HUD recently released revised guidance for FHA mortgage lenders and underwriters for establishing and evaluating nontraditional credit histories and also describes FHA’s acceptance of those enterprises that can develop a verifiable credit history, no less than 12 months in duration, for borrowers with limited traditional credit. This FHA loan guide is effective immediately but must be considered for borrowers without traditional credit beginning with case numbers assigned 30 or more days after the date of this mortgage letter.

FHA announced last month additional underwriting and collateral assessment practices for mortgage loan amounts that will exceed the January 1, 2008 conforming home loan limit of $417,000, FHA is establishing a 2nd appraisal requirement for loans on properties in declining areas, and limiting the loan-to-value for cash out FHA refinancing. These requirements are effective for all mortgage loans with FHA case number assignments made on or after the date of this mortgagee letter.

The maximum on an FHA insured loan for 2008 is presently $729,750.  In the FHA guidelines for the new loan limits would exceed the conforming limits of $417,000 and become what mortgage executives call jumbo mortgage loans.  Higher FHA loan limits are set by the federal government as part of an economic stimulus package early this year, were supposed to make jumbo loans more affordable in expensive housing markets. FHA mortgage rates finally have come down on these so-called “jumbo conforming” mortgages, though these home loans may be difficult for many borrowers to qualify for.

Jumbo-conforming loans range in size from $417,000 to nearly $730,000 and are especially important in expensive housing markets. FHA continues to help homeowners who recently lost the equity in their home because of declining real estate values in the region.  The FHA home loan limits varies based on the cost of housing in the nearest metro area and can vary from $271,050 in average cost neighborhoods and rise up to $729,750 in  the more costly areas of towns. Homeowners that are considering a home refinance with a jumbo sized mortgage but do not have the 20 percent equity that most conforming lenders requires should  consider the FHA jumbo mortgage, which enables borrowers to refinance up to 97% on a rate and term mortgage.

One in every 519 homes was in some stage of foreclosure last month, the most since the real estate marketing firm Realty Trac began marketing such data in 2005. The 243,300 filings represent a 65 % increase year over year, and a 4% increase since March.”Although only about 2% of households nationally are in foreclosure, these properties contribute to already bloated inventories of  homes for sale, and put downward pressure on home values,” said James J. Saccacio, chief executive officer of  Realty Trac. “Areas of California, Florida, Nevada and Arizona continue to be particularly hard-hit. 

“Property tax bases are eroding, putting municipal budgets in peril. For example, the city council in Vallejo, California – part of a metropolitan area with a foreclosure rate that ranked sixth highest in the nation in April – last week voted to have the city file for bankruptcy,” Saccacio said.  The White House earlier this week threatened to veto a measure that would spend $300 billion to help distressed homeowners secure a better mortgage loan and be in a better position to prevent a foreclosure. The House passed the measure last week while a similar bill is making its way through the Senate.

Home mortgage applications dropped last week as purchases and refinance loan volume slowed and mortgage interest rates likely rose slightly, according to a weekly report published Wednesday morning by the Mortgage Bankers Association. The MBA’s market composite index lowered to 621.6 for the week ended May 16, a drop of 7.8% from one week earlier.

The home loan application index is calibrated to March 16, 1990; a reading of 621.6 means that application activity was roughly 6.2 times greater than when the index was first established.  Refinancing activity, usually the driver of overall application volume, fell 8.7% as mortgage rates appeared to have inched higher; the MBA said that average rates on a 30-year fixed rate mortgages rose 8 basis points during last week. Purchase application activity — usually used by economists to predict the direction of the housing market — feel 6.9%.

Surprisingly, FHA loan application activity took a sharp dip as well, falling 6.8%; the drop was one of the few weekly decreases posted for FHA applications so far this year.  The share of variable-rate mortgages as a portion of overall application activity continued to rise as well, hitting its first double-digit total this year at 10.0%, the MBA said.  For more information, visit  http://www.mortgagebankers.org

Today, the expansion of government assistance to help at-risk homeowners. According to CNN Money, the Senate Banking Committee voted 19-2 to pass a bill to limit foreclosures, create affordable housing and revamp oversight of Fannie Mae and Freddie Mac. “Many thought we couldn’t do this, that it would be a partisan exercise. I hope we’ve avoided that; I believe we have,” said Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut.

