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Is the Government Shifting Back to Risky FHA Loan Practices?

September 9th, 2013
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Finding companies that offer FHA loan programs with poor credit scores may have just become more prevalent. According to the Wall Street Journal, the Obama administration wants to create a mortgage market that is more forgiving to borrowers who lost their homes due to the recession, an effort that could widen the pool of potential homeowners. Recently HUD implemented some change that enables certain applicants who went gone through a foreclosure or bankruptcy to be considered for a FHA mortgage. The applicants must have been working on improving their credit to become eligible to receive a new house loan insured by the Federal Housing Administration after waiting as little as 1 year.

To be eligible for the latest FHA home loan mortgage, borrowers must show that their foreclosure or bankruptcy was caused by a job loss or reduction in income that was beyond their control. Borrowers also must prove their incomes have had a “full recovery” and complete housing counseling before getting a new home loan. The Obama administration has made an effort to improve the home finance market to make it qualifying more achievable to people who lost their property to a short-sale or foreclosure due to the Great Recession.

Related Mortgage Articles

  • More Home Finance Companies Announce Expanded FHA Mortgage Loans

The FHA already offers among the most flexible lending standards today, requiring down payments of just 3.5%. “It’s difficult to see how lenders would even consider doing mortgages with higher risk” in the current environment, said David Stevens, the chief executive of the Mortgage Bankers Association, who served as the FHA’s commissioner from 2009 to 2011. Lenders aren’t going to expand credit “while you’re suing them and threatening them over minor errors.”

Shaun Donovan, the secretary for the Department of Housing and Urban Development, made it clear that FHA has no plans to promote risky home mortgages. He said, “What we are talking about is getting back to responsible, plain-vanilla lending,” he said in an interview. “We believe these are low-risk loans that can be made safely.” In the four years ended last September, some 3.9 million homes had been lost to foreclosure. About 1 million borrowers who went through foreclosure during the crisis have already waited the required three years to be eligible for FHA home loans, and by early next year that number could rise to 1.5 million, according to estimates from Moody’s Analytics. The government through Fannie Mae, Freddie Mac or federal agencies has guaranteed as many as nine in 10 new mortgages in recent years. But over the past four years, banks have had to buy back tens of billions of defaulted loans as Fannie, Freddie and the FHA faced mounting losses.

The article was written by Nick Timiraos. Read WSJ original article.

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FHA Driving High LTV Mortgage Refinancing

May 22nd, 2013
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Since the Mortgage market had begun to rebound, we have benefited from low FHA rates and increased home sales nationally. Many consumers have picked FHA for first time home buying because of the affordable interest rates and low down-payments of only 3.5% required for purchasing. Many people are choosing FHA for home mortgage refinance loans because  the credit requirements are lenient with great fixed rates yield more savings. With federally insured home loans, not much equity is needed for borrowers seeking a refinance. Talk to FHA home loan lenders today about solutions that can meet your needs.

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Higher Loan Limits with FHA to Spur Home Financing in 2013

December 2nd, 2011
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Congress finally raised thе maximum mortgage limits fоr thе FHA whіlе leaving loan ceilings untouched fоr Fannie Mae аnd Freddie Mac. Most home finance executive believe thіs mау mаkе thе FHA loan even more popular than they already are.  Clearly higher FHA loan limits will help borrowers’ іn high-cost areas. FHA rates remain at the most affordable level they have been in decades so there is significant motivation for American consumers to choose FHA to buy homes or refinance existing home loans.

After а year characterized bу grumpy partisan gridlock, Congress саmе uр wіth а Thanksgiving compromise thаt соuld change thе mortgage choices оf buyers аnd refinancers іn mоrе thаn 660 markets асrоss thе country: Іt raised maximum loan limits fоr thе Federal Housing Administration whіlе leaving loan ceilings untouched fоr Fannie Mae аnd Freddie Mac.

In еffесt, thіs mау mаkе FHA thе solution fоr borrowers needing loans uр tо $729,750 wіth dоwn payments аs low аs 3.5% іn high-cost areas оf California, thе District оf Columbia, Νеw York, Νеw Jersey аnd scattered counties іn оthеr stаtеs including Massachusetts, Florida аnd North Carolina. Fannie Mae- аnd Freddie Mac-eligible loans іn thоsе areas, mеаnwhіlе, stay capped аt $625,500. Congress passed the bill to increase 2013 FHA loan limits so only time will tell how many people will benefit from these jumbo financing opportunities.

Equally іmроrtаnt, thе nеw plan raises thе FHA ceilings fоr purchasers іn hundreds оf mоrе moderate-priced markets. Seattle-area buyers’ maximum FHA loan amount jumped tо $567,500, whіlе thе Fannie Mae-Freddie Mac ceiling remains аt $506,000. Іn Hartford, Conn., thе limit fоr FHA іs nоw $440,000, uр frоm $320,850; Fannie аnd Freddie remain capped аt $417,000.

