Welcome to FHA Mortgage Guide.

Acting FHA Commissioner Carole J. Galante recently announced that FHA will extend its waiver of anti-flipping regulations throughout 2012. This move is intended to stimulate slack housing markets while offering a solution to long-standing vacant properties and resulting neighborhood blight.

Real estate investors no longer inhibited by FHA rules against flipping, a practice where investors buy homes, repair them and quickly resell them, can take advantage of incentives offered by banks and other institutional lenders attempting to sell off foreclosed homes.

Buyers of homes offered for sale by so-called “flippers” may then apply for FHA mortgage loans. The FHA decision to extend the anti-flipping waiver may instill confidence in investor sellers who don’t want to deal with arbitrary delays in selling homes they’ve renovated to buyers using FHA mortgage loans.

By waiving its anti-flipping rules for another year, FHA can insure FHA loans for first time buyers with little cash to put down. FHA insures mortgages for up to 97.5 percent of a home’s current appraised value. The combination of FHA mortgage loans and availability of renovated homes in moderately priced neighborhoods can potentially increase home ownership and stabilize crime and home devaluation frequently associated with vacant foreclosed and abandoned homes.

Prior to issuing the initial waiver in February 2010, FHA required property owners to hold their properties for a minimum of 90 days before selling them. The key to successful flipping relies on buying homes, quickly renovating them and turning them over. Artificial time constraints can reduce profits when investors are forced to “sit on” renovated properties while awaiting the 90-day waiting period to expire. FHA outlined specific conditions associated with its 2012 waiver of anti-flipping regulations:

• Arm’s-length transactions: Buyers, sellers and others involved in a flipping transaction cannot have an ” identity of interest” between each other.
• Limited seller profit: In cases where the sales price of a flipped property is 20 percent or more than the seller’s acquisition price, the seller is required to provide documentation justifying the selling price.
• No HECM loans: FHA does not allow buyers to purchase flipped homes through its Home Equity Conversion Mortgage (HECM) program. Also known as reverse mortgages, HECM loans provide borrowers with cash drawn from home equity.

Since the inception of its waiver of anti-flipping rules, FHA cites the approximate value of 42,000 FHA mortgages arising from sales by sellers holding properties less than 90 days at $7 billion. These figures suggest that FHA may be on to something, and depending on how the extension of the anti-flipping waiver works in 2012, it could be time to scrap the anti-flipping rules altogether.

The battle of October 1st is over and financial sanity won out. The FHA has new and lower loan limits and now we need to get ready for Round 2.

The fact is that the loan limits that took effect at the beginning of this month might end on December 31st. That’s because the new loan limit formula is only designed to last three months.

In the usual situation loan limits are announced in November or December, begin in January and then last for a full year. However, since 2008 the loan limit system has been in a shambles and it still is today. The result is that as of January we could see higher limits, lower limits or no change.
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Unless there’s a surprise turn of events on Capitol Hill, the FHA loan limits for high cost areas will be reduced as of October.

Let’s assume that the new and lower limits become the law of the land as scheduled. Just who will be impacted?

“Congress must act now to prevent the loan limits from reverting to lower levels,” Bob Nielsen, chairman of the National Association of Home Builders, said in a statement. “A drop in mortgage loan limits would reduce housing demand, and place downward pressure on home prices in major markets. This would exacerbate the current housing downturn, trigger more foreclosures, impede job growth and endanger the fragile economic recovery.”

Because of these concerns, the NAHB said it’s “engaged in a major grassroots push and association members are being urged to contact their members of Congress and seek their support for immediate efforts to extend the current loan limits.”

Actually, neither home builders nor anyone else has much to worry about regarding real or imagined terrors from reduced loan limits.
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Every few months you read in the paper about a major mortgage modification clinic coming to town. In Washington, this meant that major meeting space was taken over in a downtown hotel, hundreds of counselors set up shop and the line of concerned borrowers hoping for help stretched out the door and waited patiently for their turn.

The group that operates such mass modifications is called the National Assistance Corporation of America or NACA. It must be doing a good job because it provides about 30 percent of the counseling services available to borrowers with money provided by HUD.

Or it did, until the money stopped.
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There’s been a lot of talk regarding a new federal standard for home loans and how it will impact the marketplace. In these discussions, Federal Housing Authority (FHA) mortgages are frequently mentioned as if they had some sort of disease which is tearing at the heart of the national economy.

The new rules under Wall Street reform create a standard for loans. If a loan fits, it is then a qualified residential mortgage (QRM). If it doesn’t fit, then the lender can still make the loan and a borrower can still be dumb enough to accept such financing.

