FHA Loan Guide

Over the last few years, FHA loan policies have been different for condominiums.  Recent changes in the way the Federal Housing Administration approves home loans for condominiums have left many would-be homeowners out in the cold, at least temporarily. That’s because the FHA will no longer approve a mortgage for a unit in a community that does not comply with new, stringent standards that went into effect on February 1st. In order to be certified as a compliant community, the condo association must apply to the FHA become certified as meeting all the standards. An FHA mortgage lender can also apply on the condominium community’s behalf to get this certification.  The FHA doesn’t make loans itself, but it does ensure home loans made to people with small down payments or less than perfect credit. This is why among first-time buyers, FHA mortgage loans are often the only option for buying a home.

Lemar Wooley, an FHA spokesman, said the new regulations were put into place because Congress changed the law, allowing FHA guidelines to make approvals of loans to condominium buyers more similar to single-family home-loan approvals. “The “Housing and Economic Recovery Act of 2008′ (HERA), moved the condominium authority from Section 234 to Section 203 to allow for more flexible condominium policy guidance,” Wooley said. “”Because of this change in law, the Federal Housing Administration (FHA) is implementing a new approval process for condominium projects and insurance requirements for mortgages on individual units, as authorized under Section 203(b) of the National Housing Act.”Wooley explained that Section 234 was a special section dealing specifically with condominiums. Section 203 provides general guidance for single-family homes.

Announced in November, the new regulations fall into three broad categories, according to Orest Tomaselli, the president of National Condo Advisors, a consulting company that works with condominium associations to help them meet the regulations.  First, he said, the community must demonstrate it has a budget reserve that is equal to 10 % of its annual budget. The reserve exists for repairs and maintenance of the common property and plant – the sidewalks, roofing, siding, windows, swimming pool, tennis courts, clubhouse or other facilities. If a community does not have or want such a large reserve, Tomaselli said it can hire an engineer to study the community’s needs and recommend a lower amount. If the FHA accepts the engineer’s study, a lower reserve amount can be set for that community

Second, the condominium community must meet new flood-plain requirements set forth by the Federal Emergency Management Agency. If the community is not in a flood plain, this is not an issue. However, when FEMA redrew its flood maps recently, it expanded the areas it believes will flood. Within those areas, buildings can still comply if the community has flood insurance and the highest living space is 10 feet or more above the flood plain. Or, the community can hire an engineer to file a “Letter of Loan Amendment,’ which, in effect, demonstrates that the FEMA guidance needs adjusting in their case. If FHA accepts this amendment, the community can be certified.

Third, the community must meet certain ownership requirements. At least half of all the units in the community must be owner-occupied, and no one investor can own more than 10 % of all the units. In the case of a community that is still being built, a certain %age of units must be presold.  Tomaselli said that the requirements aren’t really bad. Having sufficient capital reserves to meet maintenance needs is wise. Having most of the units occupied by the owners also ensures that the community will be well looked after. And flooding in some areas has been more frequent in recent years. But that doesn’t change the fact that these regulations have hit hardest those with the least ability to pay for engineering studies or increased budget reserves.

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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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FHA offers first time home buyers a low down-payment mortgage that only require a 3.5% down payment.  According to 2010 FHA guidelines, borrowers can finance a home up to 97.5% loan to value.  I/f you want to buy a home without coming out of pocket for lender fees, FHA guidelines allow lender paid closing costs.  FHA lenders can pay for borrower closing costs but the FHA rates will be slightly higher as the closing costs are factored in.  In addition, FHA also allows gift money for FHA home loan transactions. This means that borrowers can utilize money from friends or family as the source of the down-payment.  Read the original article, FHA Ensures Affordable Financing for First Time Home Buyers on the FHA Home Loan Blog.

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In an effort to minimize lending risks, the government wants to toughen standards for lenders who offer FHA home loans. At first this may not seem like much of a concern for borrowers, but in fact if you need a loan you may well be impacted.  In a recent article, FHA Commission David H. Stevens explained how the federal government is moving towards requiring more capital to be a FHA-approved lender. “Since 1993,” says Stevens, the “FHA has required approved lenders to have a net worth of at least $250,000. To ensure that FHA mortgage lenders are sufficiently capitalized to meet potential need, effective immediately, all new lender applicants for FHA loan programs must now possess a minimum net worth of $1 million.” There will be an exception for current FHA-approved small business lenders, they’ll need a minimum net worth of $500,000.

This means that FHA lenders will pay a price if they don’t make FHA loans that don’t perform well.  It also means that FHA brokers will pay a high price for making mistakes on the loan documents. Under the new FHA guidelines, HUD can force lenders to buy back government mortgages which are not properly underwritten. If you are a small lender and the FHA wants you to buy back a few loans at $250,000, you might be out of business.

