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HUD Pushing for Bad Credit FHA Loans?

January 13th, 2012
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Is HUD Encouraging Lenders to Accept Lower Credit Scores on FHA Loans?

If you have poor credit and have been turned down from a mortgage lender recently their may be new opportunities coming with FHA loans because HUD is pushing for lenders to lower credit score requirements. The National Mortgage News reported that the Department of Housing and Urban Development, would like to see FHA lending sources reduce the FHA credit score requirements. HUD approves FHA loans with credit scores greater than 500, but many FHA lenders institute their own credit score requirements. Today the average score on an FHA-insured mortgage is 700.” This will be received with open arms from borrowers with low credit scores because the 30-year FHA mortgage rate has fallen in the 3.25% range again.

In order for FHA mortgage lenders to loosen their underwriting standards, changes to the FHA’s Neighborhood Watch program may be necessary.  Neighborhood Watch is a HUD program that monitors lenders to make sure that they aren’t issuing a lot of loans that end up defaulting.  It does this by comparing the default rate from a given lender to the average default rate for all FHA loans, regardless of credit score or other risk factors.  Default rates above the norm could set off audits or monetary penalties for potential losses.  This makes FHA lenders reticent to lend to people with lower credit scores or higher risk factors.

According to a 2010 USA Today article, over 25% of consumers had credit scores of less than 600.  This type of credit score would eliminate 25% of the population from qualifying for a low rate FHA home financing based on today’s lending guidelines. The Boston Herald published an article recently that indicated that between 2008-2009, 50 million people saw their FICO scores drop by 20 points, and 21 million of these people lost more than 50 points. Read the original article on Total Mortgage blog.

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FHA Credit, FHA Guidelines

Сalifornia FHA Conforming Jumbo Loan Limits Lifted fоr 2013

December 7th, 2011
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The housing market on the West coast should see significant benefits from the raised California loan limits on FHA mortgages. Finally after initially rejected higher FHA loan amounts, Congress agreed tо restore, reinstate аnd extend thе jumbo /conforming FHA loan limits tо $729,750 fоr 2013 аftеr sееіng thе negative impact thе October 1st loan limit reduction hаd оn thе сеrtаіn high cost housing markets. The only concern for lenders looking forward is that if defaults continue to rise, so will mortgage insurance premiums. Clearly this could limit Congress to increase the loan amount limits on home loans with FHA as well.

Surprisingly, thе House rejected thе Senate’s bill tо restore оr increase thе conventional (Fannie Mae/Freddie Mac) loan limits.  FHFA announced Conventional home loan financing limits will remain thе same.

Loan amounts bеtwееn $417,000 аnd $729,750 аrе оftеn referred tо аs high balance, jumbo conforming, оr agency jumbo loans.  Тhе FHA conforming & jumbo loan limits hаvе bееn extended thrоugh December 13, 2013.

Whо will benefit mоst frоm thе restored аnd extended jumbo/conforming for a FHA mortgage in California?  What are the loan limits? Clearly borrowers who reside in the higher cost areas of the state will have more opportunities to secure jumbo home financing. What will happen in 2014 is anyone’s guess.

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2012 FHA Loan Limits to Fall Soon

August 22nd, 2011
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Lenders and brokers have started to brace themselves for reduced FHA limits coming on September 30th.  MBA, NAR and other housing activists agree that lower loan limits will make it tougher on FHA financing in states with high cost regions. Many FHA loan companies have begun using the reduced FHA loan limits because in most cases the loan process takes 30- 45 days to close.  The common misperception is that it only applies to high-end homes, he said.

2012 FHA loan limits continues to be a highly debated a subject on Capitol Hill.  HUD lifted nationally limits from $417,000 to $625,000 in February 2009 and the FHA limits were extended last year until October 1st, barring action from Congress. The limit was raised from 115% of each county’s median home price to 125% of the median, and is now coming back to 115%. That’s an average reduction of $68,000, making an estimated 5 million homes ineligible for government sponsored-enterprise financing, he said.

FHA is poised to lower loan limits in the country’s high cost regions while limits would remain unchanged in most other parts of the nation. Lower FHA mortgage limits will affect less than 5% of the markets nationally, but it will do doubt have a ripple effect for the struggling housing sector.

