The mortgage industry is buzzing about the FHA short refinance loan program designed to stem foreclosures by helping borrowers with a lower mortgage balance and a reduced interest rate. Until recently FHA refinancing was impossible for borrowers that owed more on their home loans than their home was worth. FHA rates are at record lows so there is a high demand for homeowners with a negative equity to find a refinance solution while interest rates are so affordable.
CoreLogic published data indicating that about 11 million borrowers are strapped with an underwater mortgage. This is a term used to describe a home loan in a negative equity position. That equates to 23 % of all U.S. residential properties with a mortgage. HUD recently announced that they are extending this unique program to certain non-FHA borrowers with underwater mortgages, who have paid their home loan on time, the ability to refinance into a new FHA mortgage, as long as their existing lien holders agree to write off at least 10% of the unpaid principal balance on the first mortgage, according to DSNews.com.
About 1.5 million of the 11 million U.S. homeowners who owe more on their mortgage than their home is worth could be catching a break shortly. The latest mortgage relief initiative, the FHA short refinance program rolled out September 7th, 2010. The government is utilizing $14 billion from the TARP funds to support the loan program.
Officials have suggested that between 500,000 and 1.5 million underwater borrowers could receive a new, more sustainable mortgage through the FHA Short Refinance option. But many finance experts warn applicants not to hold their breath because participation in the FHA short refinance program is voluntary and requires the consent of all lien holders.
Barclays Capital estimates that the new FHA refinance program will only reach 200,000 to 300,000 homeowners. The FHA Short Refinance option, aims to provide additional mortgage relief to homeowners whose biggest investment – their home – has left them with a huge equity gap because their local markets saw declines in home values. “Homeowner advocates and even government watchdog groups have been imploring the administration to tackle the underwater mortgage issue for some time now,” reports DSNews.com.
Studies have shown that severe negative equity can be a strong default trigger. By getting in front of the problem early with a solution, while these homeowners are still current, the administration is hoping to fend off a new round of foreclosures. To facilitate the refinancing of new FHA-home loans under the program, the U.S. Department of Treasury says it will provide incentives to existing second lien holders who agree to “full or partial extinguishments” of the liens.
In a few days, the government will be launch the latest mortgage relief effort with the FHA short refinance program targeting homeowners who are struggling with an underwater mortgage. The FHA short refinance program has also been called the Emergency Homeowner Loan Program. The only catch for eligible homeowners is that they must have a stellar record of timely mortgage payments before qualifying for FHA refinancing under this program.
Take advantage of Refinancing Underwater Mortgages with the FHA Short Refi Program
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The FHA Short Refinance loan was created to assist distressed but responsible homeowners who owe more on their home loan than their house is worth because their local markets saw significant declines in property values. The FHA short refinance program will kick off on September 7th. FHA rates remain at record lows, so this should be a very popular loan program as approximately 35% of homeowners in the U.S. are said to have an underwater mortgage. |
FHA will offer this mortgage relief opportunity to specific non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 % of the unpaid balance of the first mortgage. The new mortgages would then be FHA-insured. The borrower must have a credit score of at least 500 and the house must be the homeowner’s primary residence.
To be eligible for FHA’s Short Refinance program, a homeowner must meet the following criteria:
• Borrower must have a mortgage underwater (negative equity as mortgage is greater than property value)
• Homeowners must be current on their mortgage
• Borrower must live in their home (primary residence)
• Borrower must have a minimum 500 credit score
• Homeowner must have an existing non-FHA loan
• Existing mortgage lender must write down at least 10% of the unpaid balance
• Refinance the new FHA mortgage to a loan-to-value ratio of no more than 97.75 %.
In addition, the first mortgage being refinanced must have a maximum loan-to-value of 97.75 %. Some FHA lenders are exciting with the government’s aggressive approach to help homeowners find a solution for refinancing underwater mortgage loans. Banks are more willing to negotiate with borrowers who delinquent on their first or second mortgage. Many FHA lenders will not consider writing down loan balances or extending loan modifications unless homeowner can demonstrate that they can afford their home. FHA Commissioner David Stevens said the government is “throwing a lifeline” to families, giving homeowners and lenders another tool to battle the problem of negative equity facing borrowers current on their mortgage.
FHA refinance activity rose once again this last month as homeowners continue to make efforts to lower their FHA rates and monthly payments. Homeowners like FHA refinance programs because the rates are low as the agency promotes fair lending and affordability. In a tough economy, many borrowers don’t qualify for a FHA streamline because they can’t afford to pay for closing costs and lender fees. Consider a no cost FHA streamline that is available to qualified borrowers who have not been late on their FHA loan in the last 12 months.
Fixed FHA Rates starting at 4%
To figure out the average interest rate, we consider the FHA mortgage rates on Monday through Wednesday of each week from FHA lenders around the country. FHA rates often fluctuate significantly, even within a given day. FHA rates on five-year adjustable-rate mortgages averaged 3.76 %, down from 3.79 % a week earlier. Rates on one-year adjustable-rate home loans dropped to an average of 3.64 % from 3.70 %. The FHA mortgage rates do not include add-on fees known as points.
