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.
The Federal Housing Administration (FHA) has been around since June 27, 1934. It was folded under the Department of Housing and Urban Development (HUD) umbrella in 1965. FHA mortgage loans began to lose steam in the late 1990s, when home values started increasing because home prices were exceeding the FHA loan limits. Sellers also didn’t like working with buyers using FHA home loans because of the FHA’s stringent appraisal guidelines. With the recent housing turmoil and home prices tumbling in excess of 30% in some areas, FHA has made a comeback. See more at FHA Home Loan Services website.
A housing stimulus was passed earlier this year that temporarily set the FHA and conforming Fannie Mae/Freddie Mac (FNMA/FHLMC) loan limits to the lesser of $729,750 or 125% of an area’s median home sales price. If 125% of an area’s median home sales price is below the current conforming loan limit of $417,000 the current limit still applies. The higher loan limits allow first time home buyers with limited down payment resources, and possibly not so perfect credit, get a FHA loan in higher-priced areas like California and Arizona. Remember, the credit requirements for FHA loans are not as stringent as those for conventional loans. These higher loan limits expire on December 31, 2008, so now is the time to take action. The loan limits lower to a maximum of $625,500 (115% of an area’s median home sales price) on January 1, 2009, when the new housing law loan limits take effect.
With the passage of the Housing and Economic Recovery Act of 2008 (the new housing law) on July 30, 2008, the first time homebuyer benefits even more through a tax credit worth as much a $7,500. The credit isn’t a grant, but rather an interest-free loan that must be paid back to the government over the course of 15 years. If the property is sold for more than the original purchase, and the tax credit hasn’t been fully repaid, the borrower must pay back the balance out of the proceeds of the sale. To get the tax credit, you must buy before July 1, 2009.
James Glassman, a senior economist at JPMorgan Chase, says the tax credit is unlikely to increase demand from first-time home buyers all by itself. But when coupled with other factors–such as falling home prices–”it’s just one more thing that helps,” Glassman says. Add the benefit of using low rate FHA home financing and it could get first time buyers who are sitting on the fence trying to decide if the time is right to purchase a home to take action and become a homeowner.
Are you a first-time homebuyer? We can help you take advantage of the provisions under the new housing law and newly modernized FHA with its higher loan limits. Just fill out the free loan quote form on the right side of this page, and a lender will get with you promptly.
The maximum on an FHA insured loan for 2008 is presently $729,750. In the FHA guidelines for the new loan limits would exceed the conforming limits of $417,000 and become what mortgage executives call jumbo mortgage loans. Higher FHA loan limits are set by the federal government as part of an economic stimulus package early this year, were supposed to make jumbo loans more affordable in expensive housing markets. FHA mortgage rates finally have come down on these so-called “jumbo conforming” mortgages, though these home loans may be difficult for many borrowers to qualify for.
Jumbo-conforming loans range in size from $417,000 to nearly $730,000 and are especially important in expensive housing markets. FHA continues to help homeowners who recently lost the equity in their home because of declining real estate values in the region. The FHA home loan limits varies based on the cost of housing in the nearest metro area and can vary from $271,050 in average cost neighborhoods and rise up to $729,750 in the more costly areas of towns. Homeowners that are considering a home refinance with a jumbo sized mortgage but do not have the 20 percent equity that most conforming lenders requires should consider the FHA jumbo mortgage, which enables borrowers to refinance up to 97% on a rate and term mortgage.
Home mortgage applications dropped last week as purchases and refinance loan volume slowed and mortgage interest rates likely rose slightly, according to a weekly report published Wednesday morning by the Mortgage Bankers Association. The MBA’s market composite index lowered to 621.6 for the week ended May 16, a drop of 7.8% from one week earlier.
The home loan application index is calibrated to March 16, 1990; a reading of 621.6 means that application activity was roughly 6.2 times greater than when the index was first established. Refinancing activity, usually the driver of overall application volume, fell 8.7% as mortgage rates appeared to have inched higher; the MBA said that average rates on a 30-year fixed rate mortgages rose 8 basis points during last week. Purchase application activity — usually used by economists to predict the direction of the housing market — feel 6.9%.
Surprisingly, FHA loan application activity took a sharp dip as well, falling 6.8%; the drop was one of the few weekly decreases posted for FHA applications so far this year. The share of variable-rate mortgages as a portion of overall application activity continued to rise as well, hitting its first double-digit total this year at 10.0%, the MBA said. For more information, visit http://www.mortgagebankers.org
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