their plan to allow FHA borrowers to “monetize” the $8,000 first-time homebuyer’s tax credit provided under the president’s American Recovery and Reinvestment Act of 2009. While the tax credit CANNOT be used to meet the downpayment requirement, it can be used to contribute to either a higher downpayment or to pay for closing costs:

Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate.

HUD has made good on their promise to investigate and crack down upon the fraud permeating through the FHA loan market. Yesterday, HUD announced sanctions against more than 120 FHA-approved lenders.

Click here for the complete list of sanctioned lenders and their violations.

Most of us are familiar with the high default rate that accompanies a large percentage of modified mortgage loans, but you may not have heard about the growing number of “zero pay” defaults on mortgages insured by the Federal Housing Administration. A “zero pay” defaults occurs when a borrowers fails to make even one payment on their loan. While the occurrence seems unlikely, it’s a growing concern that has many industry officials worried:

In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency’s overall growth in new loans, according to a Washington Post analysis of federal data.

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It occurred to me this morning that the years 2005 and 2008 have a lot in common. Last year seemed to be the time that several of the fears, predictions, and long-awaited reforms originally discussed in 2005 came to fruition.

Just this morning, I was handed a couple issues of National Mortgage News (NMN) dating back to 2005. It was like looking into a crystal ball. Flipping through the issues, I read stories written on the predictions that home prices will fall in the years ahead, the goals outlined for a RESPA and GSE reform, and warnings from Countrywide’s own Angelo Mozilo that borrowers and lenders should take the increase in subprime lending more seriously. A lot has changed, and many predictions have come true since 2005.

The White House has decided not to extend their FHA Secure Program past its original termination date of December 31, 2008. High hopes for the program intended to “help people who have good credit but who have not made all of their payments on time because of rising mortgage payments,” could have easily been extended past the original termination date, but poor results nixed the program.

According to the latest issue of National Mortgage News, the program, launched in August of 2007, “refinanced only 4,000 delinquent borrowers. But the news that FHA would refinance subprime adjustable-rate mortgages attracted over 460,000 borrowers who were making their payments but wanted to refinance into a lower cost FHA fixed-rate mortgages.”