Zach Lowe, spokesman for the Washington, D.C.-based Coalition for Sensible Housing Policy, said FHA insurance assists people who can’t afford a large down-payment needed to qualify for traditional home purchase loans. In 2011, the FHA was insuring mortgages up to $729,000 nationally, or 125 % of area median home prices.”

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Maximizing Low FHA Loan Rates

May 13th, 2011
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The Mortgage Bankers Association reported that FHA interest rates fell to their lowest level in 2011. The drop in FHA loan rates creates a new opportunity for homeowners to refinance into a lower and more affordable payment.  The lower FHA rates also help pave the way for first time home buyers to get locked into an amazing FHA loan fixed for 30-years. With home prices falling to their lowest level since 2003, this has become a significant opportunity for people to buy low while financing at record low interest rates.

Loan Professionals Have More Time To Surf Because Less Borrowers Qualify

Former Ditech executive, Jeff Morris told the FHA home loan blog in a recent interview, “FHA mortgage rates” could not be any lower, but not enough borrowers qualify for today’s FHA home loans, because banks and lenders have tightened their guidelines beyond reasonable levels for the average American borrower.” Morris said that we should not hold our breath for a recovery in the housing sector until government lenders are more realistic with requirements for refinancing and home financing. With lenders demanding higher credit scores and more equity, refinancing has truly become a commodity.

Suggested Changes that FHA Should Consider Implementing

  1. Revert back to 2009 Rate for FHA Premiums
  2. Eliminate the FHA Minimum Credit Scores –Qualified borrowers have been benefiting from bad credit refinancing
  3. Keep the FHA loan limits at 2008 levels.
  4. Enable homeowners with underwater mortgages to refinance up to 125%

Read the original article > Current FHA Interest Rates

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New FHA Mortgagee Letter for Refinancing

May 10th, 2011
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HUD released the FHA Mortgagee Letter 2011-11. The Housing of urban Development clarified the guidance for FHA refinancing transactions and is effective immediately. Borrowers will be required to be current on the home loan they are being refinancing for the month due prior to the month in which they close the refinance loan and for the month in which they close. For example, if the mortgagor is closing on April 8, the mortgagor must have paid the March payment within the month of March. The mortgagor must make the April payment by closing. The mortgagor has the option to make the April payment at the beginning of the month, or may include the April payment in the payoff amount at closing

All FHA Refinancing with Subordinate Loans

This is a clarification of existing guidance and is effective immediately. If there is an existing second mortgage on the property, such as a Home Equity Credit Line, the entire lien must be subordinated at refinance. For the calculation of the Combined Loan to Value (CLTV) ratio, the mortgagee must use the maximum accessible credit limit of the existing subordinate lien. 

Occupancy of Former Investment Property Eligible Financing

  • 12 months or more prior to the loan application date of the refinancing mortgage
  • Maximum financing at the same level as an owner-occupant
  • Less than 12 months prior to the loan application date of the refinancing mortgage
  • Rate-and-term refinancing only (no streamline allowed), with an LTV not to exceed 85 percent

FHA Streamline Refinance – Net Tangible Benefit

This Mortgagee Letter rescinds and replaces paragraph I.C of Mortgagee Letter 2009-32 and its subsequent incorporation in HUD Handbook 4155.1.6.C.5.a, which defined “net tangible benefit” in a streamline refinance transaction as, among other things, a reduction to the principal, interest, taxes, and hazard insurance (PITI). This new guidelines for FHA streamlines base the calculation of the net tangible benefit on the principal and interest (P&I) and Mortgage Insurance Premium (MIP). The purpose of this change in guidance is to allow mortgagors who can reduce their P&I and MIP by 5 percent to do a streamline refinance, even if they have an increase in taxes and insurance, because mortgagors must pay taxes and insurance regardless of whether they refinance. This will allow more mortgagors to qualify for a streamline refinance, increasing their ability to repay their mortgages. The mortgagee must determine that there is a net tangible benefit to the mortgagor as a result of the streamline refinance transaction, with or without an appraisal. “Net tangible benefit” is defined as:

  • A 5% reduction to the P&I of the mortgage payment plus the annual MIP, or
  • Refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage.

