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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The Mortgage Bankers Association’s weekly survey of home loan and refinance applications indicates stronger demand that could signal the end of rock bottom mortgage rates. The survey covering the week ending October 2 indicates that applications for home purchase loans were up 16.4 percent, seasonally adjusted to 13.2 percent. This figure remains about 2 percent less than one year ago.  Refinance applications rose to 18.2 percent, also seasonally adjusted, and the highest rate for refinance applications since mid-May.

FHA Providing Home Loan Opportunities for Challenged Borrowers

With the demise of sub prime lending, many homebuyers and homeowners who have little cash or home equity, and/or credit problems cannot qualify for mortgage loans at current mortgage rates. FHA has assumed the lion’s share of this market, as indicated by the MBA survey. For the week ending October 2, FHA home loan applications have risen 14.4 percent, the highest level reported since the survey’s inception in 1990.

Current Mortgage Rates and Lenient FHA Guidelines: Is the Party Ending?

This may be great news for homebuyers and homeonwers wishing to refinance, but as FHA assumes more risk by insuring growing numbers of loans,  it may be forced to further tighten its lending requirements in an effort to avoid heightened risk. Recent concerns about FHA reserves falling near the 2 percent minimum required by Congress have led to raising the minimum down payment for FHA home loans from 3.5 to 5 percent, and reducing loan amounts for cash out refinances and cash payouts for reversee mortgages. If FHA guidelines are tightened further, first time buyers and others may be out of luck, espcially if mortgage rates start rising.

FHA Resources for Homewners and Homebuyers

If you’re buying for a home, or refinancing your current home loan, get quotes for FHA home loans from our lenders. If you need information about preparing to buy a home, paying off debt or learning about local housing programs in your area, please contact a HUD approved housing counselor for assistance.  

To Buy or Not to Buy: Are You Ready to Buy a Home?

Home ownership is traditionally viewed as a sign of achievement and financial stability, but it is also likely to be the largest financial obligation you’ll ever have. Don’t be pushed into buying a home you’re not ready to own. Taking time to save for a down payment, establish or improve your credit, or stabilize your career can be worthwhile, particularly if you have doubts about buying a home right now. Attending a first time homebuyer class can help you understand the cost and responsibilities of home ownership. Don’t allow pressure from family or others to influence your decsion about buying a home. When you’re ready, you’ll know.

There’s a lot of concern regarding FHA reserves and with good reason — you sure would like them to be larger.

The Wall Street Journal, in it’s latest anti-FHA blast, notes that “the agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.

“At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.”

Of course, looking at loans that are at least 30 days late is absurd. The more important issue is not whether loans are late, it’s whether they are being foreclosed. As we pointed out earlier this week:
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In a move to address an estimated shortfall of $798 million within the next fiscal year, FHA Commissioner David H. Stevens has announced cuts in the amounts seniors can receive under FHA’s popular reverse mortgage program. Effective with applications received on and after October 1, 2009, the FHA Home Equity Conversion Mortgage (HECM) loans will provide 10 percent less cash to seniors.

How Revised FHA Guidelines Affect HECM Borrowers

A reverse mortgage loan is an option for borrowers aged 62 and above who want to convert home equity to cash and eliminate monthly mortgage payments. Falling property values have led to narrower margins between home value and home equity, and FHA guidelines reducing the amounts seniors can receive with a HECM loan may put reverse mortgage loans beyond the reach of some borrowers. Reduced FHA loan limits can make it more difficult to cover the cost of paying off an existing mortgage, meeting closing costs on the new HECM mortgage. Seniors who need to use the proceeds of a HECM loan for living expenses may find that there’s not much cash left  after paying off their existing mortgage and costs of their reverse mortgage loan.

Borrowers on Fixed Income: Reverse Mortgage as Life Raft

Homeonwers who live on a fixed income or otherwise have limited resources may find their existing  mortgage payments too high. Taking out a reverse mortgage can help these homeowners by eliminating monthly mortgage payments and possibly providing extra cash for paying taxes and hazard insurance and meeting living expenses. Borrowers with reverse mortgage loans are guaranteed the right to remain in their homes as long as they wish, and do not have to repay their mortgage loans unless they vacate the property securing the reverse mortgage loan. The change in FHA loan limits for  reverse mortgage payouts may result in some borrowers losing the opportunity to improve their finances with an FHA reverse mortgage loan.

Using a Reverse Mortgage Calculator

You can use a mortgage calculator to estimate potential benefits of getting a reverse mortage loan. Although the calculations provided don’t take into account regional variables and individual cirmstances, they can help in determining if a reverse mortgage loan may work for you.

FHA Cautions Homeowners Against Reverse Mortgage Scams

Although reverse mortgage loans are also available through conventional mortgage lenders, borrowers are cautioned to avoid “too good to be true” offers made through the mail or online. AARP provides consumer information about reverse mortgage loans here. FHA reverse mortgage counselors can also answer questions and provide information about FHA guidelines and reverse mortgage loans.

Rep. Scott Garrett (R-NJ) has a new bill that would cut off FHA mortgages from large numbers of borrowers.

Under the grossly mis-named FHA Taxpayer Protection Act of 2009 (HR. 3706), Garrett would increase the minimum FHA mortgage downpayment from 3.5 percent to 5 percent AND prohibit the financing of closing costs under such mortgages.
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