The percentage of borrowers who are delinquent on FHA loans backed by the Federal Housing Administration jumped by more than a third in the past year, signaling a new wave of home foreclosures that could further buffet an agency vital to the housing market’s recovery.  About 9.1% of FHA loan borrowers had missed at least three payments as of December, up from 6.5 % a year ago, the agency’s figures show.

Although the FHA default rate has been climbing for months and eating into the agency’s cash, the latest figures show that the FHA’s woes are getting worse even as the housing market shows signs of improvement. The problems are rooted in FHA home loans made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made. Most insiders would agree FHA guidelines must tighten.

If the trend continues and the FHA’s cash reserves are exhausted, the federal government would automatically use taxpayer money to cover the losses — a first for the agency, which has always used the fees it charges borrowers to pay for its losses.  As these FHA mortgage loans from 2007 and 2008 go bad and clear off of the FHA’s books, agency officials said, losses are expected to taper off, aided by the housing market’s anticipated recovery and an influx of more creditworthy borrowers, who have flocked to the FHA’s home-buying program in the past year.  Agency officials said they have cracked down on poorly performing lenders and announced higher qualifying fees for borrowers. On Monday, the agency projected that the fees should generate $5.8 billion in fiscal 2011, up from $2 billion this year. That would fatten the FHA’s cash cushion, used to cover unexpected losses.

For now, just about every major measure of the agency’s financial health is worsening. The FHA does not make loans but insures lenders against losses. And claims have already spiked. The agency had to pay out on 47% more FHA home loans in October and November than in the corresponding period a year earlier, according to an FHA report.   The number of loans in foreclosure, including those that have not yet been billed to the agency, has also increased. They were up 26% in the last quarter from a year earlier.  FHA Commissioner David H. Stevens, who joined the agency in July, flagged his agency’s troubles with the 2007 and 2008 loans in October, when he told a House panel that “rogue players on the margin” immediately migrated to the world of FHA mortgage lending after the subprime mortgage market collapsed. Their aggressive mortgage lending tactics attracted borrowers with unusually poor credit profiles to the FHA. “That clearly impacted the books of business in 2007 and 2008, and that performance data is showing up very clearly in today’s balance sheet,” Stevens said at the time. Plunging home prices have exacerbated matters by leaving some FHA borrowers unable to sell or refinance their homes because they owe more than their homes are worth. Yet with unemployment running high, many borrowers can’t afford to keep up their payments.

Adding to the trouble was a now-defunct FHA mortgage program that enabled sellers to cover the down payments of buyers. This meant many borrowers had no skin in the game and were more likely to walk away at early signs of trouble. The program resulted in excessive defaults before it was ended in late 2008, and it is projected to cost FHA an additional $10.5 billion in losses, Stevens said. For all these reasons, the FHA projects that it will pay out claims to lenders on one out of every four loans made in 2007 — the worst rate in at least three decades. The claim rate should be nearly the same on the vastly larger volume of loans made in 2008.

The government mortgage rules are changing for FHA refinance and home purchase programs.  The Federal Housing Administration announced tightening of FHA lending requirements to reduce risk and improve its reserves. The new FHA guideline changes include:

• Borrowers must pay an increased upfront mortgage insurance premium (MIP) of 2.25 % of the loan amount (increased by 50 basis points from 1.75 %). FHA has also requested legislative authority to increase the maximum annual MIP so it can reduce upfront costs for prospective home buyers.

• For borrowers with poor credit (credit score of below 580), they must make a minimum down payment of 10 % (up from 3.5 %).

• Seller credits for closing costs are cut by 50 % and cannot exceed 3 % of the purchase price.

• FHA will continue to increase enforcement on FHA-approved lenders, and will publicly report lender performance rankings to improve transparency and accountability.

With the current recessionary economic state, constricting mortgage availability, and general credit crunch, FHA loans have exploded, with projections of hitting $400 Billion in 2010. FHA loans, featuring low down payments, competitive interest rates, and more forgiving credit requirements, have proven the loan of choice for many first time home buyers and those with marginal credit scores.

