The importance and value of FHA loans in the mortgage industry and real estate market should not be overlooked as HUD’s mortgages have helped finance America during some tough times. In 2006, FHA’s share of the purchase market had fallen to less than 4%.  Then the subprime mortgage crisis arose as borrowers began to default at great numbers.  The foreclosure crisis followed which caused the real estate market to crash nationwide. As a result, the financial crisis arose and that has our economy wondering when the housing market will bottom out.  With home prices declining and defaults rising, the subprime market largely disappeared; option ARMs declined to a trickle; and documentation requirements on prime conventional loans were substantially tightened. In addition, FHA home loan limits were raised materially in 2008, and again in 2009. In early 2009, FHA’s market share of new purchases was back to about 15 %, and its share of refinances was substantially higher.

The FHA Home Loan Benefits:

o    FHA mortgage loan limits: The FHA loan limits on FHAs effective until year-end 2009, established on a county basis, were the same as those applicable to Freddie Mac and Fannie Mae. On a single-family house, they ranged from $271,050 to $729,750 in 76 higher-price counties.

o    Down-payment requirements: In 2009, FHA’s 3.5% down payment compared with 5 % to 10 % on most conventional loan programs. Zero-down loans, which were widely available in the conventional sector during the dodgy years of 2000-2006, have largely evaporated. The only generally available zero-down loans are VA mortgages for military home financing.

o    Underwriting requirements: FHA accepts lower credit scores than are allowed with “A-paper” conventional mortgages and in most cases FHA loans are more forgiving of past credit blemishes like collections, charge-offs and delinquencies. FHA underwriting will allow a bankruptcy after only 2 years and a foreclosure after 3 years with strong compensating factors.

o    Mortgage insurance: FHA borrowers pay a monthly mortgage insurance premium of 0.5 % per year

Compare FHA mortgage rates and lender costs: Consumers are now in a great position to shop and compare FHA and conventional mortgages for refinance or home-buying.  We suggest analyzing 3 loan offers from different lenders or brokers.  Compare interest rates, loan amounts, origination fees, discount fees, processing fees, underwriting fees and the appraisal fees. Don’t forget that with FHA refinance loans all cash out transactions above 85% Loan to Value now require 2 appraisals from FHA licensed appraisers.  Don’t forget to factor in the upfront mortgage insurance premium, with FHA mortgage loans.

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.

Obama has made clear that he understands how paramount the FHA mortgage loan system is for revitalizing the housing markets from a local and national level.  Low interest rates and comprehensive FHA loan programs are essential for America to rebuild its credibility with homeowners and new homebuyers.  Most mortgage insiders believe that Obama understands the importance of recapturing property values that will help many families get back on their feet.   The Obama Administration will likely move quickly to reestablish credibility for American home financing.  FHA mortgage rates remain at the lowest levels ever.  Today a qualified borrower could take out a FHA mortgage with a fixed interest rate for thirty years at 4.75%. 

Many believe that Barrack should review a few of the FHA home loan products and provisions to see which loan programs are succeeding and which products are missing the mark.  Hope for Homeowners was a program passed over the summer as part of the FHA mortgage reform package. In a recent report, FHA loan pros said that as of “October 1st and HUD has allegedly allotted 22 people to the program.”  They would not confirm it, but clearly their reports and articles were blowing much needed whistles on the government loan relief programs that were supposed to be saving homes and giving new opportunities to homeowner that were able to qualify for home refinancing.

According to congressional testimony by James A. Heist, HUD’s assistant attorney inspector general for audit, “it is our understanding from the Department that funding for 22 staff positions and approximately $20 million for system improvements have been made available for the Hope for Homeowners program.”  Mr Heist does not say HUD has actually deployed 22 people to work on the H4H program, he only says “it is our understanding” that money has been made available for this purpose. This is hardly re-assuring and, in fact, there is no evidence that anyone at HUD is actually doing anything. How do we know? Well HUD’s figures as of December 31st — three full months after the H4H program began — show there have been 370 program applications but that “no Hope for Homeowners cases have been insured to date.”  Look for Congress to investigate the Hope for Homeowners program and while they’re at it expect them to review the FHA Secure loans as well.

The average FHA mortgage rate for a thirty-year home loan dropped below 5% this week.  Mortgage Brokers Network executive, Steve Park said, “This is a rare opportunity to revive the mortgage industry because interest rates have dropped to record levels that have not been available for the last forty years.”  Homeowners across the country realize this rare financing opportunity, so thousands of borrowers are rushing to lock into this monumental era that could spur a much needed home refinancing boom. 

Today, the biggest obstacle for most borrowers is credit.  In many cases, conventional lenders have credit score requirements seeking credit scores over 680.  In this dried up credit markets, even professionals like doctors or lawyers have found it difficult to qualify for a traditional mortgage. If you’re interested in a refinancing mortgage, it is imperative that you have good or excellent credit and the ability to be able to provide documentation for income that lending underwriters deem sufficient. 

FHA still offer a refinancing opportunity for borrowers with good or bad credit can qualify for a FHA home loan that is fixed for thirty years.  The most popular FHA loan allowing refinancing is the FHA mortgage that requires borrowers to be at 97% loan to value for the standard FHA rate and term refinancing and 95% cash out refinancing would require home owners to have at least 5% left in your home equity.  However in some cases the FHA lender will require two appraisals for cash out refinancing above 85% loan to value. 

