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FHA Mortgage Guide Posts FHASecure Guidelines

by Peter G. Miller
September 5th, 2007

The guidelines for the FHASecure program have now been posted.

Of particular interest, under the FHASecure program HUD will allow lenders to write-off some of the old loan to help borrowers save the property, qualifying rations remain 31/43 (liberal by most standards), and in some circumstances second mortgages are allowed.

Below is the heart of the new guidelines with core items highlighted:

* The mortgage being refinanced must be a non FHA ARM that has reset.

* The mortgagors payment history on the non FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments.

* If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.

* Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits.

* Mortgagees must determine, as part of the underwriting process, that the reset of the non FHA ARM monthly payments caused the mortgagors inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA insured refinancing mortgage.

Additional Information About the FHASecure Initiative

* Maximum FHA loan to value ratios

The maximum loan to value limits (fha loan limits) are shown below and are applied to the appraisers estimate of value, exclusive of any upfront mortgage insurance premium.

Maximum Loan to value Ratios

States with Average Closings Costs At or Below 2.1 Percent of Sales Price

*98.75 percent: For properties with appraised values equal to or less than $50,000.

* 97.65 percent: For properties with appraised values in excess of $50,000 up to $125,000.

* 97.15 percent: For properties with appraised values in excess of $125,000.

States with Average Closings Costs Above 2.1 Percent of Sales Price

* 98.75 percent: For properties with appraised values equal to or less than $50,000

* 97.75 percent: For properties with appraised values in excess of $50,000

* Calculating the Maximum FHA Mortgage Amount

The amount of the FHASecure mortgage may not exceed either the geographical maximum mortgage limits or the loan to value ratios shown above. FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount.

* Subordinate Financing Under the FHASecure Initiative

If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate lien may exceed the applicable FHA loan to value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Borrowers need not yet have missed any mortgage payments to be eligible for this type of subordinate financing.

* Underwriting the Mortgage/Qualifying the Borrower

FHA encourages all approved lenders to use FHAs TOTAL Mortgage Scorecard to obtain risk classifications on each mortgage originated under the FHASecure initiative. If TOTAL renders an accept/approve, the mortgagees underwriter need not perform a personal review of the borrowers credit history and capacity to repay. However, in the more likely event that the risk class is a refer, the underwriter must:

1. Determine that the homeowner has the capacity to make future mortgage payments as well as pay all other obligations. The payment to income ratio and debt to income ratios remain 31 percent and 43 percent, respectively. Compensating factors are to be provided by the underwriter when the ratios are exceeded.

2. Analyze the homeowners overall credit history, especially payments on the existing mortgage. The underwriter must determine that the homeowners mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due and that other recurring obligations were paid on time. If the borrower was offered partial forbearance after interest rate reset, the underwriter must determine that he/she has made payments under the forbearance agreement in a timely manner.

3. Provide comments in the remarks section of the mortgage credit analysis worksheet that he or she has determined that the cause of the borrowers inability to make payments was directly related to the increased payment attributable to the reset and not due to a disregard for obligations.

* Tax consequences for a borrower when the note holder writes off a portion of the amount to pay off the first mortgage

FHA recognizes that there may be tax consequences resulting from debt relief. However, since FHA does not provide tax guidance, it recommends borrowers.

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This entry was posted on Wednesday, September 5th, 2007 at 10:15 am and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

10 Responses to “FHA Mortgage Guide Posts FHASecure Guidelines”

  1. Gerri Detweiler Says:

    Excellent job describing this program. The estimates of the percentage of foreclosures this program will prevent seem wildly optimistic, but even helping a couple hundred thousand homeowners is still positive.

    I have a hard time imagining many lenders will want to place a second behind one of these loans, for a risky borrower. Standards for seconds have tightened significantly. Writing off all or part of a second may be a more likely scenario, though again, actually getting a deal like that through will not be easy.

  2. Peter G. Miller Says:

    For those who may not know, Gerri Detweiler is a well-respected and nationally-known consumer educator and author.

    On the matter of optimistic HUD estimates, Gerri may be right. Alternatively, the foreclosure problem is so huge — and getting larger — that any effort to save homeowners cannot be ignored.

    HUD has been saying that 100,000 borrowers would refinance into FHA loans this year. With FHASecure, the new number is 240,000 — 60,000 facing foreclosure and 180,000 seeking rate relief. Even if HUD is half right, that’s still a lot of help.

    The better solution, of course, would have been for regulators to stop these loans in the first place or to make ‘em rare.

  3. melissa Says:

    I was told be a lender under this new program that my house value was outside the limit for my town. How is this program going to help me then ?? Many may have the same situation.

  4. Peter G. Miller Says:

    Melissa –

    You make an important point. The current FHA loan limits mean that many borrowers will not be able to refinance under the FHASecure program. However, congressional Democrats are trying to push through legislation that would raise the FHA limits so that more borrowers would have access to the program. The White House largely opposes this effort.

  5. Maurreene Says:

    What about all of the homeowners who have been working in the mortgage industry and have been recently let go?? What about unemployed single mothers that are loosing their homes because of these conditions?? How can I get releif from a program like this if I’m collecting unemployment insurance while I look for a new career?? Foreclosure seems to be the answer right about now………

  6. Mary Casalina Says:

    A number of major financial set backs have occurred in the last two years since I purchased my condo in 12/2005. The two huge set backs were that my homeowners association dues thripled, and my bill-paying partner was diagnosed with a disabling disease, and hasn’t worked for most of 2007, thus my mortgage payments were delinquent requently, intermittent with my other debts. The property sold for more than the bank would appriase it for, and now it would sell for less on todays market.

    The flexible increase ARM payment has also increased 100% and now I am being foreced into foreclosure, mainly because the homeowners’ dues are delinquent.

    I have been denied FHASecure because of late ppayments before the increase, and bad credit. I am divorced, single 59 years old female, work two jobs, sole caretaker to my 27-year-old son, who is still waiting word on his disability case now in its ninth month! Is there anywhere, anyway, someone or some dept. of government can keep us from losing everything

    I know this is not a comment, but we are really desperately seeking help from any avenue.

  7. Peter G. Miller Says:

    Mary –

    Please contact the local bar association or a local law school to see if pro bono legal services can be made available.

    Also, see if there is a local relgious community that can provide assistance, some cash for the HOA fees and perhaps help you get the property refinanced.

  8. mario m Says:

    I HAVE BEEN IN A CHAPTER 13 FOR 36 MTHS. AND COMPLETED IT ON TIME WITH NO LATES PAYS,THE PROBLEM I HAVE IS THE FESABILTY PROBLEM WHICH IS 8000.00 I TRYED TO GET MY HOUSE REFI. WITH FHA. THEY WILL NOT DO IT BECAUSE OF 2 RETURNED CHECKS ON MY CREDIT REPORT WHICH I PAID. IS THERE ANY HELP OUT THERE

  9. Chris Tormey Says:

    What of the Mortgage Insurance companies? The majority of the write-down covers the entire insured piece of a >80% (original) LTV loan! Are the Mortgage Insurance guys exonerated, wiped out, or something in between? I must imagine that most of these writedowns are on mortgages that had mortgage insurance purchased on them, no?

  10. John Trujillo Says:

    Does anyone know the consequences of walking away from a house with an FHA mortgage? The house has lost all equity and cannot be sold without a huge discount. Will HUD come after the borrower for its claim amount?
    Please advise.
    Thanks
    John T

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