FHA announced new changes to FHA loan guidelines in an effort to improve its depleted cash reserves.  A few days ago, HUD announced tighter FHA guidelines with multiple changes to FHA underwriting.  A recent article revealed that FHA requirements may actually penalize borrowers with poor credit.  The FHA Mortgage Lending Blog believes that the Federal Housing Administration will expand mortgage refinance guidelines later this year.

FHA will enable borrowers to continue financing the upfront MIP. The agency also will pursue legislative authority to allow flexibility to bring the annual premium, which borrowers pay on a monthly basis, higher. Also, seller concessions will be reduced to 3% from 6%. Frank Black, who managed a Wells Fargo branch in California said, “After reviewing the changes to the FHA requirements, I believe FHA lenders will agree that the new rules make sense and are needed to keep the government financing alive. A few years ago, many brokers and lenders took advantage of FHA underwriting by pushing the envelope with risky home loans.”

Visit the FHA Mortgage Lending Blog and read the original article > FHA Mortgage Guidelines 10% Down for Low FICOs.

Many FHA loan experts are predicting the Fed will begin increasing the rates in 2010.  How will that affect the FHA mortgage rates?  They will rise just like the conventional and second mortgage rates.  FHA guidelines have already seen some changes this year and its no secret the FHA requirements will get more difficult for homebuyers and homeowners looking for refinance loans.

Ending the Federal Reserve’s mortgage-buying program will likely cause mortgage rates to increase by as much as three-quarters of a percentage point, Boston Fed President Eric Rosengren told The Hartford Courant Friday. “Actually, I’ve been surprised that we haven’t seen higher mortgage rates already,” Rosengren told the paper. “You maybe would have thought you would have seen interest rates move up more quickly than they have, but nonetheless, that is a concern.”

The Fed is scheduled to retire its $1.25 trillion mortgage-backed securities purchase program at the end of March. Described by the Courant as an “inflation dove,” Rosengren also commented that the target federal funds rate will remain low in the near term, commensurate with the low threat of inflation about 1.5%.

The Federal Housing Administration was formed in 1934 to ensure American borrowers would experience fair lending for mortgage refinancing and purchase loans regardless of their job type or skin color.  Over the years FHA refinance loans have become a popular option because the FHA mortgage rates are low and the credit guidelines are more forgiving than conventional mortgage lending guidelines.  In the last 3 years, FHA refinancing has actually taken the lead for mortgage market-share nationally.

There are several types of FHA home loans for refinancing:

• Cash out refinancing for raising capital or debt consolidation
• FHA streamline loans for refinancing existing FHA loans
• FHA refinance loans up to 97% Loan to Value
• FHA 203k loans for home rehabilitation.

In these situations homeowners must have some equity in their home to be able to qualify for FHA loan programs. FHA guidelines also stipulate that FHA loans may only be used to borrow against the home of their primary residence. 

FHA home refinancing ensures low fixed mortgage rates and no pre-payment penalties. FHA refinance loans are underwritten differently than traditional conforming mortgage refinance loans.  A person’s income and credit will be viewed more leniently or not at all with an FHA refinance.   FHA loans require mortgage insurance, but less equity is needed to qualify.  FHA streamline refinance does not offer the option of getting cash back and you must presently have a FHA mortgage with no late payments in the last year.  FHA 203K loans provide funds for home rehabilitation and major home improvements.

The FHA home loan guidelines should see significant changes in 2010.  Look for credit score and down-payment requirements to rise.  FHA rates for January 4th, 2009 are down as the conforming thirty-year fixed mortgage rate is right at 5%.  The conforming fifteen year fixed mortgage rate is at 4.45% and the conforming 5/1 ARM is up slightly to 4.14%.  The 10 year treasury rate yield has pulled back slightly today which is a strong indicator that mortgage rates are going to be stable to down.  It will be interesting to see how FHA mortgage rates and the 10 year treasury rate yield move over this first week of January.

Lending guidelines have gotten out of reach for millions of homeowners seeking to refinance.  When a borrower is seeking an FHA or conventional mortgage, the lending guidelines have tighten significantly.  Frank Sullivan, is a homeowner seeking financing for home improvements.  He and his wife also want to refinance out of a 7.125% home loam, but he have been unable to secure a refinance loan.  Sullivan and his wife, Diane, an admin assistant in Carlsbad, California have a $3,350 monthly home loan payment now. They have never been late on a payment since they bought the house in 2003, he says, and they both have credit scores in the high 700s.  So why can’t they qualify for a refinance loan and benefit of the near-record-low mortgage rates that have led to a surge in mortgage refinancing applications?  They’re like many homeowners who are being shut out, local mortgage brokers and bankers say.