Note: Reducing the term of the mortgage, in and of itself, is not a net tangible benefit. Also, when refinancing to a hybrid ARM, mortgagees must treat the new hybrid ARM as a fixed rate mortgage. The following table defines the permissible minimum thresholds in different refinance situations and outlines what is new and existing guidance.

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Manufactured Home Loans with FHA

March 23rd, 2011
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Many people are unaware that FHA offers manufactured home loans.  Many home buyers and existing homeowners run into obstacles when trying to secure financing for mobile, manufactured and modular home financing.  FHA home loans are available for manufactured homes that meet the FHA guidelines that outline the specifics for eligible property types.  FHA mortgage loans can also be used to finance modular and manufactured homes and the FHA rates are affordable.  Borrowers in many rural areas are in desperate need of affordable modular home loan programs.

HUD defines a manufactured house differently than new or existing construction properties.  According to FHA rules, a manufactured house varies from a new construction project because of the nature of its assembly. New construction property is built “on-site”.  The Federal Housing Administration considers manufactured house as “a structure that is transportable in one or more sections. In traveling mode, the home is eight feet or more in width and forty feet or more in length.”

Finance a Low Rate Manufactured Home with FHA

These homes that are eligible for FHA loan programs are regulated under rules known as Federal Manufactured Construction and Safety Standards and must be labeled accordingly. To be eligible for FHA home loans, the manufactured home must be built after June 15, 1976 and must contain a certification label that documents the date the home was built. The floor space for manufactured homes cannot be less than 400 square feet and must be classified as real estate.

According to HUD, the only manufactured house that may be classified as real estate or “real property” are those which have a permanent foundation built to FHA standards. They must be considered a “permanent dwelling” or the house is considered personal property which affects the tax deductibility and the eligibility for FHA loan programs.  According to FHA loan requirements, “the mortgage must cover both the manufactured unit and its site and shall have a term of not more than 30 years from the date amortization begins.”

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FHA Guidelines, Manufactured Home Loans

2011 New Rules for FHA Requirements

March 14th, 2011

FHA rates remain below 5% on 30-year mortgages, but the FHA guidelines may continue to be tightened, thus preventing thousands of borrowers of successfully refinancing. One of the greatest downsides for FHA lenders in regards to new FHA loan requirements is that it is now more difficult to get licensed for FHA lending in multiple states.  The bottom line is that more members are likely to be attracted to the idea of getting an FHA loan and the available funds of approved lenders must be sufficient to provide borrowers with what they need to get into the home of their dreams.  Read the original article online > New FHA Rules for Lenders

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FHA Guidelines

FHA Guidelines for Home Refinancing

February 24th, 2011
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In a recent article, the FHA Home Refinancing blog considered the implications of the 2011 FHA guidelines for refinancing.  The blog post points out that FHA refinancing can help borrowers get access to funds for home remodeling or simply to lower your monthly payment if the FHA mortgage rates fall to a level creating an opportunity to save.  “Refinancing is a valuable tool to have at your disposal as a homeowner, and whether you have private mortgage insurance or an FHA insured mortgage, there are steps you can take to improve upon your mortgage.”  Read the entire article on FHA Refinance Guidelines.

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FHA Guidelines

HUD Continues FHA Financing for Flipped Homes

February 1st, 2011
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A recent Reuters article revealed that our government has granted an extension for a FHA mortgage program that offers a unique home financing niche for flipping houses.  Most mortgage lenders and bankers’ business is contingent on FHA refinancing and home buying programs.  FHA loan products are probably best known for helping first time homebuyers become homeowners.  You only need a 3.5% down-payment for FHA financing and with the streamline loan you don’t need any equity because there is no appraisal required.

In the past FHA guidelines had gone to great lengths to prevent the use of a FHA mortgage by borrowers who were simply flipping houses for quick profits.  Many people have profited significantly through process of flipping homes.  According to Peter Miller, the “flippers extract an artificially higher value through such steps as appraisal fraud, underwriting fraud, mortgage fraud, property tax evasion, etc.”  Miller said that by “refusing to approve FHA home loans for quick re-sales HUD was striking directly at illegal flippers because such individuals want to have the fastest possible sales to maximize profits.”

