FHA Loan Guide

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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BankRate published a helpful article for new homebuyers that outlined important facts about FHA home loans.  In the wake of the housing bubble’s collapse, FHA loans have taken on renewed importance for today’s mortgage borrowers. Simply stated, an FHA mortgage is a home loan insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.  Because of that insurance, lenders can — and do — offer FHA home mortgages at attractive mortgage rates and with less stringent and more flexible qualification requirements.

The FHA doesn’t mandate a minimum credit score, according to Vicki Bott, HUD deputy assistant secretary for single-family housing. Instead, each borrower’s creditworthiness is considered in context.  However, FHA lenders can overlay their own requirements on top of the FHA guidelines. Some lenders might require a minimum credit score. Ask the loan officer about such a requirement if you have bad credit.  “Lenders underwrite FHA home loans to ensure that the customer has the willingness and capability to repay the loan, but we do have flexibility beyond pure credit score to look at the borrower’s financial situation,” Bott says.

The FHA requires a down payment of just 3.5% of the purchase price of the home. That’s a fraction of the %age typically required on most other loans and a “huge attraction,” says Dennis Geist, vice president of government programs at Wells Fargo Home Mortgage in Carlsbad, California.  Borrowers can use their own savings to make the down payment. But other allowed sources of cash include a gift from a family member, or a grant from a state or local government down payment assistance program.

The FHA allows home sellers, builders and lenders to pay some of the borrower’s closing costs, such as an appraisal, credit report or title expenses. For example, a builder might offer to pay closing costs as an inducement for the borrower to buy a new home.  FHA mortgage lenders typically charge a higher interest rate on the loan if they agree to pay closing costs. Borrowers can use the good faith estimate of closing costs — commonly known as the GFE — to compare interest rates and closing costs on different loans and figure out which option makes the most sense.

Because the FHA is not a lender, but rather an insurance fund, borrowers need to get their loan through an FHA-approved lender. Not all FHA-approved lenders offer the same interest rate and costs — even on the same FHA loan. That’s another reason Bott says borrowers should shop around.  “We encourage consumers — from a cost, service and underwriting standard — to shop around many lenders or mortgage brokers to make sure they understand what the best fit is for their particular situation,” she says. 

Two mortgage insurance premiums are required on all FHA home loans: The upfront premium is 2.25 % of the loan amount, and the annual premium is 0.55% of the loan amount. The upfront premium must be paid when the borrower gets the loan but can be financed as part of the loan amount. The annual premium is paid in chunks of 1/12th of the total along with each month’s mortgage payment.  “The perception is that that sounds expensive,” Geist says. However, he adds, borrowers need to compare the FHA-insured loan to a loan that’s not FHA-insured (and consequently requires a much larger down payment). In many cases, the FHA loan is still the best choice, he says.

The FHA has a special loan product for borrowers who need extra cash to make repairs to their homes. The chief advantage of this type of loan, called a 203k, is that the loan amount is based not on the current appraised value of the home but on the projected value after the repairs are completed. The FHA 203k loan allows the borrower to finance up to $3,500 in nonstructural repairs, such as painting and replacing cabinets or fixtures, Geist says.

FHA insurance isn’t intended to be an easy out for borrowers who feel unhappy about their mortgage payments. But loan servicers can offer some relief to borrowers who have an FHA-insured loan, have suffered a serious financial hardship and are struggling to make their payments. That relief might be a temporary period of forbearance, a loan modification that would lower the interest rate or extend the payback period, or a deferral of part of the loan balance at no interest.

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The FHA Home Loan Blog recent published an article that uncovered some new opportunities for no cost FHA streamline refinancing. There are approved FHA lenders that are offering no cost mortgage refinance opportunities for a select group of borrowers.  If you have good income and high credit scores above 700, there is a good possibility that you may qualify for a no cost FHA streamline loan in which the lender is paying for the closing costs on their end.  This way you do not have to come out of pocket to cover the closing costs and your mortgage balance would not go up because you are not financing fees that FHA will not allow anymore anyways.  Qualifying for no cost FHA streamline loans will take some shopping online to find a credible FHA loan company that offers these unique refinancing incentives, but clearly it will be worth it financially in the long run.   Read the original FHA article online > No Cost FHA Streamline Refinancing

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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 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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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. 

