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. 

The amazing expansion for FHA mortgage lending throughout 2008 was achieved mostly as a result from from the eroiding financial condition of the private mortgage insurance companies.  For the first time in over 20 years, are reporting that FHA loans have become a major force for home financing.

HUD’s FHA mortgages maintained a record 69% of new primary mortgage insurance written during the 4th quarter of 2008. That is the FHA loan product’s most significant share in the mortgage market in many years.

The Obama administration unveiled its $75 billion Homeowner Affordability and Stability Plan earlier this month. The home refinancing programs will enable some homeowners to refinance their mortgages into lower-cost, thirty-year or fifteen-year loans featuring fixed interest rates by making mortgage compnaies Fannie Mae and Freddie Mac refinance those mortgages that they have securitized on Wall Street.

It becomes more and more evident that the government wants homeowners to be able keep their primary residence homes and weather the storms. Clearly they will need more cooperation from the mortgage lenders and investors that hold the FHA mortgage rates continue to benefit from Fed interest rate cuts.

How will Fed Rate Cut Help Homeowners with Mortgage Rates for Refinancing? 

Furthermore, Bernanke said that the interest rates borrowers pay under the program could be reduced from the current level of about 8%, which remains so high because it is hard to find buyers for FHA loan backed securities. To fund the rate reductions, he said, Treasury could buy up mortgage-loan securities bundled by government-sponsored loan securitizer Ginnie Mae, or Congress could choose to subsidize the rate.  Bernanke also announced that would support putting borrowers into home mortgages they could afford over the long haul.  Industry sources said Wednesday that Treasury is contemplating a plan to buy mortgage-backed securities to reduce 30-year fixed mortgage rates down to 4.5% from their current 5.5% level, but it appears this plan might be aimed at helping new homeowners, not distressed borrowers seeking mortgage relief from FHA home refinancing.  He also recommended a plan that would have the government share the cost if the loan servicer reduces the borrower’s monthly payment. Current government initiatives have encouraged servicers to lower borrowers’ payments, but the plans have offered little incentive to do so. Bernanke said this approach would increase the incentive, which would “improve the prospects for sustainability.”

FHA recently announced revions to their Hope for Homeowner product that is designed to offer “short refinance” loans to distressed homeowners fighting to stop foreclosure.

o    Write-Down: Participating FHA mortgage lenders must agree to a reduction in principal to achieve the 9 % loan-to-value requirement.

o    Prepayment penalties and fees related to default or delinquency must also be waived for this loan modification program.

o    Premiums: Lenders must pay the 3% upfront premium from the proceeds of the refinance. Borrower pays 1.5% premium annually.

o    Shared Appreciation and Equity: Borrower must share newly created equity with FHA when the property is sold or the loan is refinanced. FHA’s share in the equity is reduced from 100% to 50% in 10 % increments over first five years. After five years, the homeowner and government each will share in 50 % of the equity. Borrowers must also share any future appreciation 50/50 with FHA upon the sale of the property. The program’s governing Board will establish standards for sharing future appreciation owed to HUD with second mortgage holders.

o    The FHA Hope for Homeowner refinance program runs from October 1, 2008 through September 30, 2011.

o    Servicer Liability: Amends the Truth in Lending Act (TILA) to create a fiduciary duty for mortgage servicers to “maximize the net present value of the pooled mortgages in an investment to all investors and parties having a direct or indirect interest.” The duty does not supersede servicing contracts. It also would deem servicers to act in the best interests of all investors if the servicer implements a refinance or modifies a loan through the HOPE for Homeowners plan.

QUESTION: How soon can we anticipate the Hope for Homeowner program to be up and running with FHA home loans?

ANSWER:  FHA will be working with a Board established under the law to make the program operational and issue guidance by October 1, 2008. FHA’s ongoing program, FHA Secure Refinance continues to help with a loan program designed for refinancing homeowners who are struggling since their adjustable rate mortgage reset.

QUESTION:  What are the new single-family FHA loan limits?

ANSWER:  The Housing and Economic Reform Act increases the FHA home loan limits limit for FHA mortgage insurance for single family, one-unit properties (with increased limits for other single-family properties up to four units) to 115 % of the local area median home price, as determined by HUD (but no lower than a floor of 65 % of $417,000 that is $271,050) or up to a cap of 150 % of the GSE limit of $417,000, or $625,500. Note that the limits for the new FHA Hope for Homeowners Program may vary.

QUESTION:  When do the new FHA single family loan limits become effective?

ANSWER:  The new FHA loan limits go into effect after the limits in the Economic Stimulus Act expire on December 31, 2008, i.e., January 1, 2009.

QUESTION: Since the FHA mortgage limits are based on the conforming loan limit for Fannie Mae and Freddie Mac (the GSE limit) what happens if the GSE limit changes?

