FHA Loan Guide

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

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

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

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

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

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Tax liens may remain unpaid provided the mortgage company subordinates the tax lien to the FHA insured home loan. If any regular payments are made, they must be included in the qualifying ratios.  Since the IRS routinely takes a second mortgage position without the necessity of independent documentation, eligibility for FHA mortgage insurance will not be jeopardized by outstanding IRS tax liens remaining on the property unless the FHA mortgage lender has information that the IRS has demanded a 1st mortgage position.  Read the complete article >Tax Lien Issues with FHA Mortgage Loans.

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To get a mortgage now, you’ll have to make a down payment and document that you have the income and reserves to make your mortgage payment, run your household and still handle unexpected expenses.  Subprime mortgage loans that were offered to borrowers with questionable qualifications during the housing boom have dried up because lenders — and the investment firms that bought the mortgages — can no longer count on appreciating home prices to bail out bad loans. Now FHA mortgage lenders and brokers must play by the rules of Freddie Mac and Fannie Mae, which guaranteemortgages that meet their criteria so that home financing investors will want to buy them in the secondary market.

Mortgage Lending Guidelines Tighten! 

FHA mortgage loans are backed by the Federal Housing Administration have also regained favor as an option, not just for credit-challenged borrowers for good credit borrowers looking for low down payments.  The FHA loan programs gave Kyle and Tracy Spear of Swampscott, Massachusetts, north of Boston, an opportunity to buy a larger home with less of a down-payment. Last summer, the couple had planned to subdivide their property in Boston and sell the home plus a separate lot. But the city and their neighborhood nixed the subdivision, and they ended up netting just $15,000 on the sale. For two months, Kyle, 38, Tracy, 37, and their three boys — Kyle, 4; Tyler, 2; and Jack, 11 months — lived with friends and family to save money until they found their next home, a 2,800-square-foot house with four bedrooms that cost $540,000. They qualified for a thirty-year jumbo mortgage loans with a fixed rate of 6.875% backed by the FHA. And because the FHA required a down payment of only 3%, they had to put down just $16,000.

Prove it. The days of “Take my word for it” are over, and stated-income loans, are very difficult to find. Lenders will ask you for at least two months of financial account statements, two years of tax returns and even verification from employers that overtime, commission or bonus income will continue.

FHA mortgage lenders are also scrutinizing more carefully the ratio of your debt to income. Beginning February 1, 2009, Freddie Mac is imposing a limit of 45% of all pretax income for all debt; borrowers with a credit score of 740 or better will get the best rates. The FHA refinance guidelines are even tighter: Mortgage debt may not exceed 31% of your income, and total debt can’t top 43%. The FHA doesn’t impose a credit-score threshold.

Home loans with no down payment, or those that combine first and second mortgages, such as the 80-20, are also gone. Home mortgages backed by Fannie and Freddie require a minimum down payment of 3% to 5%. The bigger your down payment and the better your credit score, the better your interest rate. If you put less than 20% down, you’ll pay private mortgage insurance, or PMI.  But here is something to consider; If home prices have been falling in your area, you may not be able to get PMI, and if you can, you’ll have to ante up 10% to 15% for a down payment.

Congress has authorized the FHA, which relies on its own program of mortgage insurance, to take up the slack in declining markets, says Meg Burns, director of the FHA’s Office of Single-Family Program Development. The FHA can insure loans up to the same amount as Fannie and Freddie. Beginning January 1, the limit is 115% of a metro area’s median home price, up to $625,500, and the minimum down payment is 3.5%, up from 3% in 2008. FHA mortgage loans have become reasonabbly affordable.

According to HSH Associates, at the beginning of November the national average rate on a 30-year fixed-rate loan was 6.4%. FHA home loans had a 6.7% mortgage rate; the expanded jumbo interest rate was 6.8%, and the traditional jumbo mortgage rate was 7.9%. Adjustable interest rate FHA home loans didn’t offer much of an advantage: The interest rate on a 5/1 ARM was 6.4%, and on a one-year ARM it was 5.8%.  Read the complete article >.  

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Clearly the Federal Reserve believes that lower interest rates can help revive the sluggish housing markets.  FHA home loan rates have dropped again to ridiculously low levels and home refinancing has become attractive again.  With the Fed slashing interest rates and the US government claiming to jump-start the housing with buy-downs that could lower 30-year fixed rate FHA mortgage loans to 4.5%.   Visit FHA Loan Blog for the latest take on mortgage news.

Mortgage Rates Drop to Lowest Level Ever Recorded by Freddie Mac!  Watch this FHA Video >

While mortgage delinquency is expected to nearly double by next year, the bottom of the delinquency cycle may occur by mid-2010.  Borrowers who were delinquent at least 60 days on their mortgages accounted for 3.96 % of all mortgages during the third quarter, Trans Union reported today.  Home loan delinquency rose from 3.53 % in the second quarter and has soared from around 2.57 % a year earlier. 

For subprime mortgages, fixed rate foreclosure starts raised 16 basis points to 2.23% and subprime ARM foreclosure starts dropping 16 basis points to 6.47%. FHA loan foreclosure starts were unchanged at 0.95% and VA foreclosure starts increased two basis points to 0.59%, all on a non-seasonally adjusted basis.” 

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