FHA loans have significantly aided homeowners, new home buyers and lending professionals during the mortgage crisis.FHA loans continue to provide affordable home financing and fixed rate refinancing with little equity and minimal down-payments required.
Nick Timiraos recently wrote an article outlining how U.S. housing officials are in the process of planning that would essentially allow some first time home buyers to purchase a house by paying little money upfront. With this FHA loan, 1st time buyers could benefit from an $8,000 income tax credit towards their down payment on loans backed by the Federal Housing Administration. The idea is to enables new home buyers to “monetize” the tax credit. Right now, home buyers must wait until they file their taxes to receive the credit.
The FHA is finalizing a program that would allow approved FHA lenders, non-profits, and state and local governments to fund short-term loans that could be used as down payments to be repaid once the borrower received the tax credit. Once they received their tax credit, they would pay off the short-term loan and put equity into their home.The FHA requires a minimum 3.5% down payment on loans backed by the agency, which means that buyers could put little or nothing down on homes up to $230,000. “It is close to having nothing down,” says Thomas Lawler, an independent housing economist.
The proposal, hailed by home builders and Realtors, is drawing some comparisons to the no money down programs that the FHA has worked to shut down. Congress ended a program last year that allowed home sellers to fund down payments to home buyers through nonprofit groups, and the FHA has blamed that program for an outsized share of loan defaults. Under that mortgage program, nonprofit groups would “gift” the 3% minimum down payment to a home buyer, often funded by the seller of the property. Buyers would move into the home without paying any of their own money for the down payment. “We remain concerned that the lenient underwriting standards, low down-payment requirements and now the ability of FHA borrowers to purchase a home without putting any of their own equity into the purchase is creating a tremendous risk for the program and taxpayers in the future.”
Several states, including Pennsylvania and New Mexico, had already instituted similar programs. Housing Secretary Shaun Donovan outlined the plan Tuesday during a speech to the National Association of Realtors. “We think the policy is a real win for everyone,” he said.Congress approved the tax credit in February’s stimulus bill, which provides up to $8,000 for first-time home buyers on a new or existing home. The tax credit expires December 1st.
John Taylor, President & CEO of the National Community Reinvestment Coalition, testified on the introduction of H.R. 703 and the need for a broader-scale loan modification program such as FHA Hope for Homeowners and Homeowners Emergency Loan Program (HELP Now).
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NCRC’s John Taylor Testifies on HR703 with Improvements for FHA’s Hope for Homeowners
We need the federal government to exercise its authority to purchase troubled assets in an effort to fight off the foreclosure crisis and the need for enhanced consumer protection through comprehensive anti-predatory lending legislation. HUD continues to enhance FHA loan programs to meet the needs of homeowners.
In a recent Washington Post article written by Kenneth Harney last weekend introducing new mortgage fee increases, for FHA loans and stricter down payment rules and higher credit score requirements from HUD, Fannie Mae and Freddie Mac as soon as April 1st.According to the article, “Most major FHA mortgage lenders are already pricing in these higher fees, effectively raising costs to borrowers immediately and reducing the impact of housing stimulus efforts from Congress and the Obama administration.”
Falling FHA Mortgage Rates
The new FHA loan guidelines mean that even borrowers with good credit scores will be charged more for a mortgage loan unless they can make a down-payment of 30% or more.Even someone with a 739 FICO – once considered a platinum guarantee of the best rates available – will get dinged with a quarter-point add-on.Harney points out, fico scores in the upper 600s were deemed good enough for prime rate home financing just a couple of years ago. Now some borrowers with credit scores of 720 to 740 may not be enough to prevent an add-on fee to their FHA home loan, especially if they are buying a condominium or town home.
Potential home-buyers need to do all they can to increase their credit score and to accumulate enough funds for a more substantial down-payment, both moves which make good financial sense anyway.But the best home loan solution is the basic FHA mortgage: Apply for an FHA loan, which requires a down-payment of just 3.5% and in most cases has lower credit score requirements.FHA mortgage rates remain at record levels with national lenders reporting interest rates as low as 5.25% on 30-year fixed rate mortgages.
“In today’s weakened economy where access to credit is being restricted, we need to make home mortgages more available to households throughout the country, and especially in high-cost areas,” said Preston. “These new FHA loan limits will ensure HUD can to continue aid distressed homeowners with safer home refinancing featuring secure fixed rates from affordable government-insured loans that enable many first-time buyers take advantage of today’s buyers market”
FHA mortgage loan limits were increased recently back to 2008 FHA loan limits in high cost housing areas, too – to a maximum of $729,750 in some areas. Visit the FHA website to check the FHA loan limits for your area.This website enables consumers to look up the maximum FHA mortgage limits for your area or several areas, and then list them by state, county, or Metropolitan Statistical Area.