On Friday, HUD extended the FHA home financing program that enables buyers of flipped homes to obtain home mortgage loans backed by the Federal Housing Administration. The FHA in 2003 banned buyers from obtaining government-backed mortgage insurance on homes they bought less than 90 days after a previous sale.

Last year, FHA lifted the FHA financing ban temporarily in an effort to help investors sell foreclosed homes. The goal was to help stimulate the depressed housing market. The FHA Commissioner, David Stevens said, “This action enables our borrowers, especially first-time buyers, to take advantage of this opportunity and buy a home that has recently been rehabilitated. Stevens continued, “It will also help to move more foreclosed properties off the market and reduce the number of vacant homes in neighborhoods throughout this country.”

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2011 FHA Limits

January 11th, 2011
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Many mortgage professionals feared that Congress would reduce 2011 FHA loan limits in an effort to further tighten lending and mitigate fraud that has devastated the United States housing sector and economy in general.  If congress decreased FHA limits than many borrowers would be unable to refinance because their existing mortgage would exceed the 2011 FHA loan limits.  Fortunately, Congress approved a temporary extension for the current FHA loan limits and that offers a least a glimpse of hope for homeowners struggling to get approved for FHA loan refinancing that would lower their monthly payment.

Many FHA lenders have feared privately that Congress may allow the conforming and FHA limits to fall when the bill setting mortgage limits expires September, 2011. Tightening FHA guidelines sounds great and looks good on paper, but the reality is that too much tightening can completely strangle the housing market and the cash flow most Americans have become accustomed too.

Let’s be honest and look at the reality of the mortgage industry.  Millions of Americans own homes and if they can document that they can afford a refinance loan for a home that they already have, then the FHA lender should approve the loan and move on.  If a borrower can document to a FHA lender that reducing their interest rate to a competitive level of today’s current FHA rates will increase the likelihood of them paying their mortgage on time, then the lender should approve the mortgage refinance and move on — Isn’t that what a loan modification is any way.

The U.S. government took tax payer dollars and distributed it to the banks so that they would lend more money to homeowners and small business.  Unfortunately the banks did not oversee and mandate the increased FHA lending and liquidity. The fact remains that FHA credit guidelines have tightened significantly in the last 12 months.  The FHA streamline continues to have a few loop holes that are in fact helping FHA borrowers refinance, but you must already have a FHA loan to qualify for the streamline refinance program.

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HUD Clarifies Indemnification Policy for FHA Lenders

October 19th, 2010
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HUD finally clarified its indemnification policies to give its largest FHA lenders a better understanding of when they might be on the hook for home mortgages losses.  The Department of Housing and Urban Development generally requires lenders to reimburse the FHA for losses on defaulted loans when the agency can prove poor underwriting or fraud.  Housing commissioner David Stevens said he wants to provide clearer guidance for FHA mortgage loan companies  with “delegated lender insurance authority” by establishing new standards for “serious and material violations” that trigger indemnification.

FHA Rates Fell Below to a New Low on 30-Year Fixed Rate Terms!

FHA lenders with lender insurance authority can self-insure FHA loans. They account for roughly 70% of FHA home loan originations and amass loans through correspondent purchases from mortgage bankers.  In drafting the new policy, HUD did not change its “incontestability clause,” which exempts servicers from liability for errors made by the originator.

FHA consultant Brian Chappelle of Potomac Partners called this development “good news” for the industry. “Unlike Fannie Mae and Freddie Mac, the FHA will not hold the servicer accountable for origination errors.”

If the servicer were accountable, “it would have stopped FHA mortgage lending in its tracks,” Chappelle said.  HUD has issued the new indemnification policies as a proposed rule. The comment period ends December 7th. “We need to clarify which circumstances we’ll require indemnification and the level of loan performance we expect lenders to maintain,” Stevens said.

Under the proposal, HUD will seek indemnification for “serious and material violations” of FHA origination requirements in cases where the loan never should have been endorsed by the lender or insured by the FHA.

The proposal requires lenders to analyze the borrower’s creditworthiness, and verify sources of income, assets and down-payment. Funders must also comply with FHA’s appraisal requirements, and address problems with the condition of the property.  “It is a reasonable standard,” Chappelle said.  If the FHA lender fails to verify the borrower’s income, HUD might seek indemnifications irrespective of the whether the violation caused the mortgage to default.