ANSWER:  The FHA mortgage limit changes. The GSE regulator sets the GSE conforming mortgage loan limit annually, based on the agency’s home price index. The GSE limit will be adjusted in years when home prices increase, but increases must be offset by prior year decreases.

QUESTION:  Will the new FHA home loan limits be the same everywhere in the nation?

ANSWER:  No. The FHA loan limit will vary based on the local area median home price, as determined by HUD up to a limit of $625,500. The mortgage amount also cannot exceed 100 % of the appraised value of the individual property.

QUESTION: Do the new FHA loan limits apply to all “forward” single family mortgages?

ANSWER:  The new FHA loan limits apply to all 1-family reverse mortgages except for Home Equity Conversion Mortgages, also known as reverse mortgage loans. HECMs and Hope for Homeowners mortgages have different limits, which is below.

QUESTION: Does HERA eliminate the existing percentage limitations for home financing?

ANSWER:  Yes. It permits financing of up to 100% of the appraised value of the property.

QUESTION: Can the amount of the mortgage be increased above 100% of the appraised value, by the amount of the mortgage insurance premium?

ANSWER:  No. The maximum amount of mortgage cannot be increased by the amount of the mortgage insurance premium when the principal obligation to be insured equals 100% of the appraised value. The premium can be financed as long as the principal obligation does not exceed 100% of the appraised value. Risk Based Premiums

QUESTION: Does this new law prohibit risk-based premiums? ANSWER: Only temporarily. It prohibits HUD from taking any action to implement or carry out a risk-based premium program for a period of twelve months beginning on October 1, 2008. 2 Housing and Economic Reform Act (HERA): FHA Single-Family Program Changes FAQ

QUESTION: Do FHA mortgage lenders have to stop using risk-based premiums immediately?

ANSWER:  No. FHA will insure loans using risk-based premiums through September 30, 2008.

QUESTION: What action must be taken to ensure that a risk based premium home loan will be insured by FHA?

ANSWER:  FHA Loans for which case numbers are assigned on or after October 1, 2008 will have the new premiums. Case numbers issued before October 1 will be subject to the current Risk-Based Premium rules that took effect on July 14.  Information source – Mortgage Bankers Association  

Mortgage Lender Participation

FHA will continue to offer mortgage lenders a better refinancing option than foreclosing on borrowers. Similar to a loan modification or the FHASecure refinance loans, FHA lenders will be encouraged to write-down the outstanding home loan principal balances to 90% of the new value of the property. In many cases, reductions in principle will cost lenders less than the losses associated with foreclosure.

Market Stability and Liquidity

By continuing to fight the foreclosure rate, this HOPE for Homeowner loans will support FHA’s existing effort to stabilize local housing markets. From September 2007 to June 2008, FHA home loans have guaranteed more than $93 billion of mortgage capital.

Mortgage Funding

FHA will insure up to $300 billion in new FHA refinance loans. Borrowers will pay an upfront premium of 3 percent of the original mortgage amount and an annual premium of 1.5% of the outstanding mortgage amount. Any further costs incurred by FHA will be reimbursed by Fannie Mae and Freddie Mac.

Loan Program Timeline

The program will last from October 1, 2008 through September 30, 2011. Since September 2007, FHASecure has aided more than 290,000 families with more affordable fixed rate mortgage loans FHASecure is on pace to help 500,000 families by the end of 2008.

FHA has received a lot of press in the news lately mainly because of the two foreclosure rescue programs: FHASecure and HOPE for Homeowners. But, did you know the FHA has several other refinance loan programs available to those looking to buy a home and those looking to refinance? Here are some of those programs:

• 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.

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.” 

Last week it seemed that Bush may have opposed the FHA loan expansion programs. Ironically, the FHA was born in 1934 during the great depression in an effort to stabilize the housing market with the mission of HUD’s fair lending policies.  The thirty-year mortgage loan featuring a fixed interest rate was a FHA initiative.

Secretary Paulson informed Congress to forget about passing a Democratic bill that would create a special Federal Housing Administration fund for refinancing one to two million homeowners with home mortgages that were greater than the home’s value.   According to mortgage banker Bryan Dornan, “FHA has clearly been the savior for home financing products for the mortgage industry in 2007 and 2008.”  Dornan continued, “Having the ability to offer Americans a quality home loan with an affordable rate is critical during these uncertain financial times.”

Under the proposal sponsored by Rep. Barney Frank, D-MA and Sen. Christopher Dodd, D-CT., FHA mortgage lenders would have to write down the mortgage to 85% Loan-to-Value. The FHA loan proposal would give lending-investors the option of taking a “quick hit or a slow bleed,” one pundit of the bill remarked.  It might also offer homeowners a new opportunity with an affordable FHA mortgage and a fresh start.  Recently we were told that Housing Dept of Urban Development has been working on a similar mortgage product. But the Bush administration does not want Congress to tinker with it, because it would be available faster by using FHA’s existing authority to mold the loan products for today’s circumstances.