If you have no equity available because of the declining home value, consider the Hope for Homeowners program insured by FHA.  This unique program enables homeowners who have mortgage balances greater than the appraised amount.  If you are unable to qualify for Hope for Homeowners, consider a loan modification, because credit scores and late payments will not prevent you from renegotiating your mortgage rate.

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

Watch FHA Loan Video >

The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies. The two government sponsored enterprises (GSEs) own or guarantee almost half of the country’s $12 trillion in outstanding home mortgage debt. Treasury Secretary Henry Carlson said he hopes the move will lower FHA mortgage rates, increase home buying and slow down the drop in home values.  The government plans to move these two mortgage giants into the FHA home loan division for the time being.

The news, first reported on The Wall Street Journal’s Web site, came after stock markets closed. In after-hours trading Fannie Mae’s shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac’s shares fell $1.06, or almost 21 percent, to $4.04. The news also follows a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.  The FHA secure refinance loan was created for foreclosure prevention so this number may drop further in the next few months.

The number of new mortgage holders entering foreclosure in the second quarter stood at 1.19 per cent of all US mortgages, the Mortgage Bankers Association said Friday. This is the first time the rate has topped 1 per cent in the 29-year-history of the association’s record keeping.  Fannie and Freddie have suffered 14.9 billion dollars in losses from the widening mortgage foreclosure crisis in the US that has rippled outward to foreign investors. The central banks of many countries, including those in Asia, hold considerable stock in Fannie and Freddie.

The US Treasury has plans to put Fannie and Freddie into a so-called conservatorship, House Financial Services Committee Chairman Barney Frank told Bloomberg financial news agency, after a briefing by Treasury Secretary Henry Paulson on Saturday.  “What they are talking about doing are two things, one is conservatorship and two, putting some money into them. I think it’s an important combination,” Frank said.

Daniel H. Mudd, chief executive of Fannie Mae, and Richard Syron, his counterpart at Freddie Mac, are expected to step down from their posts eventually, the Wall Street Journal reported. The value of the company’s common stock would be diluted but not wiped out, while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the Washington Post said. The Federal Housing Finance Agency (FHFA), a new agency that Congress created this summer, will regulate Fannie and Freddie.  Instead of giving each company a big capital infusion up front, the government plans to make quarterly infusions as the companies’ losses warrant, sources told the Washington Post late Friday. This would be an attempt to minimize the initial cost of the rescue, the paper said.

How is all this going to affect the housing market?

“I think it is probably a good thing. We could see the foreclosures were going to continue and something needed to happen. This will bring some cash to the organizations and I think it’s going to bring some stability,” said Greg Bauman, president of the St. Paul Area Association of Realtors.

Bauman said if the government would not have taken over, and Fannie and Freddie failed, the results would have been devastating. Now with the government in control and funding the organizations, and with new CEOs in place, Bauman said there will be more stability in the housing market.

Local mortgage brokers have commented that there is a void for down-payment assistance loans with FHA.  However, local home buyers and sellers may not see that much of a difference.  “I don’t think consumers are really going to see a real impact. I don’t think we will see a big change in interest rates and mortgages or the qualifying for them,” said Bauman.

Freddie Mac announced Tuesday morning that it will not purchase mortgage loans in the state of New York that fall under the state’s new definition of “subprime”.  “The state of New York has enacted legislation that creates a ‘subprime home loan’ category of mortgages,” wrote vice president of customer outreach Patricia McClung in a memo to sellers and servicers. “Freddie Mac will not purchase New York subprime mortgages with note dates on or after September 1, 2008 that fall within the law’s definition of ‘subprime home loans.’”

What does this mean to home borrowers?
“Mortgage lenders will just decide to stop lending in certain areas,” said one source, a banking executive that asked not to be named. “We could end up with an entire class of borrowers that I call ‘the unlendables.’”

This exemplifies the position that conventional home lenders are taking. They are tightening their belts on lending practices to the point where it’s getting to be nearly impossible to qualify for a home loan. Fortunately, however, the FHA has stepped up to the plate. Under the Housing and Economic Recovery Act of 2008, just recently signed by President Bush, the FHA is being modernized to help with new home purchases and bring hope to those facing foreclosure.

The FHA Modernization Act of 2008 raises the FHA home loan limit. The current loan limit is $362,790. Under the new legislation it will be raised to $417,000 in certain parts of the country. In less expensive markets, the limit would be raised from 48 percent to 65 percent of the conforming loan limit, or an increase in the ceiling from $200,160 to $271,050 under the bill. It also does away with seller-funded down payment assistance programs like AmeriDream. But, since many lenders have already done away with these programs, it’s inconsequential. And, you can still get down payment assistance from family, friends, employers, churches and city-,county- and state-funded down payment assistance programs.

HOPE for Homeowners Act of 2008 was put in place to bring hope to those facing foreclosure due to skyrocketing mortgage payments as a result of subprime adjustable mortgage rates resetting to record high levels. This program allows these people to refinance into a fixed-rate FHA home loan.

FHASecure is not part of the new legislation. It was put in place earlier this year to address the rising foreclosure rate. It allows people facing foreclosure to refinance their mortgage loans into FHA fixed rate mortgages. This program is due to expire on December 31, 2008. The new HOPE for homeowners act will pick up where FHASecure leaves off.

Even if you’re not facing foreclosure, you can still refinance your home through FHA–just not through the HOPE for Homeowners or FHASecure programs. Fill out the free loan quote on this page or call us at 800-606-5143 to find out if you qualify for a FHA refinance loan.