The pressure has been building in Washington to respond to the huge increases in foreclosure filings. Dodd said he hopes to get the bill approved by the full Senate soon and to President Bush for enactment by early July.  This home loan legislation is the result of weeks of heated negotiations between Dodd and the committee’s top Republican, Ranking Member Richard Shelby, R-Ala.

A key measure in the mortgage aid bill would allow the Federal Housing Administration to insure $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers’ homes. “The passage of this bipartisan legislation marks tremendous progress in my ongoing effort to help stabilize our markets and provide relief to hundreds of thousands of Americans,” said Dodd.

A sticking point had been Shelby’s push to shield taxpayers if borrowers default on their payments after getting government-backed loans. He wanted the FHA plan funded by redirecting money that Dodd’s original bill earmarked for a new affordable housing trust fund. The funds would be paid by Fannie Mae and Freddie Mac.  “My primary concern in negotiations has been to protect the taxpayer,” Shelby said.

The compromise bill will still create a fund to spur affordable housing but would use the funding for that program in the first year to backstop the FHA mortgage program.

How the FHA plan would work

Dodd’s FHA plan is similar in structure to one sponsored by Rep. Barney Frank, D-Mass., and passed by the House on May 8 in a 266-154 vote. One key difference, Dodd’s FHA plan would be in effect through 2011 and Frank’s would go through 2012. Dodd’s plan would also not go into effect until Oct. 1.

To qualify for an FHA-backed loan in either proposed program, lenders would have to be willing to write a new, 30-year fixed rate loan for borrowers for an amount no greater than 90% of the appraised value of the home. The other 10% would be equity for the borrower.

So, in cases where borrowers owe more on their homes than they’re worth, lenders would forfeit any amount owed above appraised value plus 10% equity. They also would have to pay upfront costs to the government to participate.  Borrowers, for their part, must pay an annual premium to the FHA for the insurance backing their new loans. And they must share their equity with the government when they sell or refinance their homes.

They also must meet a number of qualifying criteria. They must be a full-time resident of their principal home. They must have a mortgage debt-to-income ratio of more than 31% under Dodd’s bill and if they have a second mortgage, the second mortgage holder must agree to extinguish that debt before the borrower can enter the FHA program.

The new FHA program could benefit an estimated 500,000 people, according to Dodd. Its cost: up to an estimated $500 million paid for by Fannie and Freddie. If it turns out the costs fall below that level – that is, should few if any borrowers default on their new FHA loans – the funds from Fannie and Freddie would be redirected back to the affordable housing trust fund.

Regulating Fannie and Freddie

The legislation also provides for stricter oversight of Fannie and Freddie. The two government-sponsored enterprises guarantee the purchase and sale of home mortgages in the secondary market.  Shelby had been campaigning for more stringent safeguards than Dodd’s original bill provided. Both Fannie and Freddie have experienced accounting scandals in the past and both saw steep first-quarter losses.

Dodd said he is hopeful he can get the votes he needs to pass the bill through the full Senate in time to go to President Bush before the July 4 congressional recess.  It remains an open question whether Bush would support the bill. He has threatened to veto Frank’s bill.

White House spokesman Dana Perino said Tuesday it is premature to say whether the president would sign the Senate version. “But we’re hopeful that we’ll be able to get to that point.”  Frank said in a statement “it is highly likely we will be able to compromise on a significant housing package.”

According to Freddie Mac, U.S. 30-year mortgage rates fell for a 2nd straight week. 30-year mortgage rates dipped to an average of 6.01 % from 6.05 % last week, while 15-year mortgages held steady at an average of 5.60 %. One-year adjustable rate mortgages, or ARMs, fell to an average of 5.18 % in the week from 5.29 %.  Freddie Mac said the “5/1″ ARM, set at a fixed rate for five years and adjustable each following year, averaged 5.57 % , down from 5.67 % a week earlier. 

