As a parting gift to the lending industry, HUD has published its final rule to “Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs.”

“Millions of families go to the settlement table each year without clearly understanding what they are paying for,” says HUD Secretary Steve Preston. “In many respects, it’s clear that the current way people buy and refinance their homes isn’t serving us very well at all and has contributed to the current housing crisis.”

But, oh my, buried on page 68227 what do we find but a decision to dump limits on loan origination fees.
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The Mortgage Bankers Association is reporting that in October almost one-third of all loans were government-insured, meaning largely FHA mortgages. That’s up from 10.3 last October.

“The government-insured share has increased from 9.4 percent in January 2008 to its current level of 32.9 percent, which is the highest level observed since February 1991,” says the Association. “Since the MBA survey’s inception in January 1990, the lowest recorded share was 5.8 percent in August 2005 and the highest was 43.8 percent in February 1990.”

Why the increase in government-backed loans? The obvious answer is that many alternative forms of financing are gone, as well as the lenders who made them. A lender today who doesn’t offer FHA financing is like a car dealer who doesn’t sell gas misers — neither is likely to be in business much longer.
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Here’s the strange part: Imagine if you had a product to sell and had buyers lining up for blocks. Wouldn’t it make sense to sell while you can?

I ask this question because several bits of information are so conflicting.

As we have reported, HUD received just 111 Hope for Homeowners applications in October, the first month of the program. More amazing, not one single loan has been approved under the H4H program to date.

Given the nationwide foreclosure glut you might expect different results, say 50,000 people asking for help under what has been billed as a foreclosure-prevention program. But nope, that didn’t happen.

And then you turn to News 10, ABC TV in Sacramento. It reports that a local lender, American Security Financial, “has collected more than 500 applications and none has been accepted.”
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By January 1^st 2009, FHA down payment requirements are increasing to 3.5% from our current 3% requirement. As for the Hope for Homeowners program, lenders have recently been given a break and are only required to write down existing loans to 96.5% LTV.

In both cases, these loans give FHA borrowers roughly 3.5 percent in home equity. It’s definitely not the same as buying a home with no money down, but the close percentages have some people thinking otherwise. 

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Mortgage lenders across the nation have been trying to stave off the sweeping number of foreclosures by modifying troubled mortgages. With homeowners having trouble dealing with upside down home values and unaffordable mortgages, mortgage modifications have become quite popular recently. Even with the slow start of HUD’s Hope For Homeowners program, mortgage modifications seem to be the most prominent “solution” to our housing crisis problems. 

SF Chronicle asks, “Are You An Idiot to Keep Paying Your Mortgage?”
Unfortunately, one has to ask the question if mortgage modifications are sending out the wrong message; not just to homeowners and potential homebuyers, but everyone, including children and future generations. In a recent article by the San Francisco Chronicle, the article makes a bold suggestion and asks readers, “Are You an Idiot To Keep Paying Your Mortgage?” In the article, they insinuate that current homeowners should consider purposely defaulting on their mortgages to become eligible for these mortgage modifications. With lenders reducing the interest rates and sometimes even the principal balance on these mortgages, the temptation is definitely there.

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According to Crescent Communities, big homes are out and little homes are in for 2009.

The North Carolina builder and developer reports that “buyers are examining their lifestyles and the most important aspects of their new homes. The result is a smaller home that maximizes the square footage. But, a smaller home does not mean sacrificing on luxury. You’ll find that these homes still have expected luxury features – granite countertops, top-of-the-line appliances, upgraded trim packages and luxurious owners’ baths. Even in the largest, most luxurious homes, you’ll find that one room or more has been eliminated to reduce the square footage.”

Forgive me, but I find some redemption in these words.
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It’s unbelievable. More than 100,000 people went bankrupt in October.

Given the current economic circumstances, it might seem reasonable for lots of folks to head to the nearest bankruptcy court. In fact, the bankruptcy process was changed in 2005 to assure that borrowers had as few rights as possible, thus discouraging bankruptcies.

