In a reversal of its plan to tighten eligibility guidelines covering condominium units under its mortgage insurance program, FHA announced that it will review and revise changes to condominium lending requirements released June 12. The original revisions were seen as too difficult for FHA lenders to follow without incurring significant delays in approving and processing FHA mortgage loans.

Revising Revisions: Changes Delayed as FHA Reconsiders Condo Guidelines

Highlights of the original proposal include:

• No more than 30 percent of units within an FHA approved complex could be insured by FHA. This reduces the current percentage of FHA mortgages allowed within approved condominium developments from 50 percent. Condo developments consisting of 3 or fewer units would only be permitted one unit insured by an FHA mortgage or refinance.
• The new requirements would no longer allow “spot loans” within condo complexes awaiting FHA certification. All condominium loans would have to be made on units within FHA approved complexes.
• Most problematic for lenders is the proposal requiring all FHA approved condominium complexes to be recerrtified every two years. In its announcement of the delay of changes to its requirements for insuring mortgage loans secured by condominium units, FHA indicated that it would review this requirement. This move could prevent delays in approving loans within condo complexes due for re-certification. FHA lenders with direct endorsement authority would retain authority to certify condominium projects, which could aid in avoiding delays in approving FHA mortgage loans in condominium developments due for re-certification.

Loosening these guidelines could be good news for those seeking an FHA mortgage loan or refinance on a condominium unit, as delays can cause problems for homeowners, buyers and sellers, particularly if mortgage rates rise while borrowers await mortgage or refinance approval.

Condominium Units Offer Affordable Alternative

First time buyers may find condominiums more affordable than single family homes, and can more easily get approved for mortgage loans under FHA qualification requirements. Any significant restrictions placed on approving FHA mortgages secured by condominium units could place additional hardship on first time buyers. FHA mortgage loans provide access to condo ownership for people who may be first time buyers, facing credit challenges, or those who need low cost, low maintenance housing. Condominium units are popular starter homes for first time buyers, and also provide affordable homes for empty nesters or seniors desiring a smaller home with less maintenance.

These buyers and others could be impacted if FHA holds its ground on its revised requirements for home loans secured by condominium units.

This morning at 9AM, HUD Secretary Steve Preston and FHA Commissioner David H. Stevens were supposed to host a briefing at the National Press Club in Washington to talk about the FHA’s fiscal health and financial outlook, based on an independent actuarial study.

Instead, this morning, HUD has sent reporters a note saying that “last evening, the independent auditor that prepares the FHA’s actuarial study notified HUD and FHA that the report will not, in fact, be final in time for today’s press briefing. Therefore, we are postponing the briefing and all related communications.

“HUD and FHA leadership will meet with the auditors today to ensure that we can report to Congress in a timely and accurate manner.”

Critics will look at this postponement as evidence that the FHA has something dark and woeful to hide while supporters will be thankful that someone in government is trying to get their facts right, a new concept in the Nation’s capital.

Realistically you don’t have to be Nostradamus to figure out what lurks ahead for the FHA. Here’s what we have been seeing during the past year — and what we can expect.
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Current loan limits for FHA home loans have been extended through the end of 2010. This move is expected to help ailing US housing markets by extending the availability of FHA loans to home buyers and homeowners in higher priced markets. FHA loan limits are calculated at 125% of local median home value, and vary by location. With the demise of sub-prime lending, FHA plays a significant role in providing home loans to borrowers who cannot meet conventional mortgage lending requirements. Challenges can include:

