In recent FHA news, the House just passed HR 3288, home loan legislation which would continue 2009 FHA loan limits through 2010 for owner ocuupied purchase and refinance loans. However, the bill did state that HUD will be reducing loan limits for FHA reverse mortgage loans that are available to senior homeowners who are at least 62 years of age. 

HUD is now approved to insure FHA home loans worth up to $400 billion. This is a significant rise from $315 billion last year.  The mortgage bill also mandates that FHA mortgage loan limits from fiscal 2008. This means the FHA loan limits will still allow loan amounts up to $729,750 in certain areas.

Gone are the days when HUD could copy Fannie or Freddie when setting FHA loan limits for the counties in the 50 states.  No more can HUD say “ditto” when it comes to home loan limits, because Fannie and Freddie are silent and appear to be disenchanted with the government bail-outs that have ran-sacked the mortgage industry over the last 3 years. So with 2010 FHA loan limits all set, consumers looking to FHA for home financing have real numbers to work with. It also helps FHA lenders and brokers, because banks usually won’t roll out new loan programs with government loan limits up in the air. Consumers have been blessed with record low FHA mortgage rates in 2009 and this is clearly good news for FHA rates in 2010.  When considering refinancing or a purchase mortgage, check with HUD for local loan limits set by county for each state. 

A recent Bloomberg article on FHAmortgage rates reported that FHA 2009 Endorsements Exceed $.25 Trillion. The origination of loans insured by the Federal Housing Administration during the current fiscal year, including reverse mortgages, has exceeded a quarter-trillion dollars.  During June, 194,528 FHA home loans were endorsed for $36.9 billion, according to data reported by the U.S. Department of Housing and Urban Development.  FHA refinance loans accounted for 96,920 of June’s endorsements, while purchases represented 88,975

Last week, the US Senate Special Committee on Aging introduced an $800 million HUD bill to resolve some of the growing concerns over the FHA home loans created specifically for Seniors older than 62 years of age.  These FHA loans are also known as reverse mortgages, but the real concerns are that these loans may be leaving senior citizens and American taxpayers liable for millions of bad mortgages that may not perform. Clearly the fact that FHA insures these reverse mortgage loans adds to the concern for liability and stick Americans with more mortgage related debt.

Peter Bell, president of that National Reverse Mortgage Lenders Association testified that “a reverse mortgage must occupy the primary lien position on a property. All other home loans must be satisfied with reverse mortgage proceeds. If some of the proceeds available from the reverse mortgage are diverted to a tax and insurance escrow, in some cases, there would not be enough money left to satisfy the liens. In such cases, the homeowner would not be able to obtain the reverse mortgage – and probably be forced to give up the home.  “Instead of simply imposing an escrow, HUD (in partnership with a NRMLA Task Force on tax and insurance issues) is looking at utilizing the financial assessment tool to determine if the lender and counselor should work with the borrower to establish an escrow, amend the draw-down schedule, limit payment options, disallow a lump sum payment or take other steps appropriate to help protect borrowers from tax and insurance defaults. One obstacle here is that the Home Equity Conversion Mortgage statute requires all five payment options available under the program to be offered to all borrowers, restricting HUD and lenders’ ability to take appropriate action.”

An industry group lowered their forecast for 2009 home loan originations by more than 25% as higher FHA mortgage rates stifle mortgage refinancing activity.  The Mortgage Bankers Association estimates that lenders will make $2.03 trillion in new home loans this year, down by more than $700 billion from its forecast in March.  The Washington-based group attributed $84 billion to reduce mortgage lending on home purchases.  The rest of the decline would be from fewer FHA refinance loans and “very low” volumes on an affordability loan program overseen by mortgage agencies FHA, Fannie Mae and Freddie Mac, MBA said in a statement.

FHA mortgage rates have risen from record lows since the MBA’s prior forecast as have Treasury yields, which spiked amid a flood of debt issuance needed to fund federal rescue programs.