How was the law changed?
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As we have reported, the Hope for Homeowners program has been, well, hopeless. For the month of October HUD reported that it received a total of 111 H4H loan applications — and approved none. In contrast, HUD also said that it approved 88,784 FHA mortgages during the second two weeks of October.

HUD now says that it will provide new “flexibility” for the Hope for Homeowners program, something that should be welcome given the woeful results seen to date.

According to HUD, “the HOPE for Homeowners (H4H) Board of Directors has approved changes to the program to help more distressed borrowers refinance into affordable, government-back mortgages. The changes will reduce the program costs for consumers and lenders alike while also expanding eligibility by driving down the borrower’s monthly mortgage payments.”
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A few days ago we wrote about the new Good Faith Estimate form developed by HUD — a form which the government says will save consumers $700 per transaction, and also a form which is not required until January 1, 2010.

In response, Marc Brinitzer with LendingClarity.com posted the following note with us:

“Peter, I have reviewed the new form and I like it. That may sound strange coming from a mortgage broker, since we are the group perennially targeted by Respa Reform. The form is much clearer in many ways for the consumer than past disclosures, and it smartly allows for variation in fees over which we have no control, like title and escrow costs (when our side didn’t pick the title and escrow companies).
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The use of FHA mortgages is increasing at a phenomenal rate, something probably not seen since the FHA program began in the 1930s.

For the second two weeks of October, HUD reports that:

___99,197 would-be borrowers applied for FHA loans, up 79 percent over 2008.

___55,923 borrowers used FHA loans to purchase homes, a figure up 231.0 percent from last year.

___27,661 borrowers refinanced with FHA mortgages, an increase of 150.5% when compared with last year.

Meanwhile, in case anyone missed it, RealtyTrac.com reports that homeowners received 279,561 foreclosure filings in the month of October. That’s up 25 percent when compared with October 2007.
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FHA home loans are available from a number of sources, both from retail and wholesale lending institutions. While some may prefer the idea of a brick and mortar bank such as Bank of America or Well’s Fargo, many individuals still rely on wholesale channels to fulfill their mortgage needs. Recently, FHA has gained in popularity and finding the right FHA wholesale mortgage broker is more important than ever. While borrowers can often rely on the household name of a retail bank, finding a reliable wholesale lender can be a more involved process. 

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New FHA Loan Limits
Earlier this month HUD had announced the new FHA loan limits set in place for January 1^st 2009. If you’re still not sure about the ceiling and floor limits for your specific area, check out our recent post about the new loan limit guidelines. As we’re nearing the end of the year, some FHA lenders have already started implementing these new changes into their lending guidelines.

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Buying homes with nothing down is increasingly rare, a trend which should surprise no one. What should amaze folks is that in that in today’s financial environment so many buyers continue to purchase with no money up front.

The National Association of Realtors is out with the 2008 edition of its home buyers and sellers survey, one of the best real estate studies available. In a typical case, says NAR, buyers are putting down 9 percent when they purchase. The specifics, however, are different.
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It’s one of those good news, bad news stories.

After much deliberation HUD has come out with a new, better, clearer good faith estimate form, one that it estimates will reduce closing costs by $700 apiece.

The bad news: Lenders need not use the new form until January 1, 2010. Yes. Not 2009, but January 1, 2010.
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Anybody notice something peculiar about the new conforming loan limits for 2009?

If you get a bright and shiny conventional mortgage the loan limit in the continental United States is generally $417,000. Go with an FHA loan and in many areas the maximum loan amount will be $625,000.

At first this seems like a complete reversal of the usual way mortgage limits have worked.

In the past the minimum and maximum FHA loan limits were simple to calculate: Take the conventional loan limit and multiply by either 48 percent or 87 percent. In other words, the maximum FHA loan amount was always smaller than the amount available with conforming loans.

But now the deal is different.
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