FHA Lenders in such situations face some difficult choices. If they don’t buy back the loans they’re out of the FHA loan program and that greatly limits their ability to compete for borrowers. Alternatively, smaller firms with that $250,000 in capital may not have the cash to buy back the mortgages, meaning they’re out of business.  HUD is forcing lenders to take on more risk if they are serious about originating FHA loans. Stevens says “approved lenders and applicants to FHA single-family programs must have a net worth of $1 million plus 1% of total loan volume in excess of $25 million.”  These FHA loan requirements signal that the FHA is intent on decreasing the loan default ratios and that they plan to be around for the next decade.  Read the original FHA article >

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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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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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You would think that the housing sector rebounding would be good news for FHA loan programs, but think again. Yesterday HUD reported that the FHA reserve fund is dangerously low and today Zillow is reported that home prices seem to be stabilizing. “The percent of American single-family homes with home mortgages in negative equity fell to 21% in the third quarter, down from 23% in the second, as home values stabilized in the short term and more underwater homeowners lost their homes to foreclosure, according to the third quarter Zillow Real Estate Market Reports.  “Year-over-year home values in the United States declined for the 11th consecutive quarter, falling 6.9 percent to a Zillow Home Value Index of $190,400,” says the company. “However, the rate of year-over-year decline shrank for the third quarter in a row, meaning home values did not decline as dramatically year-over-year in the third quarter as they did in the second or the first.”

In addition to Zillow, the S&P/Case-Shiller report reaches the same conclusion:  Data through August 2009, says S&P/Case-Shiller, shows that “approximately seven months of improved readings in these statistics, beginning in early 2009.”  “While many of the markets remain down versus this time last year, the relative rate of decline has shown some real improvement,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “California, in particular, has seen some real positive prints in recent months. We see this general trend whether you look at the as-reported data or the seasonally adjusted figures.”

For FHA mortgage products and FHA lenders the ideal scenario would be for FHA loan defaults to decrease. FHA loan guidelines will tighten significantly if the FHA loan defaults continue.  For the FHA, more equity translates into lower claims against its reserves. Foreclosure is not actually a problem for insurance programs if the value of the home is greater than the outstanding mortgage lien and the default costs. Thus, for the FHA, the more equity the better.  Read the original article.

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The existing mortgage loan limits for FHA loans have been extended through the end of 2010. This move is expected to help ailing US housing markets by extending the availability of FHA home loans to homebuyers and homeowners in higher priced markets. FHA home loan limits are based on 125% of local median home value, and vary by location. With the crash of subprime mortgage lending, FHA plays a significant role in providing home loans for borrowers who cannot meet conventional mortgage lending requirements. Challenges can include:

          Bad credit: FHA guidelines allow borrowers to carry more debt than conventional lenders, and also qualify borrowers with bankruptcy filings a minimum of two years prior to applying for an FHA loan and foreclosure occurring a minimum of three years prior to applying. FHA does not require a minimum credit scores, but instead focuses on borrowers’ demonstrated ability to make mortgage payments.

          Low down payment: FHA loans require as little as 3.5 percent down for home purchases, and down payment funds can be provided by family members, employers and housing assistance programs. The source of down payment funds is subject to verification, but FHA loan requirements are “friendly” toward first time buyers and others with low cash reserves. FHA guidelines allow for closing costs and the up-front mortgage insurance premium to be added to the home loan amount; borrowers may also elect to pay higher mortgage rates and have their lenders pay closing costs.

          FHA 203k Loans – These Rehabilitation mortgages available to qualified borrowers: FHA can provide mortgage loans based on a home’s potential value after it has been refurbished; this provides up front funding for renovation expenses. Ask FHA lenders for details and review the updated FHA guidelines for this program.

When getting quotes for home loans, consider the APR and closing costs, in addition to FHA mortgage rates. This can help you find savings on closing costs. The APR includes the mortgage rate and closing costs, so if you have two quotes offering the same mortgage rate, the lower APR indicates lower closing costs.

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The head of the Federal Housing Administration warned that raising down payment requirements or taking similar steps to limit the pool of bad credit home loans that lead to increased loan defaults and foreclosures.

Rep. Scott Garrett (R., N.J.) introduced a measure in Congress earlier this month that would require minimum down payments of 5%, up from 3.5%, on loans backed by the FHA. But Mr. Stevens warned against “jumping to conclusions” and making credit standards tighter just as some signs show that housing is beginning to stabilize in certain housing markets. “When I see members of Congress move a bill out that says raise it to 5%…I get very concerned,” he said. “It isn’t the down payment on its own that causes a default.”  Mr. Stevens’ strong defense of the FHA’s current role in the marketplace drew applause from the otherwise muted audience of mortgage bankers, brokers and other industry personnel during the trade association’s annual meeting.

