FHA Loans

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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According to a report released yesterday by the Government Accountability Office, the Department of Housing and Urban Development has left senior homeowners vulnerable to abusive FHA lending practices because of shortcomings in programs that offer reverse mortgage loans.  Reverse mortgages, which are usually backed by HUD’s Federal Housing Administration, enable seniors to withdraw equity from their homes. The senior home loan and the accumulated interest do not have to be paid back until the owner dies or sells the home. But the upfront costs are substantial.  While these specialty FHA home loans have become more attractive to seniors as the economy has soured and housing values have dropped, reverse home loans are complex. That is why the FHA has long required that the seniors take part in HUD-approved counseling sessions before these cash out refinance loans are processed. Yesterday’s report concluded that HUD “lacks effective controls” over the counseling programs.

Based on undercover participation in 15 counseling sessions, the GAO found that the counselors conveyed accurate information but none covered all of the mandatory topics and some exaggerated the length of the counseling sessions, which can be conducted by telephone or face-to-face. The report also said that seven of the 15 did not discuss alternatives to reverse mortgages, as required.   The report, requested by Sen. Claire McCaskill, also said that a limited review of reverse mortgage marketing materials found some misleading claims. Federal agencies responsible for protecting borrowers had reported few complaints. Some of the states that the GAO contacted also reported cross-selling, the practice of enticing borrowers to use their mortgage funds to buy insurance or other products that are not suitable for them. Recently enacted federal law aims to curb such practices as do some state laws.  

HUD spokesman Brian Sullivan said the reverse mortgage program has more safeguards, such as required counseling, than do private mortgage loan programs. “These existing consumer protections have contributed greatly to the success of the [reverse mortgage] program, which has provided financial security to several hundred thousand seniors,” he said.  According to the trade publication Inside Mortgage Finance in the first quarter, the FHA backed about $7.8 billion worth of reverse home mortgages, the largest amount in any quarter since the agency launched the program in 1988.

Nearly two months ago, the FHA mortgage lending announced its plans to ask Congress for nearly $800 million in taxpayer money to cover projected losses on reverse mortgages in fiscal 2010.  The losses are not related to fraud but to falling home values, HUD Secretary Shaun Donovan said at the time. That’s because by the time a reverse mortgage needs to be repaid, the value of the house could have dropped and the FHA-insured lender is left with no choice but to recoup less money than it loaned out.  Donovan said the Obama administration is requesting a subsidy instead of raising charges for seniors.

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The House of Representatives passed a bill containing the long awaited rehabilitation to the FHA Hope for Homeowners loan program late last week and the Senate will likely deliberate early shortly. The mortgage relief measure are attached to H.R. 1106, a controversial home financing bill that would grant bankruptcy judges the authority to cram down borrowers’ mortgage loan balances when they file for a Chapter 13 bankruptcy. 

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The government-sponsored mortgage giants released revisions in their loan work-outs last week.  Many mortgage servicers could be pushing as much as $200 billion of Fannie Mae and Freddie Mac home loans through new standard mortgage loan modification procedures.   However, these foreclosure prevention plans designed by the Obama administration continue to miss a large portion of distressed homeowners who are unable to qualify for traditional or FHA mortgage refinancing.  

Many of these borrowers are beginning to panic, because it’s starting to sink in, that the government is not going to finance these non-traditional bail-outs as foreclosure rates are continuing to rise among the groups of homeowners who carry the burdens of jumbo mortgage loans and bad credit scores.

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FHA Mortgage Leads – Watch Lead Planet Video

Lead generation specialist, Bryan Dornan discusses the opportunity for mortgage brokers and lending companies to purchase quality real-time leads. FHA Lead buyers can select from exclusive internet leads to live transfer leads that connect applicants directly with the loan officer or negotiator. Visit us online for FHA mortgage leads and complete a quick request form and one of their account executives will follow up with you shortly.

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The government anticipates only 20,000 troubled borrowers will apply to refinance into more affordable home loans by next fall under a new mortgage relief program passed by lawmakers over the summer. The $300 billion ‘Hope for Homeowners’ program was launched October 1^st 2008.

FHA rolled out the new loan program, Hope for Homeowners loan that was designed by lawmakers eager to respond to the mortgage crisis, the Congressional Budget Office had projected it would let 400,000 troubled homeowners swap risky home mortgages for conventional 30-year fixed rate loans with lower rates. 

But according to the Federal Housing Administration, the early results are discouraging: the government received only 42 applications in the program’s first two weeks. The low turnout was first reported by the industry newsletter Housing Wire. Since the FHA loan applications take about 60 days to process, no home loans have been approved yet.  The FHA Loan Blog believes that the mortgage lenders are holding up the program with their guideline tweaks, like higher credit scores.

