It’s no secret that several U.S. Government officials are taking action to elevate 2012 FHA limits on home mortgages in an effort to help the struggling housing sector in high cost regions across the country. The Wall Street Journal published a good article discussing different ways the housing industry can be saved and one of the quickest ways would be to raise the FHA limits in 2012. The Federal Housing Administration lowered FHA loan limits on mortgages in an effort to stem loan defaults and better preserve FHA reserves set aside to protect the loan programs against foreclosures and defaults.
According to the State Column, Congressman Leonard Boswell sent a letter to House Conferees to H.R. 2112 urging them to reject language contained in the legislation that would restore the FHA mortgage limits that expired last month.
Will Congress Revert to Higher FHA loan limits to Help Revive the Housing Markets?
Currently, the 2012 FHA loan limits high loans to $625,500. The Senate language, currently being considered by a joint House-Senate conference committee, would revert back to the higher limit of $729,750. I some areas like California or New York, these loan amounts would barely be above average because the housing costs are so much higher in these regions.
According to Boswell, “Not a single FHA Ioan would benefit from a loan limit extension. These higher loan amounts on FHA mortgages for a select few of the very wealthy should not be on the shoulders of the American taxpayers.” He continued, “These limits were set to expire for a reason, so we could reduce the risk assumed by the federal government. “I urge conferees to resist this provision, and put the focus back on moderate and middle income homebuyers not the most affluent.”
Higher FHA Loan Limits to Qualified Borrowers in High Cost Regions Would Help Eliminate the Housing Crisis
Clearly Mr Boswell is playing the class warfare game with ridiculous talk about wealthy Americans. The FHA loan programs were created in 1934 to ensure fair lending and affordable housing. FHA guidelines were tightened this year to reduce loan defaults and taking away the financing opportunities to well-qualified borrowers would likely increase delinquency rates and defaults. The amount of money a borrower has earned or saved should not be a negative factor that is used against them to disqualify their eligibility. In the mortgage world, if a borrower has more earning and significant savings it is considered an asset because it reduces their chances of defaulting on the loan. Hopefully Mr Boswell will reconsider his position as it undermines government financing and the liberty for American citizens.
Will Congress mandate an increased down-payment requirement for FHA home loans in 2012? FHA rates remain at record lows, but default rates are high and the mortgage insurance premium has been raised so many times that it really brings into question the future of FHA mortgages especially for new home buyers. The U.S. House Financial Services Committee has drafted legislation that would, among other things, increase the FHA down-payment requirement to 5% and prohibit borrowers from financing their closing costs. The 2011 FHA requirements for home financing continued the tradition of a 3.5% down-payment. FHA guidelines were tightened dramatically over the last few years and for the first time the government finance program implemented a minimum credit score.
Berman went on to share the MBA’s opinion on the matter, saying, “The current minimum down-payment of 3.5% for borrowers with fico scores of 580 or above and 10% for borrowers with credit scores of 579 and below permits borrowers to have appropriate “skin in the game” while providing credit-worthy homebuyers with an option for entering the home buying market. Maintaining the existing minimum down-payment requirements, while requiring strong underwriting standards, such as full documentation and income verification, allows borrowers to responsibly become, and stay, homeowners.”
What Impact Will Higher FHA Down-Payment Requirements Have on the Sluggish Housing Industry?
The Mortgage Bankers Association is not the only industry group to oppose the down-payment hike. Ron Phillips, President of the National Association of Realtors, shared similar sentiments in his prepared remarks. “NAR strongly opposes raising down-payment requirements for FHA loans.” The correlation between down-payment and loan performance is significantly less important than the linkage to strong underwriting, which FHA continues to have. FHA’s foreclosure rate remains less than conventional mortgages, so we don’t believe changes to the down-payment would do anything but disenfranchise many creditworthy homebuyers”.