The FHA has seen its market share balloon since the subprime mortgage market collapsed more than two years ago and led most private investors to exit the mortgage market. The New Deal-era agency’s standards were seen as too strict during the heyday of subprime lending because it required borrowers to document their incomes and pay minimum down payments, but today it remains one of the last sources of low down-payment loans.  FHA home loans continue to gain market-share in the absence of alternative home financing programs. 

Concerns over the agency’s risk to taxpayers has grown in recent months after the FHA said that its estimated capital reserves would drop below federally mandated levels in recent weeks. Mr. Stevens says that there’s no immediate risk of a taxpayer bailout, but critics suggest that a prolonged slump in housing prices could require the agency to ask Congress for money for the first time in its 75-year history.

Mortgage-industry executives also exhorted industry colleagues not to back off of efforts to modify loans given early “glimmers of hope” that housing is reaching a bottom. “It is an awesome task that is in front of us,” said Charles “Ed” Haldeman Jr., the chief executive of Freddie Mac. He warned that there could be “increasing softness” in housing in the coming months. “It would be a real mistake to be too confident about a return to normalcy,” he said

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FHA loan programs continue to soar in popularity. HUD reported that the FHA loans during the first part of August were receiving about 10,000 applications per day.  According to HUD officials, “The Federal Housing Administration was hit by increasing mortgage losses, is in jeopardy of seeing its reserves fall below the level demanded by Congress, in a development that could raise concerns about whether the agency needs a taxpayer bailout.”  Read the original article, FHA Home Loan Programs Driving Mortgage Economy online.

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According to FHA Loan Pros, the American Recovery and Reinvestment Act without the legislation would be reverted FHA loan limits back to $417,000. That would have eliminated millions of FHA borrowers, but fortunately Congress was able to include the higher FHA loan limits into their 2010 budget. FHA lending would have been scarce in many of the high-income, high-cost metro areas.  Certainly prohibiting a portion of the country to utilize FHA home financing is the last thing a struggling residential real estate market needs for recovery.

If this Congressional budget is approved, the single-family loan limit will remain $729,750 for high-cost areas in the lower 48 states and as much as $1,094,625 in Alaska, Hawaii, Guam and the Virgin Islands.

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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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Mortgage industry groups lowered their forecast for 2009 home loan originations by more than 25% as higher FHA mortgage rates stifle mortgage refinancing activity.  MBA estimated that FHA lenders will make $2.03 trillion in new home loans this year, down by more than $700 billion from its forecast in March.  The Washington-based group attributed $84 billion to reduce mortgage lending on home purchases.  The rest of the decline would be from fewer FHA refinance loans and “very low” volumes on an affordability loan program overseen by mortgage agencies FHA, Fannie Mae and Freddie Mac, MBA said in a statement.

FHA mortgage rates have risen from record lows since the MBA’s prior forecast as have Treasury yields, which spiked amid a flood of debt issuance needed to fund federal rescue programs.  Read the original article online > FHA Mortgage Rates Rise

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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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According to the Mortgage Bankers Association’s quarterly delinquency report, 2008 saw the percentage of FHA loans 90-plus days past due reach 4.11 %, its highest ever level. The Department of Housing and Urban Development’s (HUD) figures are even higher. The seasonally adjusted percentage of FHA home loans that are 90 days or more delinquent rose more than anticipated.

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Until recently, FHA has allowed cash out refinancing for homeowners up 95% loan to value if the borrowers have made their mortgage payments on time for at the prior least twelve months.  The seasonally adjusted percentage of FHA home mortgages that are 90 days or more delinquent increased to 4.11%.  The Washington Post recently that these instant defaults nearly tripled in the past year alone and more than quadrupled among FHA home refinancing.

FHA refinance loans now make up two-fifths of all the agency’s instant defaults, according to the Washington Post article, some lenders have singled out cash out refinance loans as especially risky. With conventional loans, many FHA lenders now offer cash out mortgage only to borrowers with high credit scores and significant equity in their homes.  Read the complete FHA article > FHA Rumored to Tighten Cash Out Refinancing Guidelines

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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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The Federal Housing Administration used to be known as a place for low-income borrowers with tarnished credit histories. But now, it has become a destination for borrowers whose credentials are respectable, but not stellar.

Is It Better to Buy or Rent? To qualify for the best FHA mortgage rates on a new or refinanced mortgage, you need to have a top-notch credit score and a substantial down payment or home equity. But if you have less than perfect credit and less than 20% in home equity, an important threshold, you’ll have to pay a lot more. And that’s why many of those borrowers are avoiding conventional loans turning to the FHA.

