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.
With the government loan limits set to expire in a few weeks many lenders are voicing their concerns in regards to a pool of borrowers in high cost regions that will not be allowed to us FHA loans for buying or refinancing because there mortgage balance exceeds to the new loan limit level. The Federal Housing Administration has made it clear that they will make every effort to reduce loan defaults and bolster FHA reserves. The FHA finance entity believes that reducing the maximum FHA loan limits will help them achieve their goals.
* Fannie Mae, Freddie Mac drawn $170 billion in taxpayer funds
* Many Republicans want to end federal backstop in housing
* FHA loan limits on home mortgages expires October 1st
The FHA limits puts a cap on the size of mortgages that the FHA can insure. The loan limits are set to drop from $729,500 to $625,500 on October 1st in the high cost housing markets. Three years after taking control of Fannie Mae and Freddie Mac, the government now backs nearly 90% of new purchase mortgage transactions.
On Tuesday top Senate lawmakers laid bare long-standing differences on how to wind down government-backed home loan enterprises Fannie Mae and Freddie Mac underscoring the difficulty Congress will face when stimulating the home finance system in an effort to revamp the U.S. housing sector.
Democrats and Republicans alike agree both entities should be wound down but whether the government should still have a role subsidizing housing finance is still unsettled. “I am concerned about the unintended consequences for our housing market and economy that could result if a government role is eliminated completely,” Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, said during the panel’s tenth hearing on housing finance reform. He said that record low FHA mortgage rates, which currently hover around 4%, would likely jump across the country if the government backstop is diminished. Fannie Mae and Freddie Mac, the two congressionally chartered mortgage behemoths seized by the government in 2008 as losses on subprime loans mounted, are critical to the housing market. Read the original Reuters Article.
For the last few months, we have heard whispers in regards to HUD minimizing the 2012 FHA loan limits. The reality is that lower loan limits will have an adverse effect homeowners, new prospective home buyers and mortgage professionals, especially in high cost regions like California, Colorado, New York, New Jersey and Washington D.C. In a recent article, Lew Sichelman discusses the pending changes for conforming and FHA loan limit in 2012. Unquestionably the revisions on home loan limits will have a significant impact on the FHA home loan programs. These are mortgages insured by the Federal Housing Administration, because they have been more aggressive on credit and home equity guidelines compared loan programs securitized by Fannie Mae or Freddie Mac. Sichelman revealed in a recent analysis that FHA loan limits will likely be reduced in 669 of the 3,334 counties or county equivalents when the ceilings revert back to the levels determined under the Housing and Economic Recovery Act of 2008.
Congress has extended FHA loan limits in 2009, 2010 and 2011 on an annual basis, but in the upcoming year it appears that Fannie Mae, Freddie Mac and FHA will reduce maximum loan limits rather than extend them. Unfortunately this will reduce the pool of homeowners looking to refinance with FHA. Many FHA lenders are concerned that the reduced 2012 FHA loan limits will have a negative impact on their business. Many economists also point that if HUD reduces loan limits on FHA home loans it could actually trigger an increase in foreclosures, because more homeowners will be unable to find affordable home loans.
How Will Lower FHA Loan Limits in 2012 Effect Loan Origination?
The lower FHA limits will take place on October 1 unless Congress intervenes. That’s almost three times as many markets that will be affected when it comes to loans that conform to the limits placed on Fannie/Freddie mortgages. According to an earlier analysis by the Federal Housing Finance Agency, only 250 county or county-equivalent areas — a “small fraction” of the total, the FHFA said — will be affected by the pending change. The government home finance analysis indicates that its FHA loan limit would fall by more than 5% in eight states — Arizona, California, Colorado, Connecticut, Massachusetts, Maine, New Hampshire and Oregon — as well as the District of Columbia. When evaluated for the potential impact on the number of loans eligible for government insurance, Colorado, Maine and Oregon fall off the list and Nevada and Puerto Rico come on.
The FHA analysis reported a total of 44 Puerto Rican municipalities would feel the greatest pinch, with a projected decline in 2012 FHA loan limits of a whopping $221,000. But that would only impact 4% of those areas’ loan count. Other places would take big hits, too. The limit is projected to fall by $75,200 in Maricopa County, Ariz., from $346,250 to $271,050. In Los Angeles County, the lid would drop $104,250, from $729,750 to $625,500. But in Mendocino and San Joaquin Counties in California, it would sink by $138,750 and $184,000, respectively. The change could be equally as tough on the East Coast, too. In Monroe County, Fla., for example, the FHA maximum is projected to plunge by $200,500, from $729,750 to $529,000.