In March, the MBA boosted its forecast of mortgage originations by more than $800 billion but reversed most of that expected increase with Monday’s revision.  Average 30-year loan rates have slipped from recent peaks but at 5.38 % last week remain well above the record low 4.78 % set in April, Freddie Mac reported on Thursday.  The higher mortgage rates have quelled home refinancing demand.  The MBA’s index of mortgage refinancing applications in the week ended June 5 sank to 2,605.7 after hovering between about 5,100 and 6,800 from the March 20 week through the end of April.

Estimates of home loans moving through the Home Affordable Refinance Program, using Fannie and Freddie, have also fallen short.  According to Jay Brinkmann, MBA’s chief economist, “While generally accepted estimates were that around 1.5 to 2 million borrowers might avail themselves of this FHA loan program, with many more potentially eligible, to date only about 13,000 loans have been completed according to press reports.”

Though the FHA home loans created under this program should increase, volume is unlikely to come near forecasts, he said.  FHA home purchase loans are also expected to be less than expected in March. Falling prices mean lower loan sizes, and homes bought in foreclosure and by investors are often done for cash, the trade group said.

The MBA expects total existing home sales in 2009 to drop 1.2 % from last year to 4.8 million units. New home sales will slump about 27 % to 352,000 units, the group said.”Median home prices for new and existing homes will likely continue to fall, dropping by about 10 % from 2008 levels, but leveling off in 2010 as the economy improves,” Brinkmann said.

FHA mortgage rates remain very attractive for borrowers who do not have much home equity left.  Qualifying for a home loan that is fixed for 30 years is still a great day for home financing.  FHA home loans enable borrowers with less than perfect credit qualify for home refinancing. Gone are the days of the zero down home loans that enable homeowners to consolidate credit card debt or take out a cash out second mortgage that homebuyers would have to quickly refinance. 

FHA continues to offer great 1^st time homebuyer programs with new home financing requiring only 3.5 percent down. FHA mortgage lenders remain optimistic that Hope for Homeowners may help some of their borrowers prevent foreclosure. Home financing guru, Jason Cardiff said, whether its FHA or a loan modification, homeowners need to get up and do something to stop foreclosure.  Cardiff continued, “Lenders are offering loan workouts like we’ve never seen before, so contact a mortgage lender to refinance or seek counsel from a law firm that has a good track record of loan modifications with your mortgage lender.”

Federal Rate Cut Lead to Lowest Mortgage Rates Ever

The Federal Reserve cut the federal funds interest rate on Tuesday The Fed cuts the benchmark interest rate to nearly zero, and CNBC’s Diana Olick said this might help lower mortgage rates. Susan Wachter, a professor of real estate, finance and city and regional planning at the Wharton School of the University of Pennsylvania, said cutting the interest rate will help change the housing market and move toward a bottom on housing prices, although it may take a while for banks to start originating much need mortgage loans. Olick added that to get those cheap rates, buyers must have impeccable credit and money to put down on the home loan.

FHA home loans will be the only opportunity for non-prime refinancing, but even the FHA loan guidelines are tighter in 2009.  HUD requires 2 full URAR appraisals for FHA cash out refinance loans that exceeds 85% loan to value.  Borrowers can still use FHA loans for cash refinancing up to 95%, but two appraisals slows the process down and increases the closing costs as well.  Many FHA lenders are reporting minimum credit score requirements implemented for higher risk FHA home mortgages.  FHA mortgage rates for purchase or refinance are being reported with fixed rates as low as 4.5% on thirty year home mortgages.

Metro Housing of Flint is a non-profit agency. If you’re about to refinance, they suggest waiting until Wednesday before locking in your mortgage rates. “It’s going to be an impact day, and you’re going to see the interest rates hover and loan officers remain excited because of the significant amounts opportunity for home refinancing. It’s going to be a big day,” Crews predicted. If you have bad credit, or if your mortgage balance is greater than what your house is actually worth, qualifying for a refinance loan will be impossible.  Mortgage rates are low, but lending guidelines are tighter than ever.  Mortgage refinancing can be tricky, but not impossible. “Every time there’s a strategy. What happens is we don’t want to do the strategy, and we want to do it now, but we have to take the steps and get there,” Crews advised. 

To ease the confusion, Metro Housing is offering free seminars titled “Know Your Loan, Save Your Home.”  “We need to know what your rates are. We need to be able to look at your credit, and what the recapture period is. Then we can figure out what products can get you back to a safe place,” Crews explained.  If mortgage rates drop again on Wednesday, there’s no way of knowing just how long they will remain that low. Metro Housing’s best advice is to get your act together now, before you miss your opportunity and it’s too late.  “Know your mortgage. If you don’t take action, it will pass you by,” Crews said.

Why the Fed Meeting Matters so Much…

Former Dallas Fed President Gerald O’Driscoll talks about what to expect from the next Federal Reserve meeting.

It looks like FHA will continue to pumps up the Hope for Homeowners program to help distressed homeowners who have been unable to refinance. This FHA refinancing program continues to be questioned because millions of homeowners are facing foreclosure and yet still only a few have been able to qualify for this short-refinance program.  However, loan modification programs the alternative to refinancing, are more popular than ever, as lenders continue to renegotiate mortgage balances for troubled borrowers across the country.

But in the 2009 FHA loan limits are being reduced again.  FHA announced the new ceiling in the high cost markets will be $625,500. FHA mortgages in 2009 will cap out at 115% of the median home price in a county or metropolitan area. Still, many regions of the housing market will remain, as never before, eligible for FHA home loans.

o    FHA home loans can only be originated from a FHA-approved mortgage lender.

o    Down payment requirements are minimal. Buyers need only 3.5% of the house’s price tag.

o    The down-payment can be a gift from a family member, employer, local charity, or local government program.

o    FHA mortgage programs enable all ranges of credit scores with compensating factors

o    You must have a two-year employment record. The new monthly FHA mortgage payment must be less than 31% of your income, and debt to income ratio is usually less than 43% of your income.

Read the complete FHA Loan Article >.

Did you know that FHA loan programs enable a couple getting married to receive gift funds through bridal registry set up specifically for FHA home financing?  So that means instead of family and friends buying you plates and dishes that you do not want, they can invest in your home.  The Bridal Registry Account allows couples who are getting married to open a bridal registry savings account with a HUD approved FHA mortgage lending institution. Now wedding guests can deposit money as wedding gifts directly into the interest-bearing account that will be applied to the down-payment of your home. 

FHA home purchase loans only require 3% down-payments so if all goes well, you will be able buy your 1^st home by the time you get back from your honey moon.  FHA home loans provide many benefits, like low fixed mortgage rates and the ability to do a FHA streamline refinance any time the interest rates drop.

The Mortgage Bankers Association recently reported a significant increase in FHA loan share of the mortgage market.  The Association says “the government share of originations more than doubled to 11.8 % in the first half of 2008 compared to 5.7 % in the second half of 2007. The government home loans category includes loans guaranteed or insured by the Department of Veterans Affairs, the Federal Housing Administration and Rural Housing Service. The increase in the FHA home loan limit, which broadened FHA refinancing and purchase loan options for more consumers, was one of the factors that contributed to the increased popularity of the FHA.”

The increase in federally-insured loan programs should hardly come as a surprise. The subprime and conventional mortgages have been impacted by the lack of bank lending.  Private and portfolio lending is being done more as they account for 88.2 % of all mortgage loans closed. But the FHA home loans being made today are objectively better than the junk seen during the past few years because mortgage lenders are requiring documentation and eliminating negative amortization mortgages, interest-only loans and other forms of risky financing.  FHA mortgage loans make sense because they have no penalties for early termination and no balloon payments due. Private money has begun to carry the FHA mortgage market.