- FHA Cash Refinancing
- FHA Streamline Refinance
- FHA for Home Improvements
- FHA for Refinancing
- FHA for Rehabilitation
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Take advantage of FHA’s flexible credit guidelines and streamline loan process and get approved for an FHA refinance today. As an approved FHA lender, we have the volume to justify the lowest FHA rates online.
Many homeowners with FHA mortgages are experiencing hardships and getting approved for an FHA loan modification can be a wise financial move if qualifying for refinance loan has already been ruled out. 2010 FHA loan guidelines have tightened; so many borrowers simply don’t meet the requirements for a FHA loan qualification along the traditional refinance route. Fortunately, many FHA lenders are extending FHA mortgage relief with loan work-outs, forbearances and FHA modification options. Like a mortgage refinance, the goal of a FHA loan modification is to save money with a lower monthly payment. In order to lower the monthly payments, lenders are lowering the FHA rates or extending the terms. In some regions in where home values have plummeted, borrowers have been successful achieving a principal reduction. Getting a FHA loan modification approved is much more common than a principal reduction, so don’t hold your breath for your FHA loan company to lower your mortgage balance even if you home loan is underwater.
Qualifying for a FHA Loan Modification
As you may already know, qualifying for a FHA modification plan is different than a FHA refinance qualification. FHA refinance guidelines allow borrowers to qualify for a rate an term refinance with a debt to income ratio up to 45% in most cases. (Max DTI ranges 36% – 45% for FHA refinancing) Whereas the debt-to-income ratio on a FHA loan modification seems to be between 70 and 100%. Some lenders will lower the payment automatically to a 38% debt to income ratio, so for some borrowers their mortgage payment is reduced significantly.
FHA Refinance Guidelines Limit LTV to 96.5%
The loan to value requirements are much different as well. FHA refinance guidelines enable borrowers to refinance up to 85% on cash out loans and 96.5% on rate and term refinancing. The FHA loan modification agreements seem to be extended to borrowers who are underwater with loan to value levels that exceed 100%. (ie. borrowers owes $350,000 on mortgage but home is valued at $300,000).
The other important underwriting issue with FHA home refinancing is payment history. FHA refinance guidelines typically require no late payments on the mortgage for the last 12 months. However, on a case by case basis, underwriters may approve a borrower for FHA refinancing with one 30-day late payment if they have compensating factors. The FHA loan modification is usually approved to borrowers who are 30-days late or more. It’s tricky because if you asked the lenders if being late on the mortgage was required for a FHA modification approval they would say “No.” However, we see a pattern of FHA loan modification agreements being extended to distressed borrowers who are behind on their mortgage payments.
Both refinance and loan modification solutions continue to help millions of borrowers across the country achieve FHA mortgage relief. If you are experiencing some financial hardships that are making it difficult for you to afford your mortgage payment, it is strongly recommended that you seeking financial consultation and move forward with one of these loan relief solutions.
The FHA streamline loan is a popular refinance option for homeowners that already have an FHA mortgage. The FHA streamline refinance has been popular because the FHA interest rates are low, the closing costs are affordable and the refinancing process is simplified compared to the long drawn-out measures of traditional refinancing. Borrowers need less paperwork, as income documentation and appraisal requirements are often reduced with FHA streamline refinancing.
It is no secret that the Federal Housing Administration has made significant efforts to make sure that qualified borrowers really want the FHA streamline refinance loan. Recently, FHA enacted big changes for the FHA streamline guidelines. Now borrowers that want to lower their interest rate with the FHA streamline must pay for closing costs out of their pocket. FHA does not allow borrowers to finance any closing costs when streamline refinancing. That means in most cases that FHA borrowers are covering the $2,000 to $3,000 in lending costs from their savings.
Did FHA go too far in tightening the Streamline Guidelines?
The thinking behind the streamline tightening is that by requiring borrowers to pay the closing costs out of their pocket that they will think twice before refinancing and loan defaults will decrease. FHA streamlines have never allowed cash out and they have not been a problem for defaults and foreclosures. With depreciating values nationwide it would appear that FHA is protecting themselves and borrowers from increased mortgage balances that would come from a borrower financing the lender fees and closing costs into their FHA streamline loan. For example, before the streamline guideline change if a borrower had $300,000 mortgage balance, it would be $303,000 after the refinance. If a borrower refinanced once a year, after a while the balance would be $320,000 and with declining values, this increases the risk as more homeowners would be underwater with their mortgages.
The No Cost FHA Streamline Solution
There are approved FHA lenders that are offering no cost mortgage refinance opportunities for a select group of borrowers. If you have good income and high credit scores above 700, there is a good possibility that you may qualify for a no cost streamline refinance in which the lender is paying for the closing costs on their end. This way you do not have to come out of pocket to cover the closing costs and your mortgage balance would not go up because you are not financing fees that FHA will not allow anymore anyways. Qualifying for no cost FHA streamline loans will take some shopping online to find a credible FHA lender that offers these unique refinancing incentives, but clearly it will be worth it financially in the long run.