The average mortgage rate for thirty-year fixed-rate mortgages fell to an all-time low of 4.71% the first week in December.  The rate was below 4.875% for seven weeks until Thursday, when Freddie Mac said the average rose above 5%. According to the Mortgage Bankers Association, the low refinance rates have spurred a surge in refinance applications, with 3 out of 4 loan applicants looking to refinance.

The volume of refinance loans would be much higher, experts say, if it weren’t for barriers facing many homeowners:

* Property values hurt by home foreclosures and short sales

* Tighter-underwriting guidelines for credit scores, delinquencies and debt to income ratio.

* Income rules that affect the self-employed.

Conventional lenders used to be able to do ’stated-income’ mortgages. But those have been banned by most banks and lending companies. “I get a lot of self-employed individuals that are 50, 60 years old with 780 credit scores, never made a late mortgage payment in their life, have got $500,000 to $1 million in the bank. But nobody’s going to give them a loan because they’re not showing any incomes on their tax returns.”  That’s what’s happening with the Sullivan’s.  “The only reason I can’t do anything is that I’m self-employed,” Sullivan said. “It’s extremely frustrating and irritating. Every month, I sit down to write that check, and I know I could be saving money. I’d be saving about 40 %.”

FHA loan defaults hit record highs this year while FHA rates hit record lows in 2009.  Loan defaults is a major reason why is HUD going to change FHA requirements in 2010.  According to a senior HUD official there are a few FHA guideline changes under consideration:

1. Minimum down payment will rise. Currently, you only need a 3.5% cash down payment to obtain FHA financing. Legislation has been proposed that would increase this to 5 %, which is the minimum down payment amount required on most conventional financing.
2. Minimum credit score for FHA loans will rise. A few years ago, you could get an FHA loan with a credit score of 500.  Today, most FHA lenders require you have a credit score of at least 640. This could rise even higher as FHA seeks to upgrade its borrower profile, eliminating loan opportunities for first-time home buyers with thin credit or lower credit scores.
3. FHA mortgage insurance premiums will rise. Although FHA mortgage insurance premiums rose in 2009, expect them to rise again in 2010, as FHA seeks to replenish its coffers.
4. Seller’s will be able to give buyers less money. Right now, FHA allows sellers to kick in up to 6 % to cover a home-buyers’ closing costs and other lending fees. FHA will likely lower this to 3%.
5. Kicking out abusive lenders. FHA has moved swiftly to end relationships with several lenders, including Taylor, Bean and Whitaker Mortgage Company.
6. Increasing lenders’ minimum reserves. Currently, FHA requires that lenders have only $250,000 in reserves to use to repay FHA in case of mortgage fraud. FHA is considering raising that amount to $2.5 million. That move will likely limit the number of mortgage brokers who are able to do FHA loans.

FHA loan programs have offered opporunities for millions of Americans over the last few years.  2010 will see new FHA requirements for FHA lenders and qualifying for FHA loans could become more difficult for cash strapped borrowers.

FHA announced new FHA guidelines coming 2010:

– HUD will increase “up front” cash required on a FHA home loans.

– HUD will increase compliance and hold FHA lenders accountable for losses associated with loans that do not meet FHA standards. As of December 8th the FHA this year has suspended eight lenders and withdrawn approvals for 270 others.

– HUD cut allowable seller concessions to 3% from 6% in a move to limit incentives to inflate appraised values. The move reduces the money the seller can contribute to a buyer’s closing costs, discount points and other concessions without impacting the buyer’s mortgage.

– HUD is raising the minimum credit score for new loan applicants. The FHA has yet to determine the minimum “FICO” and may factor in the down payment.

– The FHA will develop a “lender scorecard” on HUD’s website that summarizes performance of FHA lenders that make FHA loan offers.

– FHA proposes to increase the required lender net worth to ensure accountability. HUD is proposing an initial increase in the net worth requirement, from $250,000 to $1 million in the first year, and at least $2.5 million after three years.