According to a recent government lender survey, FHA mortgage rates remained steady with slight drops for FHA home loan rates across the board.  Last week FHA interest rates had worsened, so consumers were relieved tp see the decrease.

Just twelve months ago, 30-year mortgage rates averaged 6.21 %, 15-year mortgages 5.92 percent and the one-year ARM 5.48 percent. The 5/1 ARM averaged 5.92 %. “Recent remarks by Federal Reserve officials, which partly bolstered optimism that financial markets will recover later this year, helped mortgage rates ease up a little this week,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

“Despite the bleak housing market, there was positive news on the overall state of the economy. Retail sales excluding automobiles rose 0.5 percent in April, over twice that of market forecasts, and there was a significant upward revision in March’s figures as well. Also, the consumer price index for April rose less than expected, allaying some market concerns of inflation taking hold,” Nothaft said. Lenders charged an average of 0.6 % in fees and points on 30-year mortgages, up from 0.3 % last week, and 0.5 % on 15-year mortgages, also up from 0.3 %. Charges on the 5/1 ARM averaged 0.6 %, up from 0.5 % last week, while fees and points on the one-year ARM averaged 0.7 percent, compared with 0.6 % a week ago.

Why should I buy, instead of rent?

• Answer: A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you’ll enjoy having something that’s all yours – a home where your own personal style will tell the world who you are.

Can I become a homebuyer even if I have I’ve had bad credit, and don’t have much for a down-payment?

• Answer: You may be a good candidate for one of the federal mortgage programs. Start by contacting one of the HUD-funded housing counseling agencies that can help you sort through your options. Also, contact your local government to see if there are any local homebuying programs that might work for you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can’t find it, contact your mayor’s office or your county executive’s office.

How do I find a lender?

• Answer: You can finance a home with a loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders. Shopping for a loan is like shopping for any other large purchase: you can save money if you take some time to look around for the best prices. Different lenders can offer quite different interest rates and loan fees; and as you know, a lower interest rate can make a big difference in how much home you can afford. Talk with several lenders before you decide. Most lenders need 3-6 weeks for the whole loan approval process. Your real estate broker will be familiar with lenders in the area and what they’re offering. Or you can look in your local newspaper’s real estate section – most papers list interest rates being offered by local lenders. You can find FHA-approved lenders in the Yellow Pages of your phone book. HUD does not make loans directly – you must use a HUD-approved lender if you’re interested in an FHA loan.

In addition to the mortgage payment, what other costs do I need to consider?

• Answer: Well, of course you’ll have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. Your real estate broker will be able to help you get information from the seller on how much utilities normally cost. In addition, you might have homeowner association or condo association dues. You’ll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment. Again, your broker will be able to help you anticipate these costs.  For more information, visit http://www.hud.gov/buying/comq.cfm 

The House late Thursday approved a narrowly focused bill that would provide $15 billion to the states to purchase fixed-up foreclosed homes.  This mortgage bill is different from one that has been widely discussed that would enable to FHA to ensure new mortgages where the original loans were written down by lenders to reflect a substantial discount off of the original loan.

Ms. Waters’ bill would make loans and grants available to the states for the rehabilitation and eventual rental or sale of foreclosed properties. These properties, thanks to the huge inventory managed by banks and the effects of vandalism, neglect, and other forces, quickly deteriorate and, where more than one or two foreclosed houses exist in a neighborhood, can impact the entire area with a form of creeping blight and decreasing property values.

The House on Thursday passed a contentious foreclosure-prevention package, which still faces a veto threat from the White House and an uncertain fate in the Senate.  In a 266-154 vote - with 39 Republicans voting in favor - lawmakers approved a proposal, to let the FHA insure up to $300 billion in new loans over four years if FHA lenders agree to reduce the mortgage principal.

