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.”

Expanded opportunities for Fannie Mae to Fannie Mae refinance loans through Refinance Plus (manual underwriting) and DU Refi Plus.  A new solution for borrowers with LTVs above 8% who currently may not be able to refinance because of existing MI coverage requirement.

Loan To Values’ up to 105% on the new loan and additional underwriting flexibilities.  See FHA loan Announcements 09-04 and 09-13, the FAQs document, and other mortgage resources provided via the links below for details on Fannie Mae’s refinance effort.

Flexible MI Requirements to Assist Borrowers with Home Price Declines:  Fannie Mae’s regulator, the Federal Housing Finance Agency (FHFA), has authorized us to provide refinancing opportunities for loans we currently hold or have guaranteed with current LTVs up to 105%, with specific flexibility regarding MI coverage for FHA loans with LTVs above 80 %.

The following general guidelines apply: For existing FHA loans with original LTV ratios at or below 80% and no existing MI coverage, the new refinanced loan does not require MI coverage.

For existing FHA home loans with original LTV ratios over 80% that currently have MI coverage in force, the new refinance requires the level of insurance coverage in force on the existing loan or our standard level of insurance coverage. The FHA mortgage lender is encouraged to use its best efforts to obtain MI coverage that provides the lowest cost option available to the borrower.

For existing mortgage loans with original LTV ratios over 80% that do not have MI currently in force due to prior cancellation or termination in accordance with the Selling Guide or the Servicing Guide, the new refinance does not require MI coverage.

See FHFA’s Statement on Fannie Mae and Freddie Mac Refinance Initiatives available at the link below for details on this new authority

Refinance Plus (Manual Underwriting)

Refi Plus simplifies the process of refinancing loans that are already in a lender’s servicing portfolio. This product supports the new 105 % maximum LTV and MI flexibilities for LTVs over 80 %.

DU Refinance Plus

DU Refinance Plus provides increased efficiencies for the origination and underwriting of Fannie Mae to Fannie Mae limited cash-out refinance transactions in DU. Eligible loans identified in DU receive increased underwriting flexibilities, including expanded eligibility criteria and DU minimum documentation requirements.

The DU Version 7.1 April Update release and May Update release will implement these underwriting flexibilities. Release Notes and FAQs for the May Update release (implementing the weekend of May 2, 2009) and updated Release Notes for the April Update release are now available. See the DU Release Notes page on eFannieMae.com for details (available at the link below).

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.