Loan officers lenders and borrowers are starting to get a bit nervous about FHA lending being adversely affected if the government shuts down. In a recent article written by Brian Collins of Origination News, posed some interesting questions about how the FHA mortgage loan programs could be affected if the U.S government shuts down on Friday. Since FHA has a significant market-share in home financing, there certainly could be some dramatic setbacks. While FHA is best known for first time home buyer loans, the government finance agency has a wide variety of FHA mortgage programs for refinancing and home purchasing.
According to FHA commissioner, David H. Stevens, if the government does shut down, HUD will be forced to stop endorsing new FHA home loans. At this point Congress will have to come together and agree to budget deal with the Obama Administration by midnight Friday.
Will Government Shutdown Cause a Bottleneck for FHA Loans?
According to a memo drafted by a housing trade group, “FHA cannot offer endorsements for any new FHA home loans in the Single Family program and are not allowed to make further commitments in the Multifamily if the government shutdown happens.” FHA lenders will need to brace for the government shutdown or shift gears with conventional loans backed by Fannie Mae and Freddie Mac.
HUD Secretary, Shaun Donovan discussed his homeownership vision a few days ago when he underlined the new direction that FHA is heading in an effort to prevent future housing bubbles and risky lending philosophies. According to Donovan, “The mentality of kind of using homes as ATMs that we got to three years ago—don’t mistake that with the long-term, fundamental belief that most Americans had in their homes not as piggy banks, but as a place to raise their kids, a place to invest in, and, in the long run, a place to build equity in that they could pass on to their kids and their grandkids.”
According to analysts at Keefe, Bruyette & Woods last year, the Federal Housing Administration insured almost 40% of all home loans totaling $200 billion. According to the government sponsored enterprises regulator, the government shutdown would not stop Fannie Mae and Freddie Mac from buying and securing home mortgage loans. The GSEs are in conservatorship and dependent on a Treasury Department line of credit to stay afloat. Nevertheless, the terms of the conservatorships and Treasury’s support is not affected by the budget process.” According to a statement issued by the Federal Housing Finance Agency a government shutdown would not impact the operations of Fannie Mae and Freddie Mac as the Treasury Department Preferred Stock Purchase Agreements with the Enterprises are not subject to the annual appropriations process.”
Usually, mortgage professionals are concerned that borrowers will be given too strict of requirements to qualify for FHA loans and other mortgage options. Many in the mortgage industry were taken aback, therefore, when it was announced recently by HUD that FHA requirements for FHA lenders was about to become stricter. There is now a push for increased responsibility on the part of approved FHA lenders. Since January 1, 2011, the requirements to become an approved lender of FHA home loans are now slightly different. The changes in 2011 FHA requirements will be explained here.
New FHA Rules for 2011
The first major change in FHA requirements to become a lender is increased responsibility. The announcement was made last April that FHA lenders were going to need to step up how much they care about the performance of their borrowers and when delinquency rates increase. This is because, with thousands of sub-prime borrowers who flocked to approved FHA lenders, these lenders ran out of available reserves. By caring about the performance of their borrowers, defaulted loans should decrease so lenders can maintain more reserves.
Another way to make sure FHA lenders have more reserves is to increase the interest rate on the private mortgage insurance that is reqred when borrowers take out an FHA mortgage. That way, if clients do default, the lender will have made more money in the process. This is not one of the new FHA requirements, but rather the response of approved FHA lenders to the requirement that they maintain more reserves to distribute to borrowers. Another response to ensure their reserves are full was to raise the down-payment requirement to 3.5%. The more money lenders can obtain upfront, the fewer losses will be experienced if a borrower defaults on the loan.
Even with the responses of FHA lenders to make sure they have more reserves and increased responsibility, these are still very valuable loans to obtain. Approved FHA lenders know this, which is why they do not want to lose their approved status. One of the greatest downsides for lenders in regards to new FHA requirements is that it is now more difficult to get licensed for FHA lending in multiple states. The bottom line is that more members are likely to be attracted to the idea of getting an FHA loan and the available funds of approved lenders must be sufficient to provide borrowers with what they need to get into the home of their dreams.