The proposed rule also sets a benchmark for lender performance in terms of default and claim rates.  FHA lenders in the lender insurance program must maintain a claim and default rate that is at, or below, 150% of the national average. The national average for FHA claims and defaults on mortgages 24 months old was 3.66% at June 30.

The proposed rule is aimed specifically at lenders, which make up only 29% of all FHA-approved lenders.  HUD claims it does not have explicit authority to require indemnification for bad loans from other FHA-approved lenders.  “The FHA is asking that Congress grant explicit authority to require indemnification for loans that were improperly originated for the remaining 71% of approved FHA lenders,” Stevens recently told the Senate Banking Committee.  The commissioner said the Obama administration supports an FHA reform bill, sponsored by Democratic Sens. Mark Begich, Sherrod Brown and Michael Bennet that extends FHA indemnification powers over all approved lenders.  It is unclear when Congress will act on this legislation.  The article was written by Brian Collins.

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FHA Loan Talk

September 29th, 2010
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According to FHA Loan Pros, credit scores on FHA home loans are now averaging a respectable 695, that’s up from 662 a year ago. The finance publisher notes that with the challenges of the economy and the tighter lending guidelines that it would be difficult to imagine many consumers getting approved FHA mortgage loans with fico scores below 600 in today’s world.

But such a process reflects how mortgages used to be made, something archaic in the new world of automated credit scores and secondary markets where loans are instantly bought and sold. As well, the old system could easily be discriminatory and often was.  The combination of a low credit score and a 10% down payment is unlikely but in the past these types of bad credit borrowers were able to finance using the FHA loan programs.

HUD is seeking to re-shape the mortgage market by requiring borrowers to demonstrate more financial responsibility and credit capacity. That’s a reasonable standard, especially given the loose guidelines outside the FHA loan programs which led to a significant rise in foreclosures and economic distress during the past few years.  FHA rates remain at record low levels, so the likelihood of FHA refinance and purchase activity continuing to rise.

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FHA Loan Changes on the Horizon

September 14th, 2010
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It’s no secret that FHA loan requirements are increasing and FHA guidelines have been tightening.  The streamline refinance may be the last aggressive program left because there is no appraisal and no income documentation required.  All indication point towards high credit scores and more significant down-payment requirements for FHA home financing. Even with interest rates so low, these programs are becoming increasingly difficult to get processed. check the most recent loan amount criteria for government insured loans and see FHA loan limits for 2014.

  • Eliminating the “yield spread premium” paid by FHA mortgage lenders to mortgage brokers: If adopted, this would prevent mortgage lenders from paying premiums to mortgage brokers who originate high cost mortgage loans.
  • Increasing oversight over approved FHA lenders: CRL recommends intensifying scrutiny of FHA mortgage lenders to prevent excessive lending fees, and is requesting additional preventive measures for reducing the number of higher cost FHA mortgages falling through the cracks.
  • Ensuring that FHA borrowers are not victimized by “junk fees” and excessive charges: The CRL asserts that the recent foreclosure crisis was caused by “predatory lending practices and toxic financial products and not by any policy goal aimed at increasing home ownership.”  Unfortunately, if FHA wants to keep its home lending self-sustaining, raising mortgage insurance premiums either paid at closing or as part of monthly mortgage payments appear necessary.
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HUD Launching FHA Refinancing for Underwater Mortgages

August 26th, 2010
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The Federal Housing Administration will launch a program on September 7th that will allow underwater homeowners who are current on a non-FHA loan to refinance into an FHA-backed loan when their lender agrees to write off at least 10 percent of their principal.  The FHA Short Refinance program, originally announced in March, is designed to help homeowners in markets that have seen large declines in home values refinance into “a safer, more secure” mortgage, FHA Commissioner David Stevens said in a statement

HUD recently announced changes to the FHA mortgage loan program to assist homeowners with mortgage loans that exceed the value of their home. The changes are part of broader efforts to assist homeowners that were announced by the Obama Administration.  Previously, Obama’s mortgage relief team had announced that by the Fall, they planned to revise FHA guidelines with additional changes to the FHA loan programs.  Their goal is to offer a FHA refinance loan option for borrowers who have made their loan payments on time but owe more than their home is worth.