Accepting these new criteria was hardly voluntary. The Fed warned the banks:  “Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions.”

FHA mortgage refinance tends to follow the most flexible underwriting criteria permitted under with government and FHA guidelines.  When necessary — in cases where FHA loan applicants have no established credit history, for example — FHA allows nontraditional credit, a practice now accepted by most government lending institutions.

Credit History: When considering past credit problems FHA mortgage lenders should review isolated circumstances. For lower–income applicants in particular, unforeseen expenses can have a significant effect on an overall good credit history. When looking at a refinance transaction that pays off past collections and high rate credit card debts, the debt to income ratio would be reduced significantly.  

Sources of Income: In addition to primary employment income, FHA, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.

Credit scores. While credit scores can be an analytical tool with conforming loans, their effectiveness is limited with Community Reinvestment Act loans. Unfortunately, Community Reinvestment Act loans do not fit neatly into the standard credit score framework…Given these mortgage lending practices mandated by the Federal Reserve and encouraged by FHA Fannie Mae and Freddie Mac, the resulting financial problems for financial institutions such as Countrywide, Indy Mac, Bear Stearns and WAMU are not that shocking.

“This is the worst housing crisis of our lifetime, and we’re in a recession as a result of it,” said Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, the author of the legislation. “Property values decline sharply when a home in the neighborhood is foreclosed upon. In order to stabilize neighborhoods, we must take actions to prevent foreclosures. This proposal will help provide much-needed relief for people on the brink of foreclosure, keeping families in their houses and neighborhoods financially stable.”

The Bush administration rolled out the new FHA HOPE for Homeowners Loan on October 1, 2008. It’s the Department of Housing and Urban Development’s new mortgage insurance program. The new insurance, offered through the Federal Housing Administration (FHA), will allow qualifying homeowners to refinance with fixed-rate mortgages, said Brian Sullivan, who works for HUD in Washington, D.C. This program is called the HOPE for Homeowners Act of 2008 and is part of the Housing and Economic Recovery Act. It begins on October 1, 2008 and ends in September 2011. The Federal Housing Administration (FHA) would insure the program up to $300 billion.

It was the mortgage of last resort when home sales were booming. Buyers balked at the paperwork. Sellers hated the home-repair rules. FHA lenders are anxiously awaiting the government to roll out the new FHA mortgage loans.  The Federal Housing Administration (FHA) mortgage guarantee program, long considered a backwater, has garnered newfound respect in industry and policy circles. President Bush made it the centerpiece of his mortgage relief plan.

The Federal Housing Administration, the once-viewed-as-antiquated, irrelevant Great Depression-era government agency, is suddenly emerging as the centerpiece of government efforts to bolster the U.S. housing market, reported The Wall Street Journal.

The FHA loan options have become the cheapest, and in many cases, the only alternative for borrowers who can make only a small down payment and the agency is rapidly gaining market share.

Home buyers and mortgage refinancing owners nationwide took out nearly 530,000 FHA loans in the first half of the year, 160 percent more than in the corresponding months last year. Many of the new local FHA home loans this year are FHA refinancing loans. But even in this market, where home sales are falling precipitously, FHA mortgages for new purchases jumped 170 percent.  “Now, it’s almost automatic that it’s FHA,” said Keith L. Cross, a real estate agent with Century 21 Downtown in Baltimore.

Fewer than 10 percent of mortgage applications were for government-insured loans in July 2007, the Mortgage Bankers Association said. This July, it was nearly 30 percent.  “Suddenly, we’re a good option and perhaps the best option,” said Meg Burns, FHA’s director of single-family program development. She sees parallels to the early days of the agency, which was founded during the Depression to keep financing flowing to Americans after banks failed.

FHA Changes
Starting October 1, the minimum will increase to 3.5 percent from 3 percent. Seller-funded down payment assistance also becomes a thing of the past as of October 1. This includes nonprofit groups whose assistance to buyers is funded by sellers.  FHA also says it will raise its fees come Oct. 1. Most borrowers will pay upfront mortgage insurance premiums of 1.75 percent of their loan amount rather than 1.5 percent and annual premiums of 0.55 percent rather than 0.5 percent.

The economic-stimulus bill passed by Congress and signed by President Bush earlier this year raised the ceiling on the size of loans the FHA can insure to $729,750 in the highest-cost areas, up from a previous cap of $362,790. The new limits are due to expire at the end of this year, and the new limits under the Housing and Economic Recovery Act of 2008 are lower. The new loan limits set by this Act will be $625,500.

If you’re looking to buy or refinance through FHA, now is the time to do it before these changes take place. Fill out the free loan quote request form on this page or call us toll-free.