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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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Over the last few months many FHA loan companies have been struggling to submit new loans into process because the loan application volumes were down for FHA refinancing and new home buying.  There were a few good weeks here an there, but overall, morale was down for loan officers according to several FHA lenders.  The Mortgage Bankers Association published its weekly home loan application report for the week that ended on June 11th.  Home refinancing and purchase mortgage applications rose and that is good news for mortgage brokers and lenders across the country. 

There was also good news the government mortgage programs as both FHA and VA loan applications increased significantly.  refinance loan guidelines have seen some tightening of one of the most popular programs, the FHA streamline in which borrowers are no longer allowed to finance the closing costs.  Borrowers must pay for the closing costs themselves outside of the loan.  Many FHA lenders have said that this had hurt their FHA refinance business, but it appears the borrowers are still using FHA for refinancing transactions.  FHA first time home buying loans could become fashionable again as more people look to become homeowners this summer.

The MBA’s index measures the volume of home mortgage applications and the report indicated an increase of 17.7% from the week prior. The Unadjusted Index spiked 29.7%, when compared to the prior week but the Memorial Day holiday shortened that week.

Michael Fratantoni who is MBA’s Vice President of Research and Economics, released a statement saying, “Mortgage loan applications for home buying rose last week, the first increase in over a month.  Mortgage refinance applications also roseup dramatically over the week.” He further went on to state that, “While it is clear that home loan applications in May dropped sharply as a result of the tax credit induced increase in applications in April, it is unclear whether we are seeing the beginnings of a rebound now.” The Weekly Home Loan Applications Survey contains over a dozen indices that covers mortgage-related application activity for fixed and adjustment rate, as well as conventional and government loans for home purchase and refinances. 

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Bloomberg published an article recently that considered the impact of FHA loans.  FHA first time homebuying remains popular with the low FHA interest rates.  FHA home loans re guaranteed by the Federal Housing Administration, the U.S.-owned mortgage insurer, may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac.  FHA mortgage lending last quarter may have topped the combined volume of government-supported Fannie Mae and Freddie Mac in a home-lending market that’s still a “government-financed market,” David Stevens, the agency’s head, said today at a conference in New York, citing research by consultant Potomac Partners.  “This is a market purely on life support, sustained by the federal government,” he said at the Mortgage Bankers Association conference. “Having FHA do this much volume is a sign of a very sick system.”  The FHA mortgage loan is insured by the government so when loan defaults sky-rocket, there are reasons to worry.  With down payments as low as 3.5%, insured $52.5 billion of home-purchase mortgages in the first quarter, compared with $46 billion of purchases of the debt by Fannie Mae and Freddie Mac, according to data compiled by Washington-based Potomac Partners.  The FHA and Fannie Mae and Freddie Mac, which regulators seized in 2008, have been financing more than 90 percent of U.S. home lending after a retreat by banks and the collapse of the market for mortgage bonds without government-backed guarantees.

FHA has been taking steps to shore up its program after being left with “terrible portfolios” from 2007 and 2008, Stevens said.  Freddie Mac has mainly “eliminated” its financing of certain “esoteric products,” Donald J. Bisenius, executive vice president of the McLean, Virginia-based company’s single- family credit-guarantee business, referring to debt such as low- documentation lending or so-called option adjustable-rate mortgages with growing balances. The company’s “parameters around” 30-year fixed-rate loans still allow for relatively low down payments and credit scores and high debt-to-income ratios, he said.  “It’s not obvious to me that the credit box has shrunk as much as the numbers might suggest,” Bisenius said. Article was written for Bloomberg by Jody Shenn and John Gittelsohn.