FHA requires down payments of only 3.5% and has less stringent credit requirements than conventional mortgages backed by Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies. FHA mortgage loans also have become one of the least expensive alternatives for new mortgages and refinancing, given the increase in fees tacked onto traditional loans.

“Just about anyone that is putting down less than 20% needs to consider FHA home financing,” said Joe Rogers, executive vice president of Wells Fargo Home Mortgage. “That doesn’t mean they need to take it, but they should consider it.”

The FHA, which was created during the Great Depression, does not make loans, but insures mortgages that meet its guidelines. Because the FHA. is the only viable option for a lot of people, its loans now account for a much larger percentage of all mortgages. In 2005 and 2006, at the height of the housing boom, only 1.8 % of all mortgages were FHA-backed, according to Inside Mortgage Finance. Last year, that number ballooned to 17.1 %. The FHA now insures 4.8 million single-family mortgages worth about $550 billion. Historically, FHA home loans carried a certain stigma. They were viewed as hard-to-obtain loans for low-income consumers with checkered credit histories and small down payments. They also tended to be more expensive.

But in the current market, the opposite is often true. Qualifying for a regular mortgage has become more expensive, sometimes prohibitively so, given the many fees that are now layered onto conventional loans backed by Fannie Mae and Freddie Mac.  The FHA loan fees are generally levied on borrowers deemed to be more risky. The charges depend on your credit score and the amount of money you’re borrowing relative to the value of your home. But they tend to hit people with credit scores under 700 and less than 20% in home equity. Carrying a home equity loan may result in extra fees, as will taking cash out of your home when you refinance.

The additional charges aren’t the only hurdle consumers may face. Borrowers with less than 20% in home equity must also purchase private mortgage insurance. The insurance has become much more difficult to qualify for and more expensive, especially in areas where home values have declined the most.

FHA borrowers will not avoid mortgage insurance, but they will escape the extra fees, lenders and mortgage brokers said. And that’s why, for many families, the FHA program has become the most economical option.  If you’re having trouble securing a new mortgage or refinancing an existing mortgage, here is what you need to know about the FHA loan program:

Generally speaking, your payments, including taxes and insurance, should not exceed 31% of gross income. When you include car payments, student loans and other obligations, your total debt shouldn’t exceed more than 43% of gross income. But these thresholds are only guidelines. So if you have a larger than required down payment, or a good amount of money in the bank, you may be able to bend these rules. The FHA does not impose any income limits or credit score minimums, but people with credit scores below 500 must have at least 10% of equity in their home to be eligible. (The average FHA borrower has a score of 640.)

But to keep default rates down, many FHA-approved lenders have recently started to impose their own credit score minimums — above and beyond the F.H.A’s. guidelines — and are requiring more stringent income documentation. Clearly, they’re trying to protect themselves: if a particular lender’s default rates exceed neighboring lenders, they can be audited and even removed from the program.“In the last month and a half, there has been a dramatic increase in the minimum credit score required,” said Michael Moskowitz, president of Equity Now, a New York mortgage lender that makes FHA loans. “Some went to 580 and others went to 620.”

Whether an FHA loan will cost less depends on your personal situation. Currently, however, borrowers with credit scores less than 700 with less than 20 % in home equity often come out ahead with FHA loans. At the very least, lenders and brokers say it pays to compare the costs of an FHA-insured loan versus a conventional mortgage if you fit into this category.  In most cases, the total costs of FHA loans including the interest rate and mortgage insurance become less than a traditional mortgage’s costs as your credit.

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When it was passed last year as part of the FHA reform package, the Hope for Homeowners program was a federal mortgage refinancing plan designed to help some 400,000 people who now have toxic loans. In fact, the program has been a complete bust. As of January 31st, HUD figures show that there have been 465 Hope for Homeowners applications — and not one approval from the government.  Hope for Homeowners has gone nowhere because it’s complex. It requires FHA mortgage lenders to take a loss and borrowers to share profits and make big payments to Uncle Sam. While the intention is good, the program is just too complex to succeed.

Now we find an effort to revamp the Hope for Homeowners program and the betting here is that few FHA loans will result.

Under H.R. 1106: The Helping Families Save Their Homes Act of 2009, the program will become MORE restrictive if the legislation passes as it is now written. Huh? How can that help anyone?

Once again, the intention is good but the result is doomed to failure. For instance, the legislation requires that a borrower does not “intentionally defaulted on the existing FHA mortgage loans.”   Translation: If you’re stuck in an over-priced house you can’t buy a replacement home and then default on house #1. This seems logical, except that when someone applies to buy that second home they have not yet defaulted on the first house. If default comes at all, it will come later. Read more of the  article >  Is the FHA Planning to Penalize Borrowers?

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