QUESTION: How is credit approval being defined for FHA mortgage lenders?

ANSWER:  Credit approval is defined for loans scored through FHA’s Mortgage Scorecard TOTAL as Accept/Approve on or after October 1, 2008. For those FHA home loans manually underwritten, credit approval is defined as the date the Direct Endorsement Underwriter approves the loan, as indicated by the DE signature on the Mortgage Credit Analysis Worksheet (MCAW) or L1008 oan Transmittal form.

QUESTION: What if we re-score the loan through an AUS/TOTAL?

ANSWER:  For those FHA loans that are re-scored and result in a downgrade to Refer — requiring the lender to manually underwrite the loan — credit approval is defined as the date the Direct Endorsement Underwriter approves the loan, as indicated by the DE signature on the MCAW or LT. For those loans that are re-scored and remain an Accept/Approve, the date of the last scoring would be the date used to determine the credit approval.

QUESTION: How will this change affect systems such as FHA Connection?

ANSWER:  Hard system edits will be implemented to facilitate the implementation of this new prohibition.

QUESTION: What if the credit was approved prior to October 1, 2008 but the loan closes after October 1, 2008? Is it eligible for insurance?

ANSWER:  Yes, so long as the credit was approved before October 1, the home loan is insurable.

QUESTION: Can municipalities and other government agencies continue to offer down payment assistance loans after October 1?

ANSWER:  Yes, provided that the assistance is in the form of a second mortgage. There is no combined loan to value restriction, where a 2^nd mortgage is provided by a government agency.    Information source – Mortgage Bankers Association

QUESTION: What is the new cash requirement for down-payments on FHA home loans?

ANSWER:  Borrowers must pay, in cash or its equivalent, 3.5% of the appraised value of the property. This means that borrower must provide a 3.5% down payment on purchase money mortgages. Borrowers must come to the closing table with 3.5% cash. New home-buyers seeking FHA home financing can no longer accept seller-funded down payments.

QUESTION: When does this new cash requirement for down-payments take effect?

ANSWER:  It is unclear at this time. Currently, FHA indicates that while the provision appears to be self implementing as of the date of enactment, under case law, the effective date is dependent on issuance of FHA guidance. FHA Down Payment Assistance Loans have many new restrictions.

QUESTION: Does HERA prohibit seller-funded down payment assistance and if so what is the effective date of the new prohibition?

ANSWER:  HERA prohibits seller-paid down payment assistance although it does permit such assistance from family members. The prohibition against seller funded down payment assistance applies to those loans for which the lender has issued credit approval for the borrower on or after October 1, 2008. This means that if a FHA mortgage lender issues credit approval before October 1, 2008, seller funded down payment assistance is permissible.  Information source – Mortgage Bankers Association

QUESTION:  What are the new single-family FHA loan limits?

ANSWER:  The Housing and Economic Reform Act increases the FHA home loan limits limit for FHA mortgage insurance for single family, one-unit properties (with increased limits for other single-family properties up to four units) to 115 % of the local area median home price, as determined by HUD (but no lower than a floor of 65 % of $417,000 that is $271,050) or up to a cap of 150 % of the GSE limit of $417,000, or $625,500. Note that the limits for the new FHA Hope for Homeowners Program may vary.

QUESTION:  When do the new FHA single family loan limits become effective?

ANSWER:  The new FHA loan limits go into effect after the limits in the Economic Stimulus Act expire on December 31, 2008, i.e., January 1, 2009.

QUESTION: Since the FHA mortgage limits are based on the conforming loan limit for Fannie Mae and Freddie Mac (the GSE limit) what happens if the GSE limit changes?

ANSWER:  The FHA mortgage limit changes. The GSE regulator sets the GSE conforming mortgage loan limit annually, based on the agency’s home price index. The GSE limit will be adjusted in years when home prices increase, but increases must be offset by prior year decreases.

QUESTION:  Will the new FHA home loan limits be the same everywhere in the nation?

ANSWER:  No. The FHA loan limit will vary based on the local area median home price, as determined by HUD up to a limit of $625,500. The mortgage amount also cannot exceed 100 % of the appraised value of the individual property.

QUESTION: Do the new FHA loan limits apply to all “forward” single family mortgages?

ANSWER:  The new FHA loan limits apply to all 1-family reverse mortgages except for Home Equity Conversion Mortgages, also known as reverse mortgage loans. HECMs and Hope for Homeowners mortgages have different limits, which is below.

QUESTION: Does HERA eliminate the existing percentage limitations for home financing?

ANSWER:  Yes. It permits financing of up to 100% of the appraised value of the property.

QUESTION: Can the amount of the mortgage be increased above 100% of the appraised value, by the amount of the mortgage insurance premium?

ANSWER:  No. The maximum amount of mortgage cannot be increased by the amount of the mortgage insurance premium when the principal obligation to be insured equals 100% of the appraised value. The premium can be financed as long as the principal obligation does not exceed 100% of the appraised value. Risk Based Premiums

QUESTION: Does this new law prohibit risk-based premiums? ANSWER: Only temporarily. It prohibits HUD from taking any action to implement or carry out a risk-based premium program for a period of twelve months beginning on October 1, 2008. 2 Housing and Economic Reform Act (HERA): FHA Single-Family Program Changes FAQ

QUESTION: Do FHA mortgage lenders have to stop using risk-based premiums immediately?

ANSWER:  No. FHA will insure loans using risk-based premiums through September 30, 2008.

QUESTION: What action must be taken to ensure that a risk based premium home loan will be insured by FHA?

ANSWER:  FHA Loans for which case numbers are assigned on or after October 1, 2008 will have the new premiums. Case numbers issued before October 1 will be subject to the current Risk-Based Premium rules that took effect on July 14.  Information source – Mortgage Bankers Association