Until three years ago, FHA mortgage limits were set at 95% of the median price house price for each particular area. But the maximum could not exceed 87% of the ceiling placed on the GSEs or go lower than 48% of that ceiling. In February 2008, however, Congress changed the formula in an effort to mitigate the economic downturn by temporarily setting the limit at 125% of the area median but not to exceed 175% of the GSE limit of $417,000. Five months later, though, lawmakers changed the rules again when they passed the recovery act, this time by assigning the task of setting the conforming loan limit to the newly created FHFA.
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.”
For the third consecutive week FHA mortgage rates were lower than conforming rates. FHA rates were available as low as 4.625% on 30-year fixed rate mortgages and conforming rates averaged 4.875%. HUD offers FHA insured home loans to qualified borrowers in an effort to promote fair lending. FHA mortgage rates remain at an affordable level for borrowers seeking new home loans and mortgage refinancing
- FHA Refinancing
- First Time Homebuyer Loans
- Energy Efficient Loans
- Home Improvement Loans
Keep your eye on FHA mortgage rates in 2011 as many economists are predicting a trend for higher interest rates. Conforming rates have started to rise and FHA rates could be next. With FHA loan guidelines getting tighter it makes sense financially to get approved now for a FHA loan that meets your needs today.
According to a Bloomberg report, the number of conforming home loan declined last week, but FHA mortgage applications rose slightly. FHA refinancing activity was pretty flat but more interest was received with the government loan programs when compared to conventional and jumbo loan applications in the U.S. last week.
Colorado FHA lender, Shawn Downs said, “Traditional loan applications slowed down last week, while FHA refinance requests continued to rise.”
The Demand for FHA Home Loans Continues to Surge
The Mortgage Bankers Association’s index declined 5% in the week ended October 29th, the Washington-based group said today. Conventional refinancing fell 6.4%, while purchases rose 1.4 %. FHA refinancing rose .3%, while FHA home buying increased rose 1.75%.
Clearly there are still prospective homeowners that continue to wait to see what influence Federal Reserve policy makers’ actions will have on FHA rates and lending costs. Economists predict central bankers today will announce another round of large-scale assets purchases, known as quantitative easing, aimed at reducing interest rates and revving up the economy.
Even as FHA insurance premiums rise, the demand for FHA financing continues to surge. The average interest rate on a 30-year fixed home loan increased to 4.28% from 4.25% a week earlier, which matched the 2nd-lowest on record. At the current FHA rate, monthly payments for each $100,000 of a 30-year fixed home loan would be about $494, or $40 less than a year ago when the rate was 4.96 %.
Many are surprised at the discussions regarding FHA loan limits being reduced in 2011. If HUD and Congress decide to lower the loan limits it could have a dramatic effect on many homeowners in high cost regions in many states that currently have access to government home loans. Today’s FHA mortgage rate remains under 5% on fixed 30-year terms.
A few years ago, in an effort to revive the sluggish housing sector, Congress voted favorably for FHA, Fannie Mae and Freddie Mac to support home mortgages as high as $729,750 in high cost regions. The raised mortgage limits were significantly higher than the standard maximum loan amount of $417,000. The Wall Street Journal reported that without an extension on the higher FHA loan limits, that the $729,750 level would likely drop to $625,500 in 2011. However there may be another obstacle— FHA loan limits in even more counties could be reduced because of temporary extensions that enabled FHA to insure jumbo loans. There’s a nationwide ceiling for FHA loan limits, which is set at $271,050 and this is well below the $417,000 limit that is used for Freddie Mac and Fannie Mae.
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* FHA Rates at Record Lows!* FHA Streamlines Require No Equity* FHA Short Refinance Reduce Principal Balances for Underwater Mortgages
* Higher FHA Loan Limits Help Borrowers in High Cost States |
WSJ noted that “most counties are somewhere between the floor and the ceiling, because 2011 FHA loan limits vary by region as they are targeted to meet local median home prices. Under existing law, those limits are set at 115% of the local median price; under the expanded loan limits that are currently in effect, the limits are set at 125% of the local median price. The current loan limits are also higher because they’re set using housing bubble-era median prices, which are significantly higher than today’s prices that would be used to recalculate the new loan limits. This means if Congress doesn’t again extend the higher limits, they’ll be starting from a much lower level next year, and the multiplier effect—115% versus 125%—will be lower, too. The FHA mortgage market continues to increase its market-share so clearly the consumer demand remains strong for FHA loan programs.