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The US House passed a bill yesterday that would give HUD the authority to increase the FHA mortgage insurance premiums over a period of time. Keeping the FHA loan premiums low would help increase homeownership and raising the premium would likely decrease new home buyers.  This bill was created in an effort to help the Federal Housing Administration shore up its finances is set for a vote this week in the U.S. House of Representatives.  FHA loan defaults have eroded the reserves for the FHA loan programs, which drives the probable bailout for taxpayers.  The legislation’s goal is to help replenish FHA reserves without harming the agency’s mission of backing low down payment loans for low- and moderate-income borrowers.   The bill would nearly triple the cap on the annual premiums the FHA charges borrowers to 1.50% from 0.55%.  Many government lenders are concerned about the effect high premiums will have on the FHA financing market.

This bill should make it easier for the FHA to shield itself from losses on loans that were underwritten fraudulently or violated FHA standards.   FHA Commissioner David Stevens said the legislation will make “absolutely certain” the agency has the power to protect itself from bad lenders and rebuild its capital-reserve fund.   The FHA estimates the proposed changes will generate about $300 million a month in positive receipts, allowing the agency to replenish its reserves at a much faster rate than it otherwise would.  This FHA mortgage insurance bill could pose some problems with FHA borrowers who are struggling with affordability on their exiting FHA loan.

In recent months, the FHA has tightened standards for borrowers and expelled more than a thousand lenders from its program.  The FHA raised its upfront borrower premiums to 2.25% from 1.75%, but it intends to lower that premium to around 1% once it has the power to increase the annual premium. The FHA plans to raise the annual premium to 0.90% from the current 0.55%, Stevens has testified.  The FHA estimates the change will result in a premium increase of $42 a month for the typical new borrower.

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Yes FHA mortgage rates are low, but the FHA loan program as a whole may be in jeopardy of existence.  Many FHA blogs have posed the reality that the FHA loan product is at serious risk to be shut down.  In this political climate it becomes obvious that anything is possible because Congress must pass bill to continue to fund the FHA finance programs. FHA FHA first time home buyer loans have been promoting home ownership since the great depression.  Even as we discuss their recent failures, the argument could be made that FHA is one of the most successful government initiative in the last century.  

The FHA Home Loan Refinancing blog reported that the FHA reserves have covered $6 billion over the last 6 months. Yet HUD had predicted the FHA agency would pay $8.7 billion for loan defaults.  This FHA blog poses the question, “should we cheer because the FHA home loans are preforming better than anticipated or be critical of a federal loan program that is failing in a failing economy?”  Read the original FHA loan article online > Is FHA Mortgage Financing in Trouble?

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Once again 1st-time home buyers made up almost half of the homes purchased in April.  New home buyers have been inspired by historically low interest rates and low down-payment requirements with FHA loans.  Many mortgage executives privately feared rate hikes once the Federal Reserve allowed $1.25 trillion mortgage-securities purchase program to officially expire, but conforming and FHA loan rates remain at record lows. 

The flexible FHA guidelines and aggressive lending standards set forth by the Federal Housing Administration have encourages FHA lenders to finance new home buying if the borrower can document their income.  In 2010, government home financing has taken the market-share for mortgage loans as, through Freddie Mac, Fannie Mae and the FHA, have seized almost 97% of the home financing market.  

According to FHA commissioner David Stevens “This is a mortgage market surviving purely on life support and sustained by the federal government.” Stevens spoke with passion at the Mortgage Bankers Association conference yesterday. He reached out to FHA lenders to start thinking more about the borrower and helping the mortgage industry recover rather than focusing on maxing out loan commissions.  HUD has tightened FHA loan requirements with stricter FHA guidelines that have made qualifying with FHA for challenging for borrower than it was in the past few years.

FHA lenders continue to be blessed with affordable FHA loan rates. The Mortgage Bankers Association mentions that FHA rates should remain relatively low in the short term because of concerns in Europe financial woes with debt burdens. Lower FHA rates help to reinforce demand. Despite average thirty-year FHA interest rates dipping below the 5% illustrious threshold, the MBA noted last week that the number of people seeking purchase loan applications has declined by over 27%, the most dramatic drop since May of 1997.   Read the original FHA loan article online at CNN Money >

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Last week, the House Financial Services Committee approved a request by the Federal Housing Administration to increase the ceiling on annual FHA mortgage insurance premiums from its current level of 0.55%.  FHA had requested the increase as one part of a plan aimed at shoring up its capital reserves which have dropped below the 2% required by law.  HUD already raised the up-front premium charged to borrowers closing that became effective on April 9th.  FHA says it intends to gradually raise the annual premium for FHA loans to 1.5%.  This could have a significant effect on borrowers looking for refinancing with FHA.