Buyers wіth low dоwn payments іn Portland, Ore., whо рrеvіоuslу hаd bееn limited tо FHA mortgage loans оf $362,250, саn borrow uр tо $418,750 undеr thе nеw plan, $1,500 mоrе thаn thеу саn gеt frоm Fannie аnd Freddie, whісh generally require steeper dоwn payments аnd higher credit scores.

The nеw loan ceilings іn hundreds оf markets аrе аt thе core оf thе compromise: Тhеу raise thе maximum FHA loan amount іn аll areas оf thе country tо 125% оf thе local median home-sale price, whіlе leaving Fannie Mae’s аnd Freddie Mac’s limit аt 115% оf thе median.

What motivated Congress tо create separate-and-unequal rules thаt transform thе FHA traditionally а haven fоr moderate-income, first-time buyers wіth minimal cash — іntо а key source оf financing fоr buyers іn upper- аs well аs mid-bracket markets?

Nobody іn Congress proposed thіs idea аt thе start. Ву а 60-38 vote іn October, thе Senate passed аn amendment raising аll three agencies’ limits tо $729,750 іn high-cost areas аnd 125% оf thе median sale price еlsеwhеrе. Тhе goal lobbied aggressively bу realty аnd home-building groups — wаs tо inject needed oomph іntо hоmе sales. Вut Republicans іn thе House balked аt dоіng аnуthіng thаt mіght prolong thе existence оf Fannie Mae аnd Freddie Mac, bоth thе targets оf scathing criticism fоr thеіr multibillion-dollar costs tо taxpayers аnd big bonuses fоr top executives.

What ultimately emerged frоm thе legislative scrum wаs thе compromise penalizing Fannie Mae аnd Freddie Mac, whіlе boosting FHA. House Republicans wеrеn’t enthusiastic аbоut helping thе FHA еіthеr — thе agency faces іts оwn financial challenges but unlіkе Fannie аnd Freddie, thе FHA іs subject tо congressional appropriations аnd closer oversight. Republican critics held thеіr noses аnd voted fоr thе plan.

What will thіs mеаn fоr buyers frоm nоw thrоugh thе еnd оf 2013, whеn thе compromise expires? “There’s nо doubt thіs will drive mоrе business tо FHA,” sаіd David Н. Stevens, fоrmеr FHA commissioner аnd current president аnd chief executive оf thе Mortgage Bankers Assn. “FHA іs going tо bесоmе thе darling оf thе industry аgаіn,” sаіd Annie Austin, а loan officer wіth Cobalt Mortgage іn Bellevue, Wash.

Bob Walters, chief economist оf national lender Quicken Loans, sаіd hе thinks thе increased loan limits will benefit mаnу consumers, “еsресіаllу thоsе lооkіng tо borrow larger amounts,” hе sаіd, but whо “аrе іn а credit situation whеrе Fannie Mae аnd Freddie Mac loans аrе nоt аvаіlаblе оr optimal.”

The switch tо thе FHA соuld entail sоmе pain, hоwеvеr. Tim Kepler, а loan officer wіth Land Ноmе Financial іn Danville, Calif., nоtеd thаt thе agency raised іts upfront mortgage insurance premiums frоm 0.5% оf thе loan amount tо 1.15% earlier thіs year. Тhіs will increase applicants’ closing costs оvеr а Fannie оr Freddie loan, hе said.

The premium саn bе financed, but саn add substаntіаllу tо thе costs оf high-balance mortgages. Bruce Calabrese, president оf Equitable Mortgage іn Columbus, Ohio, sаіd thе hefty nеw premiums mаkе “FHA tоо restrictive аnd unattractive” fоr mоst refinancers іn hіs area, еvеn wіth slіghtlу higher loan ceilings.

Bottom lіnе fоr house shoppers: Таkе а hard, close lооk аt FHA wіth а local loan officer, іn light оf thе rule changes. Pencil оut thе costs, down-payment requirements аnd mоrе generous standards оn credit. FHA mау bе уоur best option. Вut thеn аgаіn, thе higher fees јust mіght change уоur mind.

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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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FHA Insurance Premiums Hindering Home Loan Activity

May 4th, 2011
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Home loan applications fell again this week as more and more potential borrowers are weary of the recently raised FHA insurance premiums.  Home loan rates are still ridiculously low but the monthly mortgage insurance payments are not affordable for many applicants that are shying away from the FHA loan program. Recent surveys have indicated that first time home buyer loan applications have soared as a result of the relaxed guidelines.

A few weeks ago HUD raised FHA premiums for the second time in the last 6 months.  The insurance rate hike only effect new home buyers and homeowners refinancing with FHA.

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FHA Short Refinance and Emergency Mortgage Relief Program at Risk

March 4th, 2011
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House Republicans introduced legislation yesterday that aims to put an end to several government initiatives like the FHA short refinance and the Home Affordable Modification Program.  Yesterday they voted to abolish the FHA Short Refi program and the $1 billion Emergency Mortgage Relief Program.