FHA continues to carry the mortgage industry on its back in 2009.FHA may have eliminated the FHASecure refinance product, but Hope for Homeowners will help distressed homeowner who have no equity and a mortgage that they can no longer afford.FHA home loan products still allows cash out refinance loans to 95% but now they will need to appraisals to meet HUD’s new FHA guidelines for cash out refinancing above 85% loan to value.
Borrowers with low credit scores may still qualify for bad credit mortgage refinancing, even if they were recently turned down by another lender.FHA continues to expand its loan product base, whether it’s a first time homebuyer loan, FHA streamline or Hope for Homeowners, FHA mortgage rates are low and the terms are usually fixed with no penalty for early pay-off or refinance.Bloomberg Interviews with HUD Secretary Steven Preston
HUD confirmed recent reports by issuing a formal letter confirming that the government will no longer offFHASecure refinancing products. The FHA mortgagee letter, 2008-41 confirmed that the refinance program will completely disappear on December 31.“Maintaining the program past the original termination date would have a negative financial impact on the MMI Fund that would have to be offset by either substantial across-the-board single family program premium increases or the suspension of FHA’s single family insurance programs altogether,” the letter reads in part.Effective December 31, FHA reiterated that they t will not issue any new case numbers for FHA lenders looking to refinance distressed homeowners with FHA Secure refinance loans.HUD however, will honor all FHA loans for which a lender has already completed a loan application and requested a case number prior to December 31st , they said.
The FHA Secure refinance was born in the summer of 2007, administration officials suggested at the time that the refinance program could help 240,000 delinquent subprime mortgage holders avoid foreclosure. But by December of last year, four months after its introduction, the government loan program only had endorsed 266 loans for borrowers that were delinquent at the time of mortgage refinancing, forcing HUD officials to redefine the program with a wider net for any at-risk borrower, delinquent or not. FHA officials have maintained steadfastly to the press that such a focus was always the intent of FHASecure.
Regardless, the program never seemed to gain much traction with key Democratic lawmakers, who pushed to create the Hope for Homeowners program that went into effect the past October. Part of that was because the Bush administration attempted to leverage FHASecure as a bargaining chip during negotiations over the Emergency Economic Stabilization Act of 2008, suggesting that the program could handle at-risk and underwater borrowers without the need for a $300 billion expansion to the FHA program under the Hope for Homeowner proposal.
While Congress was haggling over the housing bailout package, the Bush administration unveiled an expansion of the FHASecure program designed to make it easier for underwater borrowers to participate, in an effort to make the H4H proposal superfluous. Assistant secretary for housing Brian Montgomery said the revised program would help “hundreds of thousands of borrowers” at a hearing of the House Financial Services Committee on April 9; the official estimate at HUD was that 500,000 additional borrowers would be helped by insuring refinanced mortgages for borrowers who were up to 90 days delinquent, or those who receive a voluntary mortgage principal write-down from their lender.Now that the Hope for Homeowners program has become the revised focus for government-inspired refinancing of bad credit mortgages — a program with its own hurdles, too, it should be noted — it’s clear that HUD officials had little interest in maintaining two similar programs. Read the complete article.
FHA recently announced revions to their Hope for Homeowner product that is designed to offer “short refinance” loans to distressed homeowners fighting to stop foreclosure.
oWrite-Down: Participating FHA mortgage lenders must agree to a reduction in principal to achieve the 9 % loan-to-value requirement.
oPrepayment penalties and fees related to default or delinquency must also be waived for this loan modification program.
oPremiums: Lenders must pay the 3% upfront premium from the proceeds of the refinance. Borrower pays 1.5% premium annually.
oShared Appreciation and Equity: Borrower must share newly created equity with FHA when the property is sold or the loan is refinanced. FHA’s share in the equity is reduced from 100% to 50% in 10 % increments over first five years. After five years, the homeowner and government each will share in 50 % of the equity. Borrowers must also share any future appreciation 50/50 with FHA upon the sale of the property. The program’s governing Board will establish standards for sharing future appreciation owed to HUD with second mortgage holders.
oServicer Liability: Amends the Truth in Lending Act (TILA) to create a fiduciary duty for mortgage servicers to “maximize the net present value of the pooled mortgages in an investment to all investors and parties having a direct or indirect interest.” The duty does not supersede servicing contracts. It also would deem servicers to act in the best interests of all investors if the servicer implements a refinance or modifies a loan through the HOPE for Homeowners plan.
QUESTION: How soon can we anticipate the Hope for Homeowner program to be up and running with FHA home loans?
ANSWER: FHA will be working with a Board established under the law to make the program operational and issue guidance by October 1, 2008. FHA’s ongoing program, FHA Secure Refinance continues to help with a loan program designed for refinancing homeowners who are struggling since their adjustable rate mortgage reset.
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 2nd 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
With FHA, cash out refinancing is available to 95%. FHA streamline refinance loans, rate and term refinancing and home purchase loans are available to 97.5% loan to value.
Refinance and Avoid a Foreclosure
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Contact a HUD-approved Housing Counseling Agency