FHA revealed late last year that its current reserves are at .53%, but officials have said that their tightened lending requirements as well as the increase in premiums would allow them to restore the levels by collecting an additional $5.8 billion over the next few years.  The Congressional Budget Office has put the number at a much more conservative $1.9 billion.  While approving the increase, the Committee defeated a proposal sponsored by Scott Garrett which would have increased the minimum down payment for insured FHA loans from 3.5% to 5%.  It also would have prohibited sellers from participating in the buyer’s closing costs and prohibited the inclusion of any initial services charges such as appraisal, inspections, and other fees in the principal amount of an FHA mortgage loan. 

The FHA has already reduced the amount that a seller can contribute to the buyer’s closing costs from 6% of the loan amount to 3%.  Garrett has also submitted separate legislation which would prohibit the home buyer from rolling the upfront lending cost into the mortgage which would essentially raise the money required of a borrower at closing.  Had the Garrett Amendment survived the Committee vote it could have had a considerable negative effect on the housing market.  FHA guaranteed loans have historically been a minor factor in mortgage financing, but in the last few years, as credit tightened, the FHA was forced to increase its funding efforts up to 25% of all home loans and an even high proportion of loans to first time home buyers. 

In 2010 FHA refinance loans were hindered by tighter credit guidelines and a dysfunctional appraisal process.  FHA refinance application volume has dropped significantly from the previous year, mostly because millions of borrowers have already been turned down.

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FHA seeks to empower struggling neighborhoods with help from FHA loan program that promote home ownership and affordable mortgage payments. FHA lenders have been pushed to the limit with loan defaults and high foreclosure rates. HUD continues to increase FHA loan requirements and tighten FHA guidelines yet they say they want to assist distressed neighborhoods with better FHA loan products.  First time home buyer loans are still available with only a 3.5% down-payment.  Some states will allow borrowers to use credit from the first time home buyers tax credit towards their deposit as down payment assistance.  FHA lenders don’t expect that to last and most FHA loan programs will not approve these types of FHA mortgages.

You may be able to buy a foreclosure home from your town or county; the program helps local governments purchase vacant or abandoned properties and resell them to qualified home buyers. Home buyers do not receive assistance directly from HUD. However, NSP money can be used to help home buyers purchase primary resident real estate. Interested buyers must contact an NSP grantee for application details.  FHA loan limits will vary from county to county so check the FHA loan limits in your area or talk to a loan officer.

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FHA credit guidelines have always been more flexible than traditional conventional mortgage loans.  HUD has announced several times that they have revised the FHA guidelines in recent months.  The FHA appraisal policy has been changed a bit and the FHA streamline refinance program has been hacked at as well. 

In addition, FHA credit guidelines were revised.  Many government loan skeptics believe that FHA should require credit scores; something HUD has instituted in the past FHA loan programs. Traditional lenders mandate credit score minimums that prevent borrowers with low credit scores from qualifying.  Most FHA lenders have implemented their own credit score minimums because they don’t want to be on the hook for FHA mortgage efaults. 

HUD is cracking down on FHA lenders that violate disclosure laws and incur high default rates. HUD did announce a new loan program that required a more significant down-payment and higher insurance premium for borrowers with credit scores as low as 580.  That was nice of HUD, but let’s see if any FHA mortgage companies actually offer this low fico FHA loan.

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In a recent article the FHA Mortgage Guide reported the statistics for February FHA loan originations.  HUD released these figures and the early results indicate that this new FHA loan program looks like a hit.  This FHA loan product is on its way to insure over two million FHA mortgages in 2010. Those figures sound robust but it’s still down 29.5% from the previous year.