According to the White House, the Obama administration supports extending the FHA loan limits for another year for these reasons. The FHA’s commissioner, David Stevens said, “We’re not talking about wealthy millionaires. We’re talking about the average American’s ability— to finance a home.”
The National Association of Realtors says that nearly 20% of U.S. counties—including almost the entire state of California, would see FHA loan limits fall in 2011 if the current extension expires. The FHA mortgage limits don’t expire until the end of the year, but the real-estate industry is anxious for Congress to pass an extension soon because banks aren’t going to wait until December 31st, 2010.
The Wall Street Journal reported that the consensus estimated from MacroMarkets LLC survey of 114 economists is that house prices will only increase by 0.8% in 2011. This means that home prices by the end of next year could remain where they were at the end of 2009.
It remains to be seen what will be done for 2011 FHA loan limits. Lowering the loan limits could back-fire and actually increase foreclosure rates, because many struggling homeowners in high cost regions would not be able to refinance into a more affordable payment. We know that lower monthly payments reduce the foreclosure rates so maybe HUD and Congress will come to their senses and do the right thing.
What was at one time a green light for bad credit mortgages may be at risk as HUD considers incorporating minimum fico requirements for FHA home loan programs for both purchase and refinance products. HUD contends that their oversight committee will implement a minimum credit score requirement of at least 500 for FHA loan approvals. Borrowers who are plagued with bad credit would likely be hindered by HUD’s policy mandate of applicants to have credit scores higher than 500 for FHA-home loan requirements. Believe it or not, FHA has never had credit score requirements factored into the FHA underwriting guidelines. According to Michael Fratantoni, of the Mortgage Bankers Association “It really is just reforming what FHA lenders and FHA loan guidelines have been doing for quite a while.” FHA lenders had instituted their own minimum credit score requirement and many loan professionals did not know that Fico score restrictions did not come from The Federal Housing Administration.
FHA has implemented several changes in regards to FHA requirements for mortgage companies to be approved to offer FHA loan programs. This government finance giant has tightened FHA loan guidelines and made significant initiatives in an effort to reduce the risk of FHA loan defaults and home foreclosures across the nation.
According to HUD Commissioner David Stevens, they have made a concerted effort to enhance the public perception for responsible lending while also boosting FHA loan reserves that act as insurance for non-performing mortgage loans. It is clear that the HUD Commissioner believes that the entity can carry out their plan to protect the FHA loan reserves that the likelihood of FHA to continue to offer affordable home financing programs is good. FHA has been helping first time home buyers become homeowners with affordable low rate FHA loans since 1934. It is no secret that HUD has been concerned that the FHA loan programs was in jeopardy of becoming extinct because of poor loan performance and loan companies pushing their subprime mortgage candidates to the FHA loan products. A few years ago, FHA loan delinquencies started to increase, but so have defaults for nearly all types of home loan products. Conventional, jumbo, home equity and even VA loan defaults have all risen over the last few years. FHA loan policies continued to play an important role in helping our economy rebound as they remain the biggest advocate for affordable home financing and fair lending.
FHA has made several moves recently in an effort to raise the standards and FHA loan requirements for FHA lenders offering single-family home loans. Most insiders believed that the Federal Housing Administration had targeted single family homes because of the FHA loan defaults. However, for the first time in nearly forty years, FHA announced they would be tightening FHA guidelines for multifamily home loans. Menzo Case, the president and chief executive of Seneca Falls Savings Bank in upstate New York said, “We’re not surprised by anything nowadays.” Among the new FHA requirements, the government agency is poised to elevate the debt service coverage ratios while reducing the loan-to-value and loan-to-cost ratios.
Will FHA Loosen Loan Requirements for Borrowers?
According to George Kaganovich, a mortgage banker from iServe Lending in California, “Each time FHA tightens the guidelines it seems to pinch consumers as fewer borrowers have the opportunity to refinance into a better loan.” Kaganovich continued, “Many homeowners have come to depend on FHA for fixed rate refinancing so hopefully things will get easier for them soon.
FHA is also requiring additional verification of a property’s financial performance, an expanded review of the borrower’s credit and the pre-screening of certain mortgage applications to prevent certain loans that may not make ever close, but would create a bottle-neck in the processing departments. Many FHA loan companies see these guideline changes as major obstacles for struggling borrowers, but they understand why FHA has raised the standards.
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.
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