Lenders, of course, are screaming about the new QRMs. They’re telling everyone who will listen that loans under the QRM will require 20 percent, so be very afraid of the new standard.
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There’s no surprise about this one, a lot of people are unhappy with the new mortgage loan limits set to start Oct. 1, 2011–loan limits which are lower than today’s standards.

“The housing market does not need a self-inflicted wound,” said Rep. Gary Ackerman (D-NY), a co-sponsor with Rep. John Campbell (R-CA) of legislation which would keep today’s loan limits in place. “With the economy remaining fragile and the housing sector still struggling to recover, now is not the time to make the cost of mortgages more expensive.”

Under HR 2508, loan limits for FHA and conventional loans would stay where they are until 2013.
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Unemployment just won’t go away.

The latest numbers point to an “official” unemployment rate of 9.2 percent and paltry jobs growth–just 18,000 new jobs in June.

That’s 14.1 million people without a job, not counting that 2.7 million individuals who were “marginally attached” to the labor force.

Now the FHA has decided to do something useful to help the unemployed. It has established an unemployment forbearance program for those FHA borrowers who have lost their jobs.

This is going to be a good deal for several reasons: First, it will help people with real needs, and second, it will set an example the private sector can follow.
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As we have long predicted, the FHA’s short refi program continues to be dead in the water. Despite a big announcement introducing the program last August, the marketplace reaction has been ho-hum.

Is this fair? Is there anything in the short refi program which might redeem the concept?

The latest numbers from Housing and Urban Development (HUD) tell us that since Oct. 1. a total of 535 applications have been submitted for the program and, of these, just 195 have been approved so far. As of May just 65 applications were in the pipeline, suggesting that very large numbers of applications have fallen through.
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The Federal Housing Authority (FHA) is gradually returning to the comfy loan limits of old.

As of Oct. 1, 2011 FHA guidelines will be changed and maximum loan sizes will be reduced. The term “reduced” should not frighten anyone; available loan amounts will still be far above the financing levels required by most FHA borrowers.

Lowering FHA Loan limits

Under the new rules, the maximum FHA loan size will be reduced from $729,750 to $625,500 in high cost areas in the lower 48 states. As recently as 2006 the comparable FHA loan limit was $362,790.
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Housing and Urban Development (HUD) is now involved in several situations where it claims that pregnant borrowers were denied housing under the Fair Housing Act. This is important because such decisions can impact individuals who are now or might become pregnant, as well as their families and household members.

The Fair Housing Act and pregnancy

In basic terms, the Fair Housing Act says that individuals may not be denied a home, rental or mortgage because of their race, color, national origin, religion, sex, familial status or handicap. Additional laws at the federal and state level can protect against discrimination on the basis of other factors such as age and sexual orientation.

Within the meaning of familial status, says John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity, “pregnancy is not a basis to deny or delay a loan. It’s just that simple. Mortgage professionals may verify income and other resources and have eligibility standards but they may not single out women on maternity leave to deny or delay loans that they are otherwise eligible for.”

The policy would also apply to men who are on parental leave due to the birth or adoption of a child, says HUD.
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There’s a lot of rumbling in Washington suggesting that an effort is now underway to raise the Federal Housing Authority (FHA) down payment requirement from 3.5 percent to 5 percent.

This is an inherently bad idea–and not unexpected.

Will your FHA mortgage cost you more?

“Research has shown that requiring a higher down payment does little to reduce risk of default but causes home buyers to use more of their reserves for the down payment,” said Barry Rutenberg, speaking for the National Association of Home Builders. “Sound underwriting is the key to minimizing foreclosures and defaults, not higher down payments. This is demonstrated by current FHA foreclosure reports on loans made to borrowers with sound credit profiles, which have significantly improved.”
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In the game of scoring political points one need look no further than a new report issued by the Congressional Budget Office (CBO) to see theory differ from reality. According to Accounting for FHA’s Single-Family Mortgage Insurance Program on a Fair-Value Basis, the Federal Housing Authority (FHA) could be a big cost to the government.

FHA’s real cost

This, in fact, is not the case. It could be the case if we use an absurd form of accounting. In other words, elephants can’t fly but if we change physics enough than in theory that would be a real worry.

“The costs of FHA’s single-family mortgage insurance program are recorded in the federal budget using a methodology spelled out in the Federal Credit Reform Act of 1990 (FCRA),” says the CBO. “This analysis examines the budgetary impact of using a different accounting approach–fair-value estimating–which provides a more comprehensive measure of the cost of that program.”

So what’s the difference? There are several points:
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