– A proposed rule would hold approved FHA Lenders responsible for loans originated by mortgage brokers. Brokers will no longer receive independent FHA approval for origination eligibility.

– The FHA is requiring that FHA lenders submit annual financial statements.

– It is bringing streamline refinance loans into line with other FHA origination guidelines. Changes include requirements for payment history, income verification and capping the 125 % loans for LTV.

– The FHA will reduce the period for which an appraisal is valid to four months from six to 12 months.

Industry insiders continue to wisper about FHA loan guidelines that may be tightening up.  According to Trust One mortgage banker, Al Pereida, “For all intensive purpose, the FHA home loan is a great option for first time homebuyers who are unable to come up with a 20% down-payment.” Keeping the FHA loan programs alive may be crucial for the housing recovery.”  Pereida continued, “If FHA disappears, mortgage professionals do not have a plan-B ready to replace the lending niche.”  Most FHA lenders doubt that raising credit scores or minimum home loan down-payments will help FHA’s bottom line in the short term, but is not opposed in principal to raising minimum down-payment requirements. 

FHA mortgage rates have stayed below 5% for the last 6 months and millions of homeowners still need a FHA refinance to reduce their loan payment to meet their budgets.  Lenders and brokers continue to worry that the HUD may be tightening FHA guidelines right about the same time as the Fed shuts down their program that has kept mortgage rates low by purchasing $1.25 trillion in mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. The Federal Reserve has said it will wind the program down at the end of March, which could send interest rates up and put downward pressure on prices.  Most of the changes Donovan outlined can be made with no additional authority from Congress, and Donovan said HUD expects to provide more details and public guidance on the changes by the end of January.  If HUD issues revised FHA guidelines to lenders in January, they aren’t likely to take effect for 60 days, meaning homebuyers have several months before the latest changes kick in. In September, FHA announced new guidelines for ordering appraisals and streamline refinance loans, which take effect January 1^st.

In releasing the results of an actuarial study last month that found FHA’s capital reserve ratio has fallen below a 2% minimum established by Congress, an FHA spokesman said that seller-funded assistance loans were the most substantial pool of troubled loans on FHA’s books, with claim rates 2.5 to three times higher than other mortgage loans.  HUD has estimated that seller-funded down-payment assistance was used on more than 35% of all home purchase loans insured by FHA in fiscal year 2007, compared with less than 2 % seven years earlier.

FHA may not be “the next subprime mortgage product,” according to remarks prepared for presentation to congress this morning by HUD. Secretary Shaun Donovan said that FHA loan reserves will remain positive “under all but highly severe economic scenarios.”  He said that HUD had learned from recent history, “that the market is fragile, and we have to plan for the unexpected.  Donovan informed members of the House Committee on Financial Services that FHA, in spite of actuarial reports that its secondary reserve level has fallen below the required 2% to 0.53% of its total insurance-in-force, is capable of withstanding the current economic downturn.  That economic uncertainty is complicated by an organization we inherited that, to be honest, was simply not properly managing or monitoring its risk.  Credit and risk controls were antiquated.  Enforcement was weak.  And our personnel resources and IT systems were inadequate.  “Little of this may have been obvious when FHA’s market share was 3% as recently as 2006.  But when our mortgage loan markets collapsed last fall, and homebuyers increasingly turned to the FHA for help, the potential consequences of these lapses in risk management became very clear.  His department, he said, is in the process of drafting new policies to address the quality of FHA’s current loan portfolio, improve the performance of future FHA mortgage loans, and restore the capital reserve above its mandated levels. 

The government loan agency is looking at several measures to improve the quality of its portfolio going forward.  It plans to reduce the maximum permissible seller concession from 6% to 3% because the current level exposes the FHA to excessive risk by creating incentives to inflate appraised values.  The change, he said, will bring FHA into line with industry norms and even further reductions may be considered.   The minimum borrower FICO score will be raised although the final number has not yet been determined.  The agency is studying whether new FICO minimums should be accompanied by changes in other underwriting criteria for lower down payment loans.  The up-front cash that a borrower will be required to bring to the table for an FHA loan will also be increased to make sure that borrowers have “skin in the game.”  The exact way this will be accomplished is still under study.