• Moderate income: FHA allows higher housing expense to income (31% or more) and debt to income (43% or more) ratios than conventional mortgage lenders. These ratios, sometimes called front-end and back-end ratios, are determined by dividing borrowers’ estimated housing expenses by gross income, and dividing total installment debts by gross income. FHA also allows non-resident co-borrowers (such as parents) to sign for primary borrowers needing income assistance. FHA guidelines are generally more lenient than conventional lending requirements.
• Non-traditional income: FHA can accommodate borrowers with cash-based income and small business owners who deal mostly in cash. Income verification is required, but FHA provides more options for verifying income than conventional loan requirements allow.
• Bad credit: FHA guidelines allow borrowers to carry more debt than conventional lenders, and also qualify borrowers with bankruptcy filings a minimum of two years prior to applying for an FHA loan and foreclosures occurring a minimum of three years prior to applying. FHA does not require a minimum credit scores, but instead focuses on borrowers’ demonstrated ability to pay their debts successfully.
• Low down payment: FHA loans require as little as 3.5% down for home purchases, and down payment funds can be provided by family members, employers, and housing assistance programs. The source of down payment funds is subject to verification, but FHA loan requirements are “friendly” toward first time buyers and others with low cash reserves. FHA guidelines allow for closing costs and the up-front mortgage insurance premium to be added to the home loan amount; borrowers may also elect to pay higher mortgage rates and have their lenders pay closing costs.
• Rehab loans available: FHA can provide mortgages based on a home’s potential value after it has been refurbished; this provides upfront funding for renovation expenses. Ask FHA lenders for details, or check out basic FHA guidelines for this program.

When getting quotes for FHA loans, compare the APRs in addition to mortgage rates. This can help you find savings on closing costs. The APR incorporates the mortgage interest rate and closing costs, so if you have two quotes offering the same mortgage rate, the lower APR indicates lower closing costs.

There was little question about this one: The FHA mortgage limits now in place have been extended through 2010. There are, in fact, exactly the same as at the end of 2008.

In real terms there was no other choice. Politically, areas with expensive homes need as much help as possible to maintain prices. Economically, FHA loans are now a huge part of the market and no one wants to fool with something which is successful.
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In a recent column for the Seattle Times, writer Froma Harrop questions FHA loan guidelines including low down payments and lending to borrowers with bad credit. Ms. Harrop cites a case involving a Colorado borrower who had met FHA’s minimum down payment requirement of 3.5% and who qualified for a home loan with blemished credit including a “recent” bankruptcy and home foreclosure. Harrop asserts,”No sane private lender would take such a risk without a sucker of first resort, again the taxpayer.” But where does that leave people/taxpayers facing financial problems through no fault of their own?

FHA Loan Guidelines Provide Opportunity During Tough Times

Protecting the interest of taxpayers is essential, but is limiting access to home ownership to all but those with 20% and “excellent” credit a reasonable solution? More importantly, what happens to the US housing market if FHA stops making home loans available to borrowers with moderate income and challenged credit? Home prices in many areas of the US average well into six figures, and 20% down is an unattainable amount for many hardworking families. FHA lending guidelines do allow borrowers to have a foreclosure (three years or more prior to applying for an FHA loan) and/or a bankruptcy that occurred a minimum of two years prior to applying. Whether or not two or three years is accurately deemed “recent” doesn’t matter in light of “recent” economic challenges. Plenty of suburbanites ensconced in “good” neighborhoods have seen their 20% down payments disappear along with any additional home equity they had accumulated. Financial security and home ownership itself have gone the way of the passenger pigeon for many.

Refinance Challenge: Low Mortgage Rates, and Blemished Credit

Meanwhile, mortgage rates have dipped to near historic lows, and many people are stuck with high mortgage rates that they can’t refinance due to having little or no home equity. Let’s not forget the layoffs that have cost many “qualified” homeowners their jobs. Homeowners who have neither missed a payment on anything nor carried revolving debt are finding themselves in financial trouble. Formerly pristine credit ratings are looking a bit tattered these days. Refinancing their mortgage loans could help many of these people, but what if they don’t have a solid employment history, or have missed a couple of payments on credit cards, or even missed a mortgage payment? Formerly accommodating conventional lenders can’t help these folks. Getting an FHA refinance may be their only option at competitive mortgage rates.

Let’s recognize that FHA is helping many taxpayers; FHA loans and lenient FHA loan guidelines are providing essential opportunities for home buyers and homeowners who want to buy and/or keep a home for their families.

