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.
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.
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:
- 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.
- 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.
- 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.
- 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%.
- Kicking out abusive lenders. FHA has moved swiftly to end relationships with several lenders, including Taylor, Bean and Whitaker Mortgage Company.
- 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 1st.
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.
Time may be limited for funding FHA streamline loans with FHA’s new rules. The FHA-to-FHA Streamline Refinances are effective with case numbers assigned on November 17, 2009. That gives FHA home loan originators only a few weeks to originate loans under the old guidelines. What has changed? Just about everything!
o New FHA seasoning requirements;
o Revised requirements for FHA loan payment histories;
o Required a net tangible benefit to the FHA borrower;
o FHA now has a maximum CLTV;
o Required verification of assets and employment
Now is the time to utilize FHA streamline loans while interest rates are low! Make the most of today’s affordable home financing with more FHA streamline refinance opportunities. FHA lenders have enjoyed increased funding volumes with more FHA streamline loans closed this year than ever before.
Our FHA lending network continues to report the great feedback with FHA streamline loans. This streamline market has performed the best all year and continues to produce results for mortgage brokers and loan officers nationally. Don’t miss the FHA streamline boom…Refinance your FHA loan while FHA mortgage rates remain below 5%.
FHA loan products continue to support the mortgage industry. Subprime mortgages and home equity loans have disappeared, so FHA has been pulling the slack for new homebuyers and homeowners who need to refinance their mortgage for a lower payment. The government has been promoting homeownership as the “American Dream.” FHA mortgage loans provide fixed rate financing with low down payments at reasonable rates; their main drawback is the mortgage insurance premiums that must be paid up front and annually. Borrowers typically add the up-front mortgage insurance premium to their FHA loan amounts, and then pay an annual premium of approximately one half percent of their mortgage balance annually until their loan to value ratio reaches 78% or less. Increasing home loan insurance premiums would likely discourage buyers from FHA mortgages and decrease its market share.
Although FHA administrators appear confident that they can avoid a shortfall of reserves, it also seems likely that they may have to make some changes to reduce risk.
ü More significant down-payments?
ü Stricter credit guidelines?
Requiring more for down-payments could help reduce the FHA’s exposure due to declining home values; and tightening credit requirements and mandating homebuyer education programs could help reduce mortgage defaults.
Taxpayers not likely support another mortgage bailout, and FHA provides an essential role in expanding accessibility to homeownership, and in the recovery of US housing markets.?
FHA home loan programs continue to soar in popularity. HUD reported that the FHA loans during the first part of August were receiving about 10,000 applications per day. “The Federal Housing Administration,” says the Wall Street Journal, “hit by increasing mortgage losses, is in danger of seeing its reserves fall below the level demanded by Congress, according to government officials, in a development that could raise concerns about whether the agency needs a taxpayer bailout.”
According to MarketWatch, “Once the home financing market started to collapse,” says, “the government decided the FHA should try to prop up the market.” The FHA loosened their credit guidelines some but not as far as the subprime lenders had in previous years. FHA guaranteed loans with a down payment as small as 3.5% and grant homeowners more access to take out cash refinance loan. In the last five years, Congress doubled the maximum FHA loan to $729,750.” FHA mortgage rates continue to reports fixed 30-year rates around 5.25%.
FHA increased its down-payment requirement to 3.5 % from 3 % last year? FHA also campaigned hard for Congress to drop down-payment assistance plans to mitigate insurance risks and reduce claims. Many mortgage brokers want FHA to expand their credit criteria and FHA guidelines even more. Is that realistic with the current climate of delinquencies, loan defaults and home foreclosures?
|
|