It’s been a few weeks since HUD announced the Power Saver loan program. This new FHA loan is a pilot program that extends financing to homeowners who are implemented energy conservation solutions to their homes. HUD said that FHA will insure these home improvement loans and many FHA lenders are excited about the prospects of helping the environment.
Homeowners will benefit from the Power Saver loan because they will get home improvements financed and lower energy bills.
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- Reduced utility bills
- Better insulation
- Energy efficient financing
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The bottom line is that the monthly savings will be greater than the home improvement loan payment. These FHA loans have created the opportunity for homeowners to reap the benefits of energy savings and HUD is now requiring a home energy rating.
The Power Saver loan program will only finance home improvements that produce energy savings as assessed and verified by a certified home energy rater. This enables FHA to measure the anticipated savings and regulate the appropriate credit policy.
Recently, HUD revealed updated FHA guidelines with Loan to Value (LTV) restrictions in the FHA Mortgagee Letter 2008-40. The maximum loan-to-value varies by depending upon which type of FHA loan program the borrower is utilizing.
FHA Home Purchase Loans: Max LTV is 96.50%. Max CLTV is 100%. See FHA Down Payment Assistance for options.
Rate and Term Refinance (Non-Streamline): Max LTV/CLTV is 97.75%.
Cash Out Refinance Loans: Max LTV/CLTV is 85%. Considering a mortgage refinance with cash out or debt consolidation exceeding $1,000. To qualify for cash loans, the borrower must be owner occupied 1-2 unit properties. 3-4 units are not eligible for cash out.
FHA Streamline Refinances: (Fixed FHA Rates Only and Conforming Balance only)
- FHA Streamlines with Appraisal: Max LTV is 97.75%. Max CLTV is 100%. Refer to the Streamline section for loan amount calculation and other requirements.
- Streamline (FHA to FHA) without Appraisal: No LTV maximum, however, a maximum insurable home loan amount applies. If second mortgage remains subordinating, the maximum CLTV is 100%. Refer to the Streamline section for loan amount calculation and other requirements.
- For loans with eligible Down Payment Assistance, the maximum CLTV is 100%, however, refer to the Down Payment Assistance additional guidelines for requirements and restrictions.
FHA 203K Loan: Max LTV/CLTV is 115%. See FHA restrictions
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More and more people are becoming familiar with FHA loan programs and liklihood of 2011 FHA guidelines being revised are good. Millions of new homebuyers have been making efforts to get approved for FHA home loans before HUD implements new FHA guidelines. HUD is tightening credit guidelines and FHA loan requirements for home purchase and FHA refinance transactions. According to the Mortgage News Post, The Housing of Urban Development is going to be asking more from borrowers with minimum credit score and in some cases higher down-payments, especially for loan applicants with challenged credit.
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New FHA Guidelines
- FHA Credit Scores Requirements
- Lower LTV for FHA Refinancing
- Higher Down-Payments
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The Mortgage Bankers Association hinted in their recent report that the new FHA guidelines may have indirectly helped increase the demand for purchase mortgages last week to their highest level since April 1st, 2010. Applications for FHA mortgage loans jumped a seasonally adjusted 9.3% during the week ending October 1st. Most industry insiders agree with MBA that the 17.2% spike was due in large to the demand for FHA home loans. In July, HUD announced that FHA borrower’s assigned case numbers after October 4th will need a 580 FICO score in order to purchase a home with the minimum 3.5% down-payment.
Borrowers with credit scores between 500-579 must make down-payments of at least 10% to qualify for the FHA mortgage insurance program, and those with scores below 500 won’t qualify for the program at all, HUD said in a September 3rd letter to FHA lenders.
It was the second straight weekly increase in purchase applications, pushing demand to levels not seen since the first week in May. However, home loan demand was still off nearly 35% from this time last year. The home mortgage refinancing demand was down 2.5%, with applications for refinances accounting for 78.9 % of total applications, down from 80.7% the previous week.