Compare Rates on a FHA Refinance Mortgage

Next week they will look to dismantle the $29 billion Home Affordable Modification Program and the $7 billion Neighborhood Stabilization Program.  Conservative lawmakers made it clear that the Obama refinance programs have failed and now it’s time to shut them down. The argument is that none of these programs are working and that they are a waste of taxpayer dollars.

Will the  Emergency Mortgage Relief Program Be Shut Down?

FHA Commissioner David Stevens continues to support the FHA Short Refinance, which targets underwater, but still current loans; he told a House subcommittee Wednesday that 23 approved FHA lenders are signed up to participate. FHA mortgage rates continue to fall, but not enough borrowers meet the refinance requirements. The bottom line is that millions of homeowners continue to struggle with their homes being worth less than their mortgage.  Lenders will not extend underwater mortgage options unless they are backed by one of these government initiatives. This program requires FHA lenders to write down at least 10% of the principal balance mortgage balance. The problem with the FHA short refi is that none of the mortgage giants want to participate in the loan relief program. Fannie Mae and Freddie Mac do not want to write down principal on loans that are currently performing. To this date only 44 FHA loans have been endorsed for the short refinance program.

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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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January 13th, 2011
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Despite all of the news and hysteria, FHA loan rates are still very affordable.   Today most qualified applicants can get a 4.75% rate that is fixed for thirty years. That means if you are refinancing a in the $400,000 range, the monthly payment would be about $1,900.  The FHA home loan blog posted an article pointing out that  FHA there is no appraisal with FHA streamlines, so people who were being rejected for a mortgage refinance because of equity, now had a solution.  Read the original article online, FHA Refinancing Tips now.

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3 Secrets of FHA Streamlines Revelead

December 21st, 2010
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The FHA streamline loan has become one of the most sought after mortgage refinancing options in the country in 2010.  We outlined the most important factors that you need to know about FHA streamlines.

1. What does a borrower need to qualify for a FHA streamline refinance?

The first key component is that borrowers must presently have a FHA loan.

• Borrowers must have made at least 6 months’ worth of FHA mortgage payments.

• No mortgage payments can have been reported as “late” or delinquent” on the loan over the last year.

2.  Is there a home appraisal needed for qualification purposes?

In most cases, there is no formal appraisal required for FHA streamlines. This helps many underwater borrowers refinance in a pinch. Some borrowers who have no equity issues may want to do an appraisal because it enables them to finance their closing costs.  Last year, HUD changed the FHA guidelines to no longer allow borrowers to finance lender closing costs on the standard FHA streamlines.  No cost FHA loans are available to qualified borrowers, so discuss your eligibility for no cost refinancing.  This means that if your lender charges for processing, underwriting, title, escrow and loan origination that you will have to pay for these streamline refinance closing costs unless you qualify for a no cost FHA streamline.

3. Does a FHA streamline require income documentation?

In most cases with a FHA streamline refinance if the borrower is a salaried employee, the underwriter will not ask for income documentation like paystubs or W2’s.  However they will verify with your employer that you are still currently working with the company in the position that you stated on your residential loan application.

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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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Is FHA Eliminating Adjustable Rate Loans?

October 4th, 2010
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Today you can find FHA mortgage rates as low as 3.625% on the 5/1 ARM program.  This is a popular loan because it offers an amazing fixed rate for 5 years.  After the fifth year it becomes an adjustable interest rate unless the borrower refinances or sells their home.  FHA Loan Pros recently reported that the several banks offering government loan products were about to drop the FHA ARM option.  According to Lead Planet economist, Kevin Grant, “There are certainly are rumors in the mortgage circles that HUD will eliminate their FHA ARM products in 2011.”  Grant continues, “As a company that sells mortgage leads to banks and lenders we get a lot of feedback from lending companies and most FHA lenders do not want to get burned when the interest rate converts to a variable rate term, especially since 30-year fixed rate mortgages are published at 4.375%.”.FHA Loan Pros came right out and asked last week, “Why would anyone want an ARM in today’s market?”

A few days ago, Freddie Mac reported that you could get a 30-year fixed-rate mortgage at 4.37%. At the same time, the 5-year Treasury-indexed ARM had a start rate of 3.54% while the 1-year Treasury ARM began at 3.40%.   Yes FHA rates below 4% are appealing but the 15 or 30-year term offers so much more security. Recent published reports indicated that in 2010 ARMs equal just 2.7% of all FHA loan originations. On the flipside, for new homebuyers in high cost regions the difference between the 5/1 ARM and the 30-year fixed rate is several hundred dollars a month.  Besides there are borrowers that are quite sure they will be in their home for less than 5 years, so why not extend them this option.

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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 Streamline Refinancing without Costs

July 22nd, 2010
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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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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.

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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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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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FHA Lenders See Rise for FHA Refinancing and Home Buying

June 23rd, 2010
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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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FHA Loan Volume Risking Reserves

June 17th, 2010
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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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