Many industry insiders believe that FHA will lose some of their market share because of new FHA requirements and tighter FHA guidelines. FHA mortgage rates remain ridiculously low, but most first time home buyers are having a difficult time qualifying for a FHA home loan.  Time will tell if American consumers will continue to use FHA mortgage loans for refinancing.  Rising mortgage insurance premiums and their higher credit score requirements certainly are not helping matters.

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FHA officials recently expressed new reasons to be optimistic. The FHA home loans made in 2009 tended to go to borrowers with higher credit scores than in previous years. These borrowers turned to the FHA when the mortgage market collapsed and other lending sources dried up. By then, reputable lenders doing business with the agency were already imposing tougher restrictions on FHA borrowers, further boosting the credit profile of the FHA loan. The average credit score of an FHA borrower is now 690, up from 630 only two years ago, agency officials said.  Are credit repair efforts working or are loan officers doing a better job qualifying loan applicants?  There are still bad credit FHA loan options, but we are just not seeing as many borrowers with low fico scores this year. Nonetheless, these higher fico mortgages are expected to result in lower losses, so FHA should make money on mortgage loans issued this year and over the next few years, according to an independent audit designed to gauge the agency’s health.

The November audit, found that the cash the FHA set aside to pay for unexpected losses had dipped to historic lows, well below the level required by law. As of Sept. 30, those reserves were estimated at $3.6 billion, down from nearly $13 billion a year earlier. The most recent figure represents 0.53% of the value of all FHA 1-family home loans far lower than the 2% required by Congress.   But Ann Schnare, a former Freddie Mac official, said the situation could be even worse. She said the audit underestimates future losses because it does not take into account all loans that are now overdue, only those that the FHA has paid claims on.  Stevens said his agency has pored over its data to analyze risk and is taking steps to shore up its financial health. “You have a limited set of options under these circumstances: Raise fees [for borrowers] or make policy changes,” Stevens said in an interview. “We’ve done both.”

The agency banned 268 FHA lenders from making FHA mortgage loans last year, more than double the total terminated in the previous eight years. The FHA suspended six other firms. Among them were some of the largest FHA mortgage lenders –Taylor, Bean & Whitaker and Lend America, both of which shut their doors soon thereafter.   The agency also proposed a rule that would require banks to hold up to $2.5 million in capital that they can use to repay the agency for losses if they were involved in fraud. Banks are now required to hold only $250,000.

Borrowers are also facing tougher scrutiny from the agency. People taking out FHA mortgage loans will have to pay higher upfront fees, perhaps as early as this spring. Those with especially weak credit scores will also have to put down at least 10% instead of the usual 3.5% down-payment. The amount of money sellers can kick in toward closing costs and other fees will also be limited.

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It’s about to get more difficult to qualify for a FHA home loan, often considered the replacement loan for the collapsed subprime market.  Moving to head off the financial impact of defaulting borrowers, the FHA is adding more-stringent lending requirements and higher fees borrowers must pay to get the federally-insured loans.  The announcement comes on the heels of an investigation into 15 FHA lenders with high incidences of FHA mortgage insurance claims. The same companies have reached out for government assistance money from taxpayers.

Mortgage insurance is paid by borrowers, typically when the down payment is lower than 20%. FHA Borrowers pay, but the coverage protects lenders with cash benefits should the borrower default. When lenders foreclose against homeowners with the coverage, it triggers mortgage insurance benefits for lenders to help pay off the mortgage.

Rick Sharga Vice President of ReatyTrac says foreclosures were up 21 % from a year ago and 120 % from two years ago and it could get worse.  The FHA is more exposed to defaults than ever. By some estimates, as much as 50 % of all purchase loans in some areas are FHA insured. Before the housing collapse, FHA wrote only 3 % of all home loans. After notice and comment periods, but beginning this spring, the FHA will raise mortgage insurance fees that borrowers must pay, cap the amount of cash that sellers can contribute for closing costs and require higher down payments for the borrowers with poor credit scores.