In Mortgage Letter 2010-23 HUD sets forth the details regarding the FHA short refinance alternative. The option will be available for loans with case numbers issued on or after September 7, 2010 and closed on or before December 31, 2012. However, HUD advises that the loss coverage that will be part of the refinance option will use funds under the Emergency Economic Stabilization Act of 2008 (EESA), and that if availability of the loss coverage is delayed beyond September 7, 2010 the implementation of the loss coverage also will be delayed. Supplemental Directive 10-08, issued under the Making Home Affordable (MHA) Program in conjunction with Mortgagee Letter 2010-23, provides additional guidance for investors and servicers. The Supplemental Directive notes that the FHA refinancing is not yet effective and a subsequent Supplemental Directive will be issued when the program is operational and servicers can executed a Commitment to Purchase Financial Instrument and Servicer Participation Agreement (SPA) or a Service Schedule to the SPA, as applicable, with the U.S. Department of Treasury.

FHA Short Refinance Eligibility- The refinance option is available for homeowners with a non-FHA mortgage only if the following conditions are satisfied:

  • The homeowner must be in a negative equity position. (mortgage balance must be greater than the property value)
  • Borrower must be current on their current home mortgage loan.
  • The homeowner must occupies the home as their primary residence and the home consists of one to four units.
  • Borrower must qualify under standard FHA underwriting requirements and have a “FICO based” decision credit score of at least 500.
  • The existing first lien mortgage loan holder must write off at least 10% of the unpaid principal balance.
  • The FHA refinance loan may have a maximum loan-to-value ratio (LTV) of 97.75%.
  • Second mortgage loans that are not extinguished must be re-subordinated and the combined LTV (CLTV) with the FHA refinance loan may not exceed 115% LTV.
  • For loans that receive a “refer” risk classification from TOTAL Mortgage Scorecard (TOTAL) or that are manually underwritten, the homeowner’s total monthly mortgage payment for the FHA refinance loan and any subordinate mortgage loans may not exceed 31 percent of the homeowner’s gross monthly income, and the total monthly debt payments of the homeowner may not exceed 50% of such income.
  • Premium pricing may not be used to pay off existing debt obligations to qualify the homeowner for the FHA mortgage.
  • The mortgagee may not make mortgage loan payments on behalf of the homeowner or otherwise bring the existing loan current to make the homeowner eligible for the refinance option.
  • The existing home  loan holder may not have brought the existing loan current, other than through an acceptable permanent loan modification.
  • For a homeowner with a loan that was permanently modified under the Making Home Affordable Program (HAMP), the FHA refinance loan may not close before the month that follows the month in which the modification became permanent. For a homeowner with a non-HAMP permanent modification, the homeowner must make at least three monthly payments on time and the modified loan must be current for the month due. If a homeowner is in a temporary or trial modification period, the homeowner is not eligible for an FHA refinance loan under the program.
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Annual Loan Fees Are Raised for FHA Home Loans

August 6th, 2010
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After considering increasing the FHA loan costs, the Federal Housing Administration decided to turn the talk into increased revenues.  The FHA came together in agreement today that starting September 7th to raise the annual fees for FHA loans insured by the agency in an effort to strengthen its cash-strapped balance sheet.  Earlier this week, the Senate extended their approval for a bill that enables the FHA to raise their annual fees that borrowers who have an FHA mortgage pay by nearly 300%. However, a spokesman for the FHA said that their initial plans will begin with modest increases of the loan fees at first. President Barack Obama is expected to sign the FHA bill later this month.  HUD announced earlier today that they have a new FHA refinance loan called the FHA short refinance and this program was created to extend loan relief to distressed borrowers.

Will the Icreased Annual FHA Fees Reduce Homeownership?

The new law would grant FHA the authority to increase annual mortgage insurance premiums paid by the borrower over the life of FHA home loans capping out at a maximum of 1.5 %.  Presently, the annual mortgage insurance is limited to 0.55%.  However, FHA Commissioner David Stevens indicated that the mortgage premium would be raised gradually, first to 0.85 % or 0.9 %, depending on the size of the borrower’s down payment. The new FHA loan costs are expected to increase about $3.6 billion annually for the FHA.