The average FHA rates for 30-year fixed-rate home loans decreased to 4.25% from 4.38%, with points dropping to 1.00 from 1.01 for 80% loan-to-value (LTV) ratio mortgages. The 30-year mortgage is the lowest recorded rate in the survey, with the previous low being the rate observed last week.
The average FHA rate for 15-year fixed-rate mortgages decreased to 3.73% from 3.77%, with points rising to 1.14 from 1.13 for 80% LTV mortgages. The 15-year FHA rate is the lowest recorded in the survey, while the previous low was observed last week.
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.
FHA home financing has played a crucial role in helping Americans become homeowners and they have been offering mortgage products since the Great Depression. Today, FHA home loan programs support almost 35% of the home financing market. FHA is the home financing arm of the Housing and Urban Development Department. It oversees Fannie, Freddie, FHLB and other mortgage lenders and provides mortgage insurance on loans made by the FHA lenders for lower-income and first-time buyers.
Is FHA Home Financing Getting Better?
FHA now insures about 5.4 million 1-family mortgage loans at a combined value of $675 billion, making it the world’s largest insurer of mortgage loans. HUD continues to offer FHA refinance and purchase loans in all 50 states.
Together with Fannie and Freddie, the FHA backs 90% of new American home loans. FHA mortgage programs have received a lot of criticism recently, because of the depleted FHA loan reserves and increased foreclosures but the agency was the only financing company that stepped up to fill the void when the subprime mortgage market crashed in 2006. FHA again stepped up in 2008 when conventional mortgage lenders and private insurers were squeezed by the credit crunch. FHA lenders remained focuse on improving the housing markets by providing better FHA home loans in 2011.
First time homebuyers like FHA loan programs because the down-payment requirements are low, the lending fees are low and of course it doesn’t hurt that FHA rates are the lowest they have been in 50-years. With record low FHA loan rates and home prices dropping, you would think that home buying would be exploding, yet the FHA home loan application volumes have been flat since the tax credit for first time homebuyers expired on April 30th. Needless to say there are still thousands of borrowers that have taken advantage of FHA refinancing and FHA lenders anticipate that thousands more will utilize FHA mortgage products this year while low interest rates are available. FHA guidelines for refinance loans have already made significant changes in the last few years.
HUD announced that The Federal Housing Administration plans to hike the annual fees it charges new borrowers starting September 7th, which would add about $300 million a month to the agency’s eroding cash reserves. The insurance premiums are capped at 0.55 % of the value of a loan. Earlier this week, the Senate voted to raise the cap to 1.5 %. President Obama is expected to sign the measure this month. But the FHA does not plan to raise the fees to the maximum level allowed, and it estimates that borrowers would pay about $38 more on average each month, agency officials said. The increase would not apply to current FHA loan holders. HUD said that raising the FHA lending fees will give the agency a much needed cash injection. The fee structure revision only aligns its fee structure with that of private mortgage insurers, which were crowded out of the market as the popularity of FHA loan program increased.
Increasing the premiums is a quick way for the agency to elevate its loan reserves that have been dwindling down from the foreclosures and loan defaults. In the past, FHA has avoided raising loan fees because they feared that they were closing the door of opportunity for qualified borrowers. In addition, many economists had warned that drastic changes to home financing would likely hinder recovery of the housing sector nationally. FHA already increased the upfront fees it charges borrowers earlier this year. Those FHA mortgage lending fees helped keep the agency cash-positive this fiscal year, with a net cash flow of $446 million as of June 30th.
FHA Commissioner David H. Stevens said, “The premium is another important measure to help protect the FHA mortgage program.” FHA asked Congress for authority to increase the annual fees. The loan fee increase was included in a broad FHA loan reform bill that passed the House in June. But when the Senate did not act on it, the FHA pushed for a free-standing bill that would allow for passage of the premium increase before Congress began its August recess.
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