The FHA has pushed back tough new condo financing rules to December 7th. The rules were originally supposed to start October 1st.

In a note to lenders, HUD says the new rules will “offer additional leniencies to address the difficult market conditions.”

Translation: The new rules — which were intended to reduce FHA risk — went too far.
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The federal tax credit program for first time home buyers is set to expire November 30, but lawmakers are expected to extend the program “for a limited period of time,” according to Senator Bill Nelson, a Democratic member of the Senate Finance Committee. As the current expiration date draws near, home buyers can also take advantage of the benefits of an FHA loan. The Federal Housing Administration (FHA) insures mortgage loans by reimbursing lenders for losses associated with foreclosure or other mortgage default. Here are basic FHA loan requirements; please keep in mind that individual loans are approved through FHA approved lenders.

FHA Loan Requirements Include Low Down Payment

It’s possible to finance up to 96.5% of the home purchase price (or home value for an FHA refinance) and include some closing costs and the up-front mortgage insurance premium required by FHA. Conventional lenders typically require a minimum of 10% down, and many require 20% down. If you’re short on cash, an FHA loan may help you buy a home or refinance your current home loan. You may qualify for a streamlined FHA refinance if you currently have an FHA home loan.

• Credit Issues: If you an prove that you’ve made your housing payments on time (with no more than one 30 day late payment) during the 12 months preceding your FHA loan application, you may qualify for an FHA loan even if you’ve had a bankruptcy or foreclosure. A bankruptcy may have occurred no less than two years prior to applying for an FHA loan, and a foreclosure no less than three years prior to applying. When reviewing your loan application, FHA-approved lenders will run credit reports, but you will not be excluded from getting an FHA loan based on credit scores alone.
• Debt to income ratios: FHA allows borrowers to have a housing payment up to 31% of gross household income, and total debts (including housing) of up to 43% of gross household income. This allows borrowers to have housing payments and other fixed debts (credit cards, auto and student loans, alimony or child support payments) equal to 43% of their monthly income before deductions.
• Non-occupant co-borrower: Although FHA requires at least one borrower to occupy the mortgaged property as his or her primary residence, FHA permits non-resident co-borrowers. This is handy for buyers who need their parents or other family members to co-sign for their mortgage.

FHA refinance loans also provide a safe home financing alternative for homeowners who cannot qualify for refinancing under convnetional mortgage lending guidelines.

For months the tax credit for first-time homebuyers has been portrayed as a wonderful financial opportunity and with good reason: It is. First-timers can get as much as $8,000 in tax credits from Uncle Sam, a very good deal indeed.

In terms of FHA mortgages, the great idea has been to combine the first-time credit with FHA financing to buy a home with little or no money down. To do this a buyer must do two things:

First, get an advance from a state housing agency or an approved nonprofit.

Second, buy a property that requires not more than $228,571.42 in financing. (The FHA requires a minimum down payment of 3.5 percent of the purchase price and 3.5 percent of $228,571.42 equals $8,000).

No Money Down

For months, though, we have been saying that FHA mortgages with nothing down were likely to be rare. The reason is that fewer than 20 states have programs which make advances, money is limited and few nonprofits have such cash available. (Private lenders can provide advances, but not advances which substitute for the 3.5 percent down.)
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The National Association of Realtors (NAR) reports a 9.4% jump in home sales during September. Increasing sales typically suggest rising home prices, but this may not be the case as first time buyers scramble to qualify for the federal tax credit program before it expires on November 30. Other factors contributing to low home prices include rising unemployment rates and the ongoing glut of foreclosed properties on the market in many areas. If you want to buy or refinance , FHA home loans provide a competitive solution for buyers with little cash, or who have credit issues.

Less than 20% Down? FHA Home Loans Can Help

Current mortgage rates are a strong incentive for first time home buyers, and there are no guarantees about how fast and how much rates will increase. FHA mortgage rates are competitive and can help first time buyers get into a home or home owners with little equity refinance their home loans.