To qualify, the FHA mortgage lender would have to cut the debt to no more than 85% of a home’s current appraised value. If the FHA refinance loans went into default, the FHA would pay the home loan lender the remaining principal owed.

While 1.4 million loans are likely to be eligible for such a program, the Congressional Budget Office estimates such a measure would end up insuring 500,000 borrowers. The CBO estimates the FHA expansion program would cost taxpayers $1.7 billion. “This bill is very time limited and limited in specifics to a subset of mortgages and meant to mitigate a market failure,” Frank said during the floor debate on Thursday.

Opponents of the FHA expansion contend it’s a bailout for lenders, investors and “speculators” who took on imprudent risk. And because participation in the program would be voluntary on the part of lenders, critics contend lenders would only unload their riskiest loans into the federally backed program.

Supporters note that the program is limited to loans for owner-occupied residents, not speculators. They also make the case that lenders and investors would be taking a loss on every loan, and that the borrower would be paying higher-than-usual premiums to the FHA to insure the loan and would share equity in their home with the government. “No borrower who goes through this process will say at the end of it, ‘Boy, that was fun. Where do I buy a ticket to get back on Space Mountain?” Frank said.

Supporters also say if the borrower still can’t afford the loan when it’s written down to 85% of appraised value, their loan won’t qualify for the program. If the bill is a bailout for anyone, they say, it’s a bailout for communities across the country, which suffer when home values and property taxes go down because of foreclosures.

Speaker Nancy Pelosi issued the following statement today in response to comments by President Bush after he met with House Republican leaders at the White House this morning: “American families confronting foreclosure deserve better from the President than a veto threat; they deserve the House’s bipartisan housing plan that will protect the American Dream of home ownership.

“The President should work with Congress so that we can speed relief to Americans facing foreclosure and help them keep their homes. The bipartisan plan has been endorsed by leading economists because it is a comprehensive solution to the mortgage lending crisis and is essential for our economic recovery. “Only moments after falsely accusing Congress of inaction, the President signed bipartisan legislation passed by the New Direction Congress that will help keep college loans affordable and will sign other bipartisan priorities that will become law because the he set aside partisanship and worked with Democrats to make progress for America. We urge him to do so again and work with Congress to keep people in their homes and stabilize the housing market.”

Experts Agree: Comprehensive Housing Crisis Legislation Is Needed for American Economic Recovery Recent remarks from leading economists make it clear that the FHA Housing Stabilization and Homeownership Retention Act that the House will consider today as part of a comprehensive housing package has all of the right elements to address our housing crisis and help avert a deeper decline in the overall economy.

Ben S. Bernanke, Chairman, Board of Governors of the Federal Reserve System – “High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy. Doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.”

“…when the source of the problem is a decline of the value of the home well below the mortgage’s principal balance, the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender. To be effective, such programs must be tightly targeted to borrowers at the highest risk of foreclosure… Finding the right balance — particularly the need to avoid programs that give borrowers who can make their payments an incentive to default — is difficult. But realistic public- and private-sector policies must take into account the fact that traditional foreclosure avoidance strategies may not always work well in the current environment.”

Larry Summers, Charles W. Eliot University Professor at Harvard University, former United States Secretary of the Treasury  – “I think all of those present agreed on the importance of passing through the House of Representatives and ultimately though the Congress the legislation in which Congressman Frank has played a leading roll to support the housing finance system and in particular to provide for the avoidance of foreclosures with a substantially expanded FHA role. We believe that it is of great importance that, that legislation be passed as rapidly as possible.” For more info  http://www.speaker.gov

FHA insured loans require mortgage insurance to protect lenders against losses that result from defaults on home mortgages.  FHA mortgage lending limits vary depending on several factors like of type of home, the state and county in which the property is located.

With a FHA mortgage loan applicant’s credit score is not the primary factor driving the underwriting decision. FHA considers the borrowers entire credit history and specifically look for a pattern of timely payments on their current and past mortgage payments.  See more details at www.FHA.com.