Americans continue to be supported by FHA home loan programs for refinancing and new home buying. FHA loan programs are aggressive with little equity required for FHA refinancing. FHA finance programs have opened up many home buying opportunities because borrowers only need a 3.5% down-payment to become homeowners. FHA credit requirements are considerably more flexible than conventional lending allows. In 2010 FHA guidelines have tightened but FHA loan limits remain robust and underwriters are still able to approve loans based on the borrower’s history rather than just their credit score. FHA refinance loan programs have made an effort to reach out to distressed homeowners seeking a lower fixed rate mortgage payment to help prevent foreclosures.
- FHA Home Loans
- FHA Mortgage Refinance
- FHA Streamline
- FHA 203b for Cash Out
- FHA 203K for Home Rehabilitation
According to Jeff Moran, a FHA loan specialist with Bank of America Home Loans in Orange County, “The Federal Housing Administration continues to reinvent themselves and consumers are benefitting because they can get financed cost effectively with low rate FHA mortgages.”
FHA mortgage rates are available at 4.75% on fixed 30-year loan terms. There is no pre-payment penalty for early pay-off and if the FHA rates drop, you can always utilize the FHA streamline for rate and term refinancing. What are you waiting for? FHA loan programs are more appealing and more affordable than ever.
FHA home loans have been an icon for first time home buying since 1934. This government home financing initiative has been bolstering homeownership for decades with low FHA mortgage rates and fair lending criteria for all Americans. The Wall Street Journal reported that the Federal Housing Administration is in serious talks with HUD to raise the insurance premium in an effort to raise the dwindling FHA loan reserves. After FHA loan defaults have dropped for three straight months for FHA mortgage loans. If that trend holds, the agency could avoid burning through the FHA reserves, which are estimated to fall sharply over the coming years. Still, the FHA’s commissioner, David Stevens, says “there’s plenty of room for caution.” Clearly, FHA mortgage financing has not recovered enough to not be concerned about it’s future.
Are FHA Loan Programs at Risk?
As the economy continues to weaken, FHA will likely see more FHA defaults that could drain the FHA reserves even more. I would expect FHA loan requirements to continue the trend of tightening. This will limit the number of eligible borrowers to qualify for a FHA refinance that would lower their monthly mortgage payment and prevent home foreclosures for thousands of distressed homeowners.
Most industry insiders are forecasting additional losses because it has a much bigger exposure to housing today than it did when the housing market tanked three years ago. Even if the HUD continues to amend FHA loan guidelines to stem the FHA defaults, it is likely that the annual audit will uncover the fact that that the Federal Housing Administration continues to operate on low reserves. Let’s face it, if this great loan program was managed by the private sector the FHA loan program would be shut down. One bright spot is that the FHA’s finances are performing better than anticipated. In the last six months, FHA reserves have covered $6 billion that came from the loan defaults, but they had forecasted to pay $8.7 billion for loan defaults. Should we cheer because the FHA loan program is preforming better than anticipated or be critical of a federal loan program that is failing in a failing economy?
FHA refinance loans have helped out millions of homeowners lower their monthly mortgage payment with a fixed interest rate and no pre-payment penalty. Even with having so many FHA loan success stories, it seems there are many unhappy mortgage brokers, borrowers and industry pundits that come off like FHA can’t do anything right. There are several reasons why FHA has taken a lot of heat over the last year.
1. FHA loan defaults have risen dramatically over the last 48 months.
2. FHA mortgage reserves have dropped to dangerously low levels.
3. FHA guidelines have tightened significantly and most FHA lenders require a 640 credit score to refinance.
4. The FHA requirements for FHA streamline programs thus fewer borrowers qualify.
5. The change in the appraisal policy for FHA refinance loans has slowed the process and increased the closing costs for borrowers.
These 5 obstacles FHA has faced this year has brought forth new challenges for government refinance programs, but HUD maintains they are focused on improving FHA home loans for consumers, while increasing the accountability and FHA requirements for mortgage companies that offer FHA mortgage products.
FHA mortgage rates remain low with the 30 year fixed available at 5% and the 5/1 ARM available at 4.125%. The Federal Reserve left interest rates unchanged so FHA rates should continue their trend of affordability. For borrowers with less than perfect credit, FHA introduced a home loan that allows credit scores as low as 580, but requires a higher insurance premium with more equity or down-payment required. FHA refinance applications dropped last month, but that doesn’t mean Americans won’t reconsider FHA if they loosen the FHA guidelines a bit while keeping the rates at record levels.
The demand for refinance FHA loans continues to rise, but borrowers who actually qualify for a FHA loan seems to decline as HUD tightened FHA guidelines. FHA lending continues to expand their scope with new FHA mortgages designed to stimulate first time homebuyers. FHA refinancing has become a priority for most FHA lenders. FHA rates remain low with lenders reporting 30-year fixed rates at 5% and the 5/1 ARM is available at 4%.
While it will be months before FHA’s increased annual fee or tougher credit score requirements take effect, the housing agency already is seeing a drop in activity in its most popular sector the home purchase market. According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, FHA’s share of home purchases fell to 31.5% in January.
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.
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