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FHA Loan Changes on the Horizon

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

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

June 11th, 2010
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The US House passed a bill yesterday that would give HUD the authority to increase the FHA mortgage insurance premiums over a period of time. Keeping the FHA loan premiums low would help increase homeownership and raising the premium would likely decrease new home buyers.  This bill was created in an effort to help the Federal Housing Administration shore up its finances is set for a vote this week in the U.S. House of Representatives.  FHA loan defaults have eroded the reserves for the FHA loan programs, which drives the probable bailout for taxpayers.  The legislation’s goal is to help replenish FHA reserves without harming the agency’s mission of backing low down payment loans for low- and moderate-income borrowers.   The bill would nearly triple the cap on the annual premiums the FHA charges borrowers to 1.50% from 0.55%.  Many government lenders are concerned about the effect high premiums will have on the FHA house financing market.

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

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

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New FHA Loan Requirements for Condo Sales

June 1st, 2010
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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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FHA Credit Guideline Changes for FHA Lending

March 18th, 2010
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FHA credit guidelines have always been more flexible than traditional conventional mortgage loans.  HUD has announced several times that they have revised the FHA guidelines in recent months.  The FHA appraisal policy has been changed a bit and the FHA streamline refinance program has been hacked at as well. 

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

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

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Is FHA Losing Market Share for Home Loans?

March 18th, 2010
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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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Better Credit FHA Loans Performing Well

February 3rd, 2010
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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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FHA Requirements Increasing for Home Buying Down Payments

December 11th, 2009
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Americans have grown accustomed to FHA loans for purchasing and mortgage refinancing.  A recent Bloomberg article highlighted new obstacles for Homebuyers seeking mortgage refinancing to take advantage of FHA loan program.   Borrowers will now have to put down additional funds in some cases as officials look for ways to shore up finances at the Federal Housing Administration.  FHA loan defaults have sky-rocketed over the last few years because of the economy and lack of mortgage loan products.

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

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

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

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

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

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

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

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

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FHA Loan Limits Exteneded for 2010

November 9th, 2009
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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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FHA Head Rejects Calls for Higher Down Payments

October 14th, 2009
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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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Congress Fast Tracking FHA Loan Limits for 2010

September 1st, 2009
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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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GAO Says Reverse FHA Mortgage Loans Leave Seniors at Risk

June 30th, 2009
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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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FHA Loan Originations Down as FHA Mortgage Rates Rise

June 23rd, 2009
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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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FHA Hope for Homeowners Package Adding Cramdown Bill

March 18th, 2009

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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FHA Loan Delinquencies Continue to Rise

March 17th, 2009
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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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Fannie Mae and Freddie Mac Roll Out Loan Modification Program

March 17th, 2009
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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 mortgages and bad credit scores.

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FHA Mortgage – Check the New FHA Rules

March 8th, 2009
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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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