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Should We Bring Back FHA Seller-Financed Downpayments?

Peter G. Miller
January 27th, 2010

It was just two years ago that Congress voted to dump downpayment assistance plans (DPAs) for FHA mortgages.

In basic terms, with a DPA a buyer seeks to purchase a home but lacks cash for a downpayment. The seller provides the money plus a smaller fee to a non-profit group and then group then turns around and gives the buyer enough money for the downpayment. Since the cash comes from a nonprofit group the grant was allowed under FHA rules.
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“Early Relief” Plan Comes To FHA Borrowers

Peter G. Miller
January 25th, 2010

HUD has just introduced a new loan modification concept, one which private-sector lenders might want to duplicate.

Under the plan, HUD does not want FHA mortgage borrowers to first get in trouble and then seek modification. Instead, HUD has a smart idea: Why wait? If you see you’re running into trouble let’s try to do something before things get worse? In other words, even if you’re now making your FHA loan payments, if you’re not delinquent, you may still qualify for help.

The Early Relief program outlined by HUD works this way:

If you’re facing “imminent default” and your monthly payment is current or less than 30 days past due, then you may qualify for early relief in the form of a forbearance agreement, an agreement to postpone, reduce or suspend payment(s) for a short period. The HUD says the new FHA guidelines will offer three forms of forbearance: informal, formal or special.
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Big Changes Coming for FHA Loans

Gina Pogol
January 21st, 2010

Policy changes announced by HUD yesterday, Wednesday January 20, are expected to be implemented in the early summer and late spring of 2010. The changes will require borrowers to pay more for mortgage insurance, and borrowers with poor credit scores will have to come up with much bigger down payments. If you think you may be adversely affected by these changes, act now to become eligible for the best mortgage terms when buying or refinancing a home through FHA.

FHA Home Loans Will Be More Expensive, Harder to Get

Federal Housing Administration (FHA) Commissioner David Stevens recently announced several policy changes to bolster the agency’s financial position, enabling it to continue to support home ownership for borrowers with limited means and help facilitate the nation’s real estate market recovery.

What Are the Key FHA Changes?

If you plan to buy or refinance a home through FHA, these are the changes that could affect you:

  • Mortgage insurance premium (MIP) will be increased from 1.75% to 2.25%. On a $200,000 mortgage, that increases the upfront MIP from $3,500 to $4,500. This amount is usually wrapped into the loan, so it won’t increase your out-of-pocket expense unless you choose to pay it at closing. Adding this higher amount to your loan will increase your mortgage payment, however. This change is expected to go into effect in the spring. Annual mortgage insurance premiums are not increasing at this time, but the FHA is seeking the authority to do so.
  • Down payment requirements will be tied to FICO scores. You’ll need to have a minimum FICO score of 580 if you want to make the FHA minimum down payment of 3.5%. Those with FICO scores of less than 580 will have to put up at least 10%. This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
  • Seller concessions will be reduced from 6% to 3%. This limits the amount of help buyers can get from sellers, reducing the incentive to inflate appraisals–is a $212,000 home with 6% ($12,000) seller concessions really worth $212,000? Or $200,000? This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

  • What Can You Do?


    A study by the Department of Housing and Urban Development found that borrowers who bring more money to the closing table are far less likely to default on their mortgages. These changes are FHA’s way of keeping financing available while beefing up its reserves and minimizing risk. But if you’re one of those who will be affected by the changes, what can you do?

  • Buy now. These changes don’t go into effect until spring, so you have a couple of months to find a home and get under contract. The expiration date of the First Time Home Buyer Tax Credit should make a home purchase a priority anyway, if you qualify.
  • Improve your credit. For those who can’t manage a purchase immediately, it’s probably easier and faster to improve a credit rating than to save an extra 6.5% for a down payment. The easiest and quickest way to improve a credit score is to make your payments on time–payment history makes up 35% of your credit score. By arranging electronic payroll deposits to your bank and automatic payments to your creditors, this can be relatively painless. What about collection accounts? If they’re relatively new, go ahead and negotiate a payoff. But if the accounts are older, leave them alone. Your recent credit history is weighted much more than what you’ve done in the past, and by paying off an old collection, you actually bring it back into your recent history. If your accounts are maxed out, pay more than the minimum each month, and stop using the cards. Credit utilization is 30% of your score. By paying down balances on time, you’ll improve both the history and utilization parts of your FICO score. Do this for about six months and see how much your score improves.
  • Save money. You won’t be able to get as much help from the seller to buy your mortgage interest rate down or pay your property taxes. That means bringing more cash in when you close on your home purchase. If you can save money while paying your bills on time and reducing your credit balances, do it. Again, automatic payroll deductions are probably the easiest way to manage this.

  • FHA’s new requirements could be thought of as burdensome, but if complying with them forces you to adopt better debt management practices and save money, your new habits could make you better off for the rest of your life. Someday, you may even want to thank FHA.

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    FHA OutLines Higher Fees, More Lender Oversight

    Peter G. Miller
    January 20th, 2010

    The FHA is raising its mortgage insurance premium and taking other steps to boost revenue and reduce risk.

    In a telephone press conference with reporters this morning, FHA Commission David H. Stevens announced a series of changes which will both boost borrower costs while increasing funds to help bolster FHA reserves.

    1. The FHA mortgage insurance premium (MIP) will be increased from 1.75 percent to 2.25 percent. This change will likely be officially announced tomorrow in a letter to mortgage lenders, however the higher fees will not go into effect until the Spring. IMPORTANT: If you want an FHA mortgage it will be cheaper to get it now rather than in a few