These proposed changes, Donovan said, only require administrative decisions on the part of HUD, however, Congress will be asked to pass legislation to increase premiums.  The current up-front premium of 1.75% is below the statutory cap of 3% but the annual premium is at the maximum.  Raising premiums, he said, is the most effective means of raising capital for the reserve fund with the least impact per borrower.  Donovan said that more than 7% of the future losses the FHA is anticipating will come from loans already on its books, so, as Mortgage News Daily reported on Monday, the agency is taking steps to enforce lender accountability.  Donovan said that, in addition to holding FHA lenders responsible for their origination quality and compliance and increasing reviews of that compliance, lenders will be required to indemnify the FHA for losses resulting from their failures to meet FHA loan requirements and will be sanctioned nationally for any improper activities rather than through the FHA’s current policy of sanctioning individual branches.  The secretary reported that the anticipated changes are merely the latest in a series of improvements FHA has made to shore up its lending activities. 

In 2008, Congress put an end to the practices that led to the most troubled mortgage loans in FHA’s portfolio – so-called “seller-financed down-payment assistance” loans. Without these FHA home loans, Donovan said, the actuary reported that secondary reserves would have remained above the two percent threshold. “This year, we’ve taken several additional steps. We’ve steeply increased enforcement efforts, having suspended seven lenders, including Taylor, Bean and Whitaker and withdrawn FHA-approval for 270 others, including Lend America just this week.”

Credit and risk controls have been tightened. Requirements for the Streamlined Refinance program have been toughened with several improvements to the appraisal process and proposing a rule to increase net worth requirements for all FHA lenders. The latter has just entered the notice and comment period.  The agency has hired a permanent Chief Risk Officer to provide a comprehensive and thorough risk assessment and ensure that the assumptions going into the agency’s modeling reflect the most current economic conditions.

FHA is working to increase staffing and technical capacity and upgrade our technology systems and delivered FHA’s first comprehensive technology transformation plan to Congress in September.  The Secretary detailed the active role that FHA is taking in the current housing market, insuring almost 30% of purchases and 20% of refinance loans in the housing market, and financing the majority of minority home purchases.  But, he said, “as important as the FHA is at this moment, I want to emphasize that the elevated role it is playing is temporary – a bridge to economic recovery helping to ensure that mortgage finance remains available until private capital returns.”  Article was written by Jann Swanson  .

The FHA (Federal Housing Administration) a division of HUD (U.S. Department of Housing & Urban Development) has loan programs that help Americans own homes. They also have a new FHA loan program that has been created as a home repair and rehabilitation loan. It’s actually a mortgage to purchase a property that is for more than the property is currently worth leaving funds to fix up the purchase. The home rehabilitation loans for home rehabilitation help a community by helping the homeowners maintain the properties they buy which can revitalize an older area.

FHA 203k loans for home rehabilitation can work in a few ways for an existing property consisting of one to four units. The property can be purchased (dwelling & land) and the FHA 203k loan can be used to repair and/or rehabilitate the purchased property. Another way in which the loan can be used is for a dwelling to be purchased and then moved to a new foundation on mortgaged property where the 203k loan will help rehabilitate the property on its new location. The 203k FHA loan can also be used to refinance mortgages while providing cash out to repair a dwelling. In all cases it gives people an outlet to be able to buy “fixer-upper’s.”

This type of loan is not a new concept; however, most people did not have any use for them and used home equity loans instead. When home prices were rising many home owners had enough equity in their homes to obtain an equity loan for home repairs. In the last couple of years as home prices decreased home equity loans have not been an option. For homeowners that want to fix up their home but cannot due to not having the extra money and not being able to fit the guidelines of a home equity loan anymore, the FHA 203k has become the answer. In our time of an economic crisis these 203k FHA loans for home rehabilitation work great for buying a foreclosure and being able to fix it up.

The amount of money that a FHA 203k loan user obtains depends on the repairs that are being done. The total of the loan will be based on the value of the property after the repairs and rehabilitation work has been completed. The amount allowed will come from an appraiser and/or home inspector and cannot exceed $35,000 for the repairs portion. The seller benefits from the government refinancing loan for home rehabilitation because they do not have to spend money for home repairs and the buyer benefits by getting a good buy on a property and then immediately having the money to fix it up.