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Nancy West, a marketing and outreach specialist at HUD’s Santa Ana, Calif.-based office, said there are companies making solicitations with the claim that non-approved originators can do FHA mortgage loans and get paid for them. “I’m here to tell you [that] you cannot,” she said, adding it creates unfair competition with originators who do things properly.

Among the features of the FHA mortgage program is that no credit score is required and that manual underwriting is permissible. However, Ms. West said, there are FHA mortgage lenders who are imposing stricter guidelines. FHA cannot control that, she said. There are those that do not have stricter requirements. If a correspondent only works with a mortgage lender who only uses automated underwriting, they need to be aware there are FHA loans that the system will never approve. Ms. West suggested having an alternative sponsor who manually underwrites.

While the qualifying ratios for FHA loan programs are normally 31% and 43%, Ms. West said there have been loans approved with a backend ratio as high as 68%. It is important that the originator know what program is best for the customer, not only among the FHA offering but the programs at other federal agencies as well, she said. Among the bogus information being given out by lenders is that the borrower must take the property out o a living trust. That is not true, Ms. West said, noting that taking the property out of trust could trigger legal issues.

FHA loans can also be used on manufactured housing as long as it meets agency requirements. “We are the game in town for manufactured housing,” she said. HUD needs mortgage brokers’ help to get the word out about changes in the program to Realtors, who are not aware of items no longer required to be fixed, such as missing handrails, cracked window glass, minor plumbing leaks, poor workmanship and defective floor coverings.

The temporary loan limit increase expired on Dec. 31. Ms. West suggested that mortgage brokers and loan officers keep on top of sponsors to ensure their loans are approved by the deadline. As for the Hope For Homeowners program, while Ms. West said the parameters make certain that only a small number of borrowers are eligible for, there are some benefits. “It is a tool and we will be able to help some folks with it, but it is not a cure all.” The borrower gets to keep a home he or she can no longer keep. They are not paying to make FHA money, only what they owe. Most of the originators of these loans are servicers. The originator is allowed to charge one point only; no administrative or add-on fees allowed. “I’m not saying don’t do it, but don’t make it your meal ticket,” said Ms. West.  Article Written By Brad Finkelstein.

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In most cases, FHA home loans are more flexible than conforming mortgage lenders regarding credit qualifications and home equity requirements for purchasing or refinancing. In fact, FHA loan guidelines enable borrowers with bad credit scores to re-establish their credit:

• Must be at least 2 years since the bankruptcy was discharged 
• All judgments must have already been paid
• Tax liens must been satisfied or appropriate arrangements
• Must be at least 3 years foreclosure or a deed-in-lieu has been resolved

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The 203k FHA mortgage is a unique loan that enables a new homebuyer to finance the purchase and rehabilitation of a house in the same home loan.  A part of this FHA loan is used to pay off the seller and their mortgage lender.  While the remaining FHA home loan amount is wired to an escrow account set up to fund the home remodeling and rehabilitation.

HUD has specific guidelines for these FHA home improvement loans have follows details:

• The house must be at least twelve months old. 
• The cost of rehabilitation must be at least $5,000, but the total property value including the cost of repairs - must fall within the maimum limit for FHA loans. 
• The 203(k) FHA loan must follow many of the 203(b) eligibility requirements.  

Talk to a FHA mortgage lender about specific home improvement plans, contractor structural guidelines and your eligibility as a borrower.

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As interest rates on thirty-year mortgages plunged this week to the lowest level since January, FHA Streamline Refinance applications are taking off again! With the ability to be originated anywhere in the United States and with limited documentation requirements, FHA Streamline refinance loans are quickly becoming the next wave for 2009…. so NOW is the time to get educated!

NAMP has the answers! With a QUICK and COST-EFFECTIVE Three-hour live, instructor-led webinar entitled: FHA STREAMLINE 101 you’ll learn everything from A to Z. This unique online interactive format also allows you to ask questions directly to the instructor and get immediate answers.  The FHA Loan Blog considers this a great opportunity for any loan professional who is thinking about getting involved in these unique government mortgage loans.  FHA streamline refinance options have seen a significant increase in application activity as the Federal Reserve made recent rate cuts.

This 3-hour FHA STREAMLINE REFINANCE 101 webinar will cover the following:

1) Designed for Originators, Processors & Underwriters.

2) How To Streamline With & Without Appraisal.

3) FHA to FHA Refinances With No Income Verification.

4) Required Forms & Documentation.

5) Perform FHA Streamlines Nationwide.

6) Open Forum Q & A Session.

WHO SHOULD ATTEND:  Loan Originators, Processors & Underwriter looking to leverage this existing FHA client base. This webinar will cover all aspects of the front-end selling to the servicing side.  Get started >

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