Understanding Private Mortgage Insurance and FHA Mortgage Insurance

Mortgage lenders consider home loans with a loan to value ratio (LTV) of more than 80% a higher risk, and require borrowers to pay for mortgage insurance (MI). This insurance reimburses the lender for losses associated with mortgage default and foreclosure. If you’re buying a home with less than 20% down, you’ll be paying for MI. FHA insures its approved lenders against losses in much the same way by charging borrowers an up-front mortgage insurance premium (UFMIP) of up to 1.75% of the mortgage amount at closing. The UFMIP is typically rolled into the mortgage amount. FHA guidelines require homeowners to pay MI premiums until their LTV ratio reaches 78%. FHA mortgage insurance costs can be lower than for MI premiums charged by private mortgage insurance companies, depending on your loan amount and the size of your down payment.

FHA Loan Requirements More Flexible

MI companies insuring conventional mortgage loans are tightening credit requirements for insuring conventional loans; minimum FICO scores of 720 may be required regardless of other lending guidelines. If you’ve had good payment records for the past year but have had past credit problems, an FHA refinance or home loan may meet your needs. Borrowers with a foreclosure a minimum of three years ago or a bankruptcy discharged at least two years ago may be eligible for FHA home loans.

An FHA refinance can assist homeowners who want a lower mortgage rate but don’t have enough home equity or cash to meet conventional lending requirements. If you’re shopping for a new mortgage loan, consider getting FHA mortgage loan quotes.

The mortgage industry has come out against changes in the RESPA rules which are due to start January 1st.

“The RESPA rule,” says a coalition of industry associations, “is scheduled to take full effect on January 1, 2010 – less than three months from now. Despite the best motivations of HUD, and the sincerest efforts of the industry, there are simply too many unresolved issues to allow the industry to be fully RESPA-compliant by the first of the year. HUD’s guidance has come far too late in the process and has been inadequate and often contradictory. Due to unresolved issues and critical unanswered questions, many lenders and settlement service providers are unprepared to comply. This, in turn, will cause very inconsistent implementation and confusion for consumers seeking to purchase a home.”
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Although FHA (Federal Housing Authority) loans have largely replaced sub-prime mortgages, the agency is moving to reduce its exposure to home loan delinquencies by changing underwriting guidelines for FHA loans written under the agency’s streamline refinance program. The changes which are designed to document homeowners’ ability to pay for their refinanced home loans become effective November 17. There’s still time to apply and get approved for a streamline refinance under current FHA loan requirements, but don’t wait if you cannot verify employment and income.

FHA Refinance Guidelines Changing to Minimize Foreclosure Losses

Recent news reports indicate that FHA reserves are close to falling below the amount mandated by Congress. In a move to protect itself against future losses associated with defaulted mortgage loans, FHA is changing loan requirements for its formerly lenient “no (or very few) questions asked” streamline refinance program for homeowners whose present mortgage loans are insured by FHA:

• Under current guidelines, FHA streamline refinance transactions don’t require verification of income and employment provided the mortgage loan is current at the time of applying for refinancing.
• Homeowners will no longer be able to roll closing costs into the refinance loan amount without paying for a home appraisal. Current FHA guidelines do not require an appraisal.

Homeowners who’ve experienced a major loss in home value may experience difficulties in qualifying for a streamline refinance once new FHA loan requirements become effective.

FHA Streamline Refinance Program: Not so Streamlined Under New Rules

The new streamline refinance requirements may cause problems for homeowners with non-traditional credit, employment, and income. Requiring an appraisal is also viewed as an obstacle for homeowners whose property values have tanked and who need to include closing costs in their refinance amount. If you have these concerns, applying for a streamline finance now can help you avoid potential delays and expenses caused by new FHA loan requirements. Contact FHA mortgage lenders today for quotes on streamline refinancing; you can use free mortgage calculator tools for estimating potential savings and new payment amounts.

Low Mortgage Rates: Don’t Wait

No one can accurately predict mortgage rates will do, but they won’t stay at current lows forever. Take advantage of current mortgage rates (and the more lenient FHA refinance requirements today.