• The new upfront FHA loan premium will cost borrowers 2.25 % of the loan amount, up from the current 1.75 % and the second increase in the past two years. The upfront premium can be rolled into the loan. Later, some of the cost increase could be added to a borrower’s additional annual mortgage insurance premium which is paid monthly.  “Increasing the insurance premium on FHA loans is simply a reflection of the substantial risk the administration has taken on in recent years,” says Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

• New borrowers must have a minimum FICO credit score of 580 to qualify for FHA’s 3.5 % down payment loan, otherwise the borrower must put 10 % down. Most lenders require a minimum credit score of about 620. A credit score is a numerical rendition of a borrower’s creditworthiness. The higher the score, the better the credit and the better likelihood of qualifying for the least expensive loan.   “The absence of equity in their home has become a key predictor of a borrower defaulting on their mortgage payment in this distressed market. Requiring a greater down payment should be the first step towards more prudent underwriting and lending practices,” Osborne added.

• Sellers will only be able to contribute closing costs that amount to 3 % of the sale price, half the current 6 %. Experts say the higher maximum encouraged borrowers to mark up the price to compensate for their concession.

The value of the FHA’s reserves, $3.6 billion is down from 3 % a year ago and an amount that’s far below the amount required by Congress.  Late last year FHA proposed stiffer rules for lenders to also reduce its risk — that lenders to have a net worth of at least $1 million in the first year and $2.5 million within three years, up from the original requirement of $250,000. The federal agency also wants tighter approval requirements and greater liability for lenders and mortgage brokers who want to originate, underwrite or service FHA.  Even with the higher fees, tougher underwriting, and lender crackdown, it’s not going to be easy rebuilding reserves in a hung over housing market.  The FHA’s move could further exacerbate conditions for the housing market, by removing some low-down payment loans that were allowing new buyers to buy and others to refinance their way out of foreclosure.

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Americans have grown accustomed to FHA loans for purchasing and mortgage refinancing.  A recent Bloomberg article highlighted new obstacles for Homebuyers seeking mortgage refinancing to take advantage of FHA loan program.   Borrowers will now have to put down additional funds in some cases as officials look for ways to shore up finances at the Federal Housing Administration.  FHA loan defaults have sky-rocketed over the last few years because of the economy and lack of mortgage loan products.

HUD secretary Shaun Donovan told reporters “Down payment is one of the elements we’re looking at.” Donovan continued, “A second is the upcoming mortgage insurance premium and then additional money that needs to be brought to the table.”

The FHA is also considering cutting the amount of home seller concessions a buyer can receive by half to 3% of the purchase price to combat inflated appraised home values.  The minimum credit scores required for borrowers may also be raised, and the guarantee fees charged to lenders may increase, Donovan said.   “We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan, to make sure that FHA borrowers have more ‘skin in the game,’” Donovan told the committee.

HUD, which oversees FHA, will provide details in January, he said. Some FHA guideline changes may take affect in the first quarter while others, like raising annual insurance premiums, need congressional approval and will take more time, he said.

The National Association of Realtors said FHA must be careful not to raise costs too high for borrowers and constrict access to credit. “Requiring a larger down payment will make homeownership out of reach for many families and for others could deplete their cash reserves for home and other emergencies,” said Vicki Cox Golder, an Arizona Realtor and president of the National Association of Realtors, which represents the industry from Washington.

The FHA mortgage lending continues to struggle as mortgage insurance reserves fell to the lowest level in history last fiscal year and the government said more steps are needed to shore up the agency that guarantees one of every 5 single-family loans. The insurance fund tripled in size last year and has taken on more risk as private industry sources for lenders to finance and insure home loans dried up and mortgage default rates rose to record highs.

FHA’s net capital ratio, or reserves after accounting for projected losses, fell to its lowest level on record, 0.53%, in the year ended in September, from 3% in fiscal 2008 and 6.4 % in 2007, according to an annual review released last month.

FHA, along with federally controlled mortgage-finance companies Fannie Mae and Freddie Mac, accounted for more than 90% of all U.S. mortgage loans in the first half of this year.

The agency may raise the up-front insurance premiums of 1.75% that it charges FHA lenders to guarantee the loans, Donovan said. The agency is seeking permission from Congress to increase its annual insurance rates as well, which will raise FHA home loan costs for consumers, Donovan said.