The good news for new homebuyers is that FHA promised to reduce the upfront mortgage insurance premium from the current 2.25% to about 1% and the agency hopes that this helps offset the increased cost of the annual premium for FHA borrowers. The upfront premium is paid prior to the FHA loan closing.  Stevens has said it makes more sense for the fees to be paid throughout the life of the loan in the annual premium instead of forcing borrowers to pay them when the loan is made.  New borrowers would pay an average of just under $40 per month more under the new fee structure.  The minimum down-payments for FHA loans remain at 3.5% for most homebuyers. Lawmakers struck down a Republican proposal to raise them to 5%.

The FHA has capital reserves equal to just 0.53% of the value of the thousands of outstanding mortgage loans that they insure.  Many mortgage executives have been troubled by this because it is well below the 2.0% required by law, according to an independent actuarial study released late last year. A new study is expected to be released this fall.  In addition to raising the FHA annual fees, the House has also passed another finance bill that was created in an effort to strengthen the FHA’s enforcement capabilities.

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FHA Short Refinance

August 6th, 2010

FHA continues to be active with tightening FHA loan guidelines for many of their loan products, but the FHA short-refinance is very aggressive mortgage relief for a targeted group of troubled borrowers.  The U.S. Department of Housing and Urban Development announced the new FHA loan program because almost 25% of financed homes above 100% loan-to-value.  We have been hearing about this government initiative to help borrowers who property values had declined below their mortgage balance.  Foreclosures continued to rise and HUD felt like this was the time to roll out the FHA Short Refi Program.   This is unlike the other FHA refinance loan programs that limit borrowers to 96.5% loan-to-value and the FHA short refinance goes above and beyond the value of the home.

FHA Short Refi Focuses on Helping Underwater Mortgages

HUD will release the Federal Housing Administration’s new Short Refinance program, which is designed to help facilitate mortgage refinancing by borrowers who are underwater, meaning they owe more on their mortgage than the home is worth. HUD Secretary Shaun Donovan told a group of black real estate professionals Tuesday in Fort Worth that while the Obama administration has made strides in ensuring affordable housing for all, there’s still room to improve.  “There’s no question that the state of today’s housing market is in significantly better shape than anyone predicted a year ago,” Donovan said.

Many borrowers find their homes underwater and with the forecast for continued high unemployment, the housing recovery remain the biggest threats to a double dip recession. At the end of last year, among all U.S. households that had a mortgage on their property, 11.3 million, or 2 %, were underwater, he said. Those depreciated properties are mostly in California, Arizona, Florida, Michigan and Nevada.

Most FHA lenders believe that the FHA short-refi is a unique approach and that this mortgage relief initiative will help out a lot of struggling homeowners, but unfortunately not everyone will qualify and meet the FHA mortgage requirements.

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FHA Promises to Reduce Closing Costs

August 2nd, 2010
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The FHA has promised to lower closing costs in the summer of 2010.  Specifically FHA has discussed lowering the allowable seller concessions. FHA will reduce seller concessions from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA mortgage to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set.  The FHA closing costs include fees for origination, attorneys, appraisal and inspections, title search, title insurance, credit reports, and more. FHA down payment assistance is not included as a closing cost.

Read the original FHA loan article > FHA Lenders Lowering Closing Costs

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Will FHA Loan Products Require a Minimum Credit Score for Refinancing?

July 16th, 2010
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It looks like finally the government is tightening the FHA credit guidelines for home loans and refinancing.  The Federal Housing Administration has always been a great proponent of homeownership and fair lending, but FHA loan defaults are sucking up the FHA reserves. FHA announced they were considering a proposal to no longer approve FHA mortgage loans to borrowers with credit scores below 500.  After Congress left the 2010 FHA loan limits at high levels FHA mortgage companies knew that the mortgage news can’t always be good.  Let’s be honest — For the most part, FHA mortgage refinance programs programs have been pretty aggressive with subprime borrowers.