As a governmental agency, the FHA mortgage program operates from October 1st of one year to September 30th of the next — that’s the government’s “fiscal” year. Since we now have the final FHA figures for September we can see what’s really happened with the program.

First, FHA mortgage applications rose 63 percent as nearly 2.9 million people sought FHA mortgages.

Second, the FHA insured almost 1.95 million loans — a figure that was up 62.3 percent.

Third, the FHA reverse mortgage program rose 2.3 percent to 114,691 loans.
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US lawmakers have noted the rapidly increasing number of FHA loans, and wonder if it could represent heightened risk to FHA’s dwindling reserves, and ultimately, taxpayers. With the demise of sub-prime lending, FHA has become the primary source of home loans for people with bad credit, and borrowers who have minimal cash for meeting down payment and closing costs. In 2007, FHA home loans accounted for about 6% of US home loans, but so far in 2009, FHA home loans account for more than 21% of US single family mortgage loans.

Perceived FHA Home Loan Risk Concerns Lawmakers

In response to FHA’s expanding role in guaranteeing home loans for cash-strapped and credit-challenged borrowers, lawmakers are concerned about the rising delinquency and foreclosure rate for FHA home loans. The delinquency and foreclosure rate for FHA mortgages has increased from 5.5% in early 2006, to about 8% at the end of June 2009. Reasons for concern over growing FHA exposure include:

• FHA loans for people with bad credit: FHA offers more lenient credit requirements compared to underwriting requirements typical of conventional mortgage lenders. Although FHA guidelines have recently been tightened, increasing delinquency and foreclosure rates pose a threat to FHA’s reserves for reimbursing mortgage lenders for losses associated with foreclosure.
• Low down payment requirement: FHA allows a minimum 3.5% down payment; this could soon increase to 5%. Conventional mortgage lenders typically don’t accept less than 1% down, and may require no less than the traditional 20% down payment for people with anything less than a perfect application. Lower down payments allow people of moderate income to achieve home ownership, but critics suggest that homeowners with little investment in their homes may be more inclined to walk away when problems arise. FHA’s growing home loan delinquency rates appear to substantiate this concern.
• Been there, done that:Lessons from the sub-prime crisis suggest that owning a home is a financial responsiblity that many are not prepared to handle. Homeowners who can still make payments have asked why those in trouble should be bailed out by government sponsored programs. As an agency of the federal government, FHA risks potential public backlash if its lenient lending policies lead to higher foreclosure rates and a cash bailout should its reserves disappear.

As FHA adjusts its lending requirements to achieve optimum risk management, it must also consider its niche of providing accessible home financing to people of moderate income, and yes, even people with credit problems. Recent economic conditions render everyone vulnerable to bad credit; many of us are but one layoff or medical emergency away from deciding whether to buy groceries or pay medical bills, credit cards, or even our mortgage.

There has been a big to-do during the past week with the announcement that more than 500,000 trial loan modifications in progress under the Making Home Affordable program.

This is good stuff and a huge change from what we had before. What we had before 949 applications under the Hope for Homeowners Program and ONE mortgage approval. As to the FHASecure program, it allowed just 3,794 delinquent conventional borrowers to refinance with FHA loans in fiscal 2008.

In contrast, the Obama Administration reports that 2,484,783 borrowers have sought information under the Home Affordable Modification Program (HAMP) through the end of September. Of this number, 757,955 were offered three-month trial modification and 487,081 trial modifications have begun. If the borrower makes three lower payments during the trial period then the loan is permanently changed to that lower rate and hopefully the home is saved from foreclosure.
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The headlines are now filled with dire worries regarding the FHA mortgage program.

___FHA: Another Shoe Dropping — Baltimore City Paper.

___ FHA Could Be Next Up For Bailout — NBC News, Los Angeles

___ FHA mortgage loans stumble — St. Louis Examiner

These items would be interesting if only they got to the major issues.
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