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What is a FHA home loan? Why are FHA mortgage loans so popular? Aside from food, there is no greater necessity than having shelter. Everyone wants a home. In this life, living from rented room to rented room or rented apartment to rented apartment is quite demoralizing. Everyone needs the security of having their very own house to come home to. When a place is rented, there is not enough sense of security because one does not own the place he or she is living in. Security is especially important especially for the people who have families or a family to take care of. Rent is also a drain on income without a return of investment. Having no home is even worse if one was kicked out through foreclosure and is jobless. The bad economy has done this to many families already. Those people who lost their jobs and as a result got their homes foreclosed have it so bad. It is very traumatic. This is why the FHA housing loan is so popular, because so many people need loans even if their credit is not perfect and even if they have low incomes.

The government created the Federal Housing Authority to help the people during the great depression. It was tasked to give those in bad financial situations a chance to get a loan for their own house. And now that the United States economy is starting to get into another bad depression, President Barack Obama created a bailout fund to fuel and strengthen the Authority to perform even better. There are much lower interest rates and easier ways to get accepted for an FHA loan right now because the government understands how a lot of people have bad credit not through any fault of theirs. With conventional loans, having a credit score that does not shine with perfection will get the loan application denied. Also, with conventional loans, having low income will automatically grant one a denial. But this is not true for FHA loans.

One also has to understand that the FHA does not use government tax funds to serve as the mortgage principal. No, the loans are actually from the accounts of banks and private lenders that were approved to give these FHA loans. What the FHA does is that it pays for the loans insurance, thus making sure that the lender will not be at much risk when lending money. The government in short will pay for the loan if the borrower cannot. This is why the lenders can give the loans away at such lenient conditions.

One must also know that FHA loans differ from each lender. So one should go shop around for the lender that gives the best deal that fits perfectly in the borrower’s situation.

FHA Loan Articles

An FHA (Federal Housing Administration) refinance can be a great option for people in various scenarios. There are two types of FHA refinancing loans: 1.) cash out refinancing and 2.) streamlined refinancing. In either scenario the home owner must have some equity in their home to be able to participate in such a plan. In addition, they must also use the home as their primary residence to qualify for the refinancing. Refinancing allows a person to benefit from the investment they made on their home allowing help in many different stages of people’s lives. Some use the FHA loans for cash out refinances in an effort to send their child to college, while others use the money for home repairs. Other examples of how the loan can benefit someone are special vacations, and even consolidating other bills.

FHA refinancing differs slightly from conventional refinancing loans. A person’s income and credit will be viewed more leniently or not at all with an FHA refinance. FHA refinance loans allow bad credit refinancing. FHA guidelines evaluate the “big picture” of the borrower’s credit history, so if there are isolated incidents of credit problems, they are often over looked. The credit qualifying guidelines are also much more relaxed with a FHA loan even with past bankruptcies and foreclosures.

The fees will also be lower with a FHA refinance loan including closing costs and private mortgage insurance (PMI). Closing costs are regulated with FHA loans so the bank cannot charge an excessive amount to the homeowner. When you are shopping FHA loans, always compare the fees in the disclosures when deciding on a FHA lender.

In cash out refinancing FHA refinance the home owner usually has a home that has increased in value. The refinance can take place if the home owner purchased the home a year or more ago. They are able to take out the refinance loan for more than what they owe on their home (up to 85% of the appraised value of the home plus closing costs), so they can pay back their original mortgage, end up with a new mortgage and have money to spare. The extra money is actually the equity that the homeowner has built up over the years in their home. After their equity has basically turned into money, they can use it for the needed use at the time.

With a FHA streamline refinancing loan the current mortgage’s interest rate can be cut without an appraisal in most cases and with minimal paperwork. Credit checks and job verifications are not looked at to qualify for these loans, but the existing loan on the property must be an FHA mortgage, the refinance must decrease the homeowner’s monthly interest payments and the loan has to be in good standing (no late payments within the last year). The streamlined refinance does not have the option of receiving cash. Its best purpose is to lower someone’s monthly expenses.

FHA Loan Articles