The results of these FHA lending changes are starting to be realized as the FHA loan portfolio is starting to perform better with less delinquencies and defaults.  Stevens continued, “These are the latest in a series of modifications to allow the FHA to manage its risk better while continuing to support the recovery for the U.S. housing sectors.”  HUD reported that in May, FHA loans that were seriously delinquent rose almost 9%.  That was up from 7.93% at this time in the previous year.  The good news is that FHA loan defaults have declined since January, when they rose to 9.16% which was a record high.  The effects of the foreclosures have been drastic as they have nearly drained the once healthy, FHA reserves.  Congress requires that FHA keep the reserves above a minimum of 2%.

Earlier this year, FHA proposed a measure to implement a minimum Fico score system to the FHA mortgage programs.  Jerry Mlnar of Woodfield Planning, who is a trusted Illinois mortgage company said,  ”FHA has to protect the government home finance program to promote affordable home financing and credit score resquirements for FHA mortgages makes sense.”

The initiative is being considered as a pro-active measure to reduce delinquencies and FHA loan defaults.  Congress considered raising the minimum down-payment requirements to 5% and 10% for borrowers with Fico scores that fell below 580.  For the most part, home buyers are only required to come up with a 3.5% down-payment when financing with FHA home loans.  However FHA direct endorsed underwriters have the discretion to require higher down-payments for candidates that pose a higher risk.

In a recent article, CNNMoney evaluated the FHA lending policies that are being considered in the reform circles of the lending community.  stage. Before going into effect, the department is soliciting public comment on the matters for 30 days. Then, it will evaluate the comments before implementing any changes.

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FHA Loan Production Dips Slightly

July 8th, 2010
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Recent government reports indicated that FHA mortgage loan origination dropped 3% in May from April’s volume.  FHA lenders originated $22.3 billion of FHA loans for single-family homes in May.  Almost 72% of the 124,750 FHA loan approvals went to borrowers buying a home.  Of the 30,900 FHA refinance loans in May, 68% were conventional loan transactions with borrowers putting only 3.5% down-payments which are the minimum FHA requirements for home purchase transactions.  The Federal Housing Administration indicated that 8.42% of its insured FHA loans are 90 days or more past due which almost the same as the 8.49% reported in April.

Get the Latest Changes from the FHA Loan Blog

Many FHA loan companies are concerned that FHA guidelines could tighten more because of the FHA loan defaults.  Many insiders are predicting that HUD will increase the down-payment requirements from 3.5% to 5%.  This will make it tougher for many consumers to get approved for FHA financing but it may reduce loan defaults that put the FHA mortgage programs at risk.

The government report also noted the lack of volume for the Hope for Homeowners programs that has helped very few borrowers qualify for FHA refinancing.  FHA mortgage rates remain at record lows but the pool of borrowers who qualify for FHA refinancing has clearly been reduced.

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Increased Net Worth Requirements for FHA Approved Lenders

July 1st, 2010
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The recent FHA Mortgagee Letter from HUD all have the underline toned of increased responsibilities for approved FHA lenders.  HUD is driving home the tone of responsible lending in each of the FHA letters in 2010.   FHA outlined key provisions of HUD’s recently issued final rule, and guidance to mortgagees on HUD’s implementation of this final rule. The recent FHA requirements have been changed again as the new rule calls for increased the net worth requirements for FHA approved lenders.  The letter eliminates FHA approval of loan correspondents, FHA requirements of the Helping Families Save Their Homes Act of 2009 and made minor modifications to other aspects of FHA’s regulations for FHA lenders. Increased Net Worth Requirements As stated in the final rule referenced above, FHA is implementing increases to its net worth requirements and is offering additional incentives for existing FHA-approved lenders and mortgagees.  Many borrowers are concerned because there seems to be less competitive lenders out there even as FHA rates have become so affordable.

 

FHA Requrements Change Again with FHA Lenders Needing Higher a Net-Worth

 

Effective May 20, 2010, all new applicants for FHA approved lenders, irrespective of size, must possess a net worth of at least $1,000,000, of which no less than 20% must be liquid assets consisting of cash or its equivalent acceptable to the Secretary. FHA Lender Approval Application that is available at: http://www.hud.gov/offices/adm/hudclips/.  Effective May 20, 2011, each FHA approved lender or mortgagee with FHA approval as of May 20, 2010, that exceeds the size standards for a small business as defined by the Small Business Administration, must possess a net worth of at least $1,000,000, of which no less than 20% must be liquid assets consisting of cash or its equivalent acceptable to the Secretary.

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