Other details from the MBA report include:

o    The refinance share of all originations was 61.7 % in the first half of 2008, compared to 54.8 % in the second half of 2007. The % of home refinance loans for rate or term purposes increased from 38.1 % in the second half of 2007 to 48.6 % in the first half of 2008. The refinance volume also increased 5.8 % in the first half of 2008, based on data from repeater companies, which are participants that responded to the survey in both halves.

o    For 1^st mortgages, fixed-rate mortgage loans, excluding interest-only loans, accounted for 78.5 % of the dollar volume of originated home loans in the first half of 2008, compared to 63.6 % in the 2^nd half of 2007.

o    In the 1st half of 2008, 82.7 % of all origination dollars were for prime loans, compared to 79.0 % in the 2nd half of 2007, 3.8 % were non-prime, compared to 7.5 % in the 2nd half of 2007, and 1.7 % were Alt-A, compared to 7.8 % in the second half of 2007.

o    Originations of mortgages with deferred amortization (“interest only” or “IO”) continued to decrease significantly for both fixed and adjustable rate mortgage programs from the 2nd half of 2007. IOs accounted for 10.6 % of originations in the 1st half of 2008, compared to 22.4 % in the second half of 2007.

o    In the first half of 2008, first-time homebuyer purchases represented 29.9 % of the volume of purchase fundings, compared to 27.9 % in the second half of 2007. They represented 32.2 % of the number of purchase loans in the 1st half of 2008, compared to 30.2 % in the 2nd half of 2007.

o    Estimates from MBA’s Mortgage Finance Forecast further demonstrate the trends in originations as purchase money loans were down by 16.2 % in the first half of 2008 compared to the 2^nd half of 2007. Refinance fundings increased 16.3 % in the 1st half of 2008 compared to the 2nd half of 2007.

U.S. Housing and Urban Development Secretary Steve Preston will address the Mortgage Bankers Association meeting in San Francisco today alongside Karl Rove, President Bush’s former deputy chief of staff and senior adviser, and George Mitchell, former Senate majority leader.  Preston took the reins at HUD in June after previous secretary Alphonso Jackson stepped down in April amid allegations of cronyism.

HUD oversees the Federal Housing Administration, a Depression-era agency created to stimulate home ownership. FHA home loans remain the focal point of many efforts to help struggling homeowners with foreclosure prevention solutions and is playing a more significant role in the home mortgage market this year after Congress allowed it to insure larger jumbo loans up to $729.750. 

Question: Hope for Homeowners, or H4H, the $300 billion FHA mortgage refinancing program for struggling homeowners authorized by Congress this summer, took effect Oct. 1. How willing are lenders to participate, given that they must write down a loan to 90% of a home’s current value?

Answer: FHA lenders continue to sign up. We have seen many of the lending companies begin to work through the process. It’s too early to tell what the volume will be. It’s important to note, this is just another tool in the toolbox. It’s specifically designed for the most urgent cases, people who have a loan greater than the value of their home. Mortgage lenders need to take dramatic action to participate. In addition to revising and writing the loan down to 90%, they need to assure that the resulting mortgage is affordable and based on sound lending criteria.  Many of the larger lenders informed HUD that they will take a piece of their portfolio and put them into H4H. HUD urges all homeowners who thinks they could have a problem paying their mortgage to get to a counselor sooner rather than later. HUD recommends discussing your situation with a FHA lender about your options.  Shop around with other mortgage lenders to fully understand your refinance options.

Question: Some of the government’s other programs include the FHASecure refinancing product and the HOPE Hotline, in partnership with large lenders. What are other ways to help homeowners avoid foreclosures?

Answer:  You’ve laid out the bigger federal programs. The next step is the $700 billion TARP (Troubled Asset Recovery Plan) program. It has a provision to advance foreclosure prevention activities. There is work in progress right now to begin to design those programs. FHA is coordinating with them at HUD to design those initiatives. Also, Fannie Mae and Freddie Mac announced that they are buying (troubled) mortgages. That will give us an opportunity to advance foreclosure mitigation actions. Potentially that gives us an opportunity to reach those homeowners directly because we would own those mortgages.

Question: The Housing and Economic Recovery Act authorized HUD to distribute $3.92 billion to states and cities to help combat blight, and assist low- and moderate-income buyers. The money was allocated based on foreclosure rates. California received $529 million, second only to Florida with $541 million. How do you expect state and local governments to use these grants?

Answer: HUD has a lot of latitude. They can buy foreclosed homes. They can buy and demolish blighted properties. They can offer down payment and closing cost assistance to low- and moderate-income buyers. We had a massive housing summit in Washington, D.C., earlier this month to teach people how to use these grants and to have other communities teach about best practices.

