Let’s take a look at the FHA loan programs at risk.

FHA 203B – This FHA loan program enables borrowers to get cash out up to 85%.  FHA reduced it 10% from 95% cash out refinancing last year.  It will be interesting to see if the 10% reduction helped reduce FHA loan defaults for borrowers who took cash out when they refinanced their home. 

FHA Streamline – This legendary refinance loan is only for existing FHA borrowers seeking a rate and term refinance.  HUD tightened the FHA guidelines by not allowing borrowers to finance the lender closing costs.  FHA streamlines do not allow cash out and this new rule has significantly reduced the number of FHA streamline refinances in 2010.  My guess is that the streamline program will survive if FHA survives. 

FHA Home Loans – FHA goes hand in hand with first time home buying loans so it’s hard to imagine FHA would eliminate their flagship mortgage product, but if FHA loan defaults continue anything is possible.  In 2009 FHA loan reserves dipped to dangerously low levels, so funding the FHA program must continue to pass through Congress.  Last year FHA increased the down-payment requirements from 3% to 3.5%.  I would anticipate that this will go to 5% sooner rather than later.

To HUD’s credit, FHA loan requirements for FHA lenders have increased dramatically.  These changes were made to further solidify lending and weed out the shady or uncommitted lenders.  As mentioned earlier HUD also mandated significant changes to FHA guidelines.  Down-payment, home equity and cash out requirements were all tightened in 2009 and 2010.   It is my contention that the FHA loan product will survive, but I believe we the tightening of guidelines is far from over.

Currently FHA does not offer a no money down mortgage option. In fact there is not any 100% home loans left in today’s market, with the exception of the VA home loan.  Of course this mortgage is only offered to active military and qualified veterans. Besides these military mortgages, FHA offers the closest thing to zero down home financing with a 97.5% home loan.

The FHA Home Loan Company is an FHA approved lenders that offers the full suite of FHA loan programs to borrowers in all 50 states.  Choose from FHA refinance, FHA streamline and FHA home purchase loan options.

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.

• 203(b) – this is the standard single-family home loan program. It’s the loan most people have heard of because it’s the most common purchase loan program.

• FHA/VA 203(v), also known as the FHA/VA Tandem Loan – Most people haven’t heard of this one because it’s only available to veterans. Those who have used their VA eligibility or those who want to use their VA certificate later on can use it. The FHA/VA loan doesn’t involve the veteran’s entitlement, and there are no limits on how often the loan can be utilized. Veterans can only finance single-family homes with this loan. They are not allowed to finance duplex or other multi-family properties.

• The FHA Adjustable-Rate Mortgage (FHA ARM) combines the three-percent down payment guidelines of the standard 203(b) program with the features of an ARM. But, unlike the subprime ARMs and exotic hybrid ARMs (interest only and negative amortization loans), the FHA ARM does not allow negative amortization, and maximum interest rate increase caps are limited to 1 percent per year and 5 percent over the life of the loan.

• Section 245′s FHA Graduated Payment Mortgage (GPM) plan allows a borrower to pay lower initial monthly payments during the early years of the loan. Mortgage payments are structured to rise gradually for a set period of time, generally from five to seven years, and then remain fixed for the remainder of the loan. This enables borrowers to grow into higher monthly payments as their income increases.

• The FHA Growing Equity Mortgage (GEM), under Section 245(a), is designed to allow the borrower to grow equity in his or her property at a faster rate than with the traditional 30-year mortgages, while at the same time keeping payments low during the early years of the loan. With the GEM, payments increase between 2 percent and 7-1/2 percent each year (depending upon the particular plan), with the increase being applied directly to the principal balance. The loan is thereby retired in approximately fifteen years, dramatically reducing the overall cost of the mortgage.

• Section 203(h) is available to anyone whose home has been destroyed or severely damaged in a federally declared disaster area. The funds can be used to rebuild the home or purchase a new one; however, the borrower’s application must be filed with the Department of Housing and Urban Development (HUD) within one year of the President’s declaration of the disaster. Under this program, 100 percent loans can be obtained (including closing costs). The borrower can pay prepaid expenses such as property taxes and insurance, or the lender can premium price the loan (charge more interest) and pay the prepaid items for the borrower.

• Section 203(k) insures loans used to rehabilitate existing residential properties that will be used for residential purposes, or to convert non-residential buildings to residential use or change the number of family units in the dwelling. The 203(k) provides the borrower with interim and permanent financing in one loan. The loan amount, which is based on the property’s after-renovation value, cannot exceed the current FHA maximum mortgage in the borrower’s area.

• FHA Title I program – this is similar to the 203(b) program, but it’s for manufactured housing. A borrower can receive financing for the purchase of a manufactured home and land. The program can also be used to buy just the home if land is already owned, or land if the borrower already owns the manufactured home.

Are you looking to buy a home? If you already own a home, are you looking to refinance? FHA is the best loan option available. Unlike conventional lenders stuck in the credit freeze, FHA home loans are available. Credit underwriting for these loans is quite reasonable, too. FHA home refinancing is flexible and funding is much faster than it used to be. Fill out the loan quote form on this page for more information.