Question: What were some best practices you identified?

Answer:  Bringing in local not-for-profits that have a specialty in buying houses and turning them into affordable housing projects. Some smaller recipients talked about partnering with two or three local communities in the area to pool administrative resources, to maximize the amount of money they put to work. Some talked about how to focus on the visual uplifting of a community to make it more attractive to home buyers. HUD is putting together an idea-sharing Web site for best practices.

Question: Until recently, FHA was a minuscule part of the mortgage market here in pricey California because it could only insure low-cost loans. In February, Congress temporarily raised the FHA cap to $729,750 until the end of the year; in July, Congress permanently raised the limit to $625,500; both increases are only for high-cost areas. How has that affected FHA loans in California?

Answer: The program has gone from being a nonfactor in California to a quickly growing tool in the California market. For the most part, our low caps previously made the product almost ineligible for the market; now we’re seeing some really nice growth. We have more than 2.5 times the volume in the Bay Area this year compared to last year. For fiscal year 2008, which ended Sept. 30, HUD had over 5,000 loans for the Bay Area, up from 2,000 in FY 2007.

Question: Of course, FHA volume is increasing around the country as well as in California. How is FHA ramping up to handle that big additional workload?

Answer: People, process and technology. We’ve expanded the operation in terms of physical bodies. HUD is redesigning internal processes to improve their productivity. They have expanded the physical capacity of their system to handle volume.

Question: How can HUD improve lending standards and forestall inappropriate loans?

Answer: HUD continues to work very hard to finalize RESPA – the Real Estate Settlement Procedures Act – which would provide mortgage borrowers with information to evaluate the cost of their mortgage. When people go into a mortgage, they will have a statement that shows exactly how much they will have to pay, whether it will reset, and what other costs are associated with it. We’re hoping to get it done by the end of the year. It would be comprehensive but also simple.

Question: When do you think the housing market will hit bottom?

Answer: Six weeks ago, HUD was hoping to see us come out of the slump toward the back half of 2009. But in the past few weeks, we have had what could be a game-changing event with this severe shock to our system of liquidity. We have to understand what will happen to the broader economy before we get a sense of what it means for home prices.  One critical factor in keeping the wheels of the housing market turning is to ensure that liquidity is out there. Essentially that is how FHA works for mortgage lenders who adopt these programs that help borrowers understand we’re out there if they need help. Liquidity is a real enabler for purchasing.

In a recent article from the Originator Times, they discussed some of the details of John McCain’s mortgage plan proposed to help stop foreclosure with FHA home loan assistance from the government. The new loan would be called the FHA 203S loan and there would be no statutory cap so every homeowner is eligible if the home is owner occupied, regardless of loan amount. The Loan-to-Value however would be capped with a max of 100% of the present appraised value for the property. 

With this FHA loan option there would be no credit check to qualify, but the homeowner would need to provide income documentation proving they could afford the revised monthly mortgage payments within the existing FHA home loan guidelines; The homeowners would have the ability to buy down the FHA mortgage rate in an effort to increase the possible number of applicants that could qualify;

Homeowners refinancing with this program would have to agree not to sell their home for at least five years; and the difference between their current mortgage balance, plus any costs of obtaining the FHA 203S mortgage and the current appraised value of the house would be lent to the homeowner by the U.S. Treasury at a nominal interest rate as a 2nd mortgage with no loan payments due.  The Treasury would place a tax lien on the property for principal and interest that must be paid back to the U.S. Treasury when the home is sold or refinanced in the future.

Messina says his plan is a better deal for taxpayers and has bigger rewards for the mortgage industry.“FHA 203S loans made by the Treasury would be paid back eventually since the Treasury would be holding a tax lien on the property.  The final price tag would only be the sum of the deficit amounts lent by the Treasury.  Assuming that property values fell by 20%, the total cost would only be $140 billion.  Taxpayers would get a return in the form of interest once the tax lien is paid off,” explained Messina. 

He added: “In addition, mortgage brokers and lenders could see a significant refinance boom like they did in 2003 because close to a trillion dollars in business would be created by giving those one in six homeowners whose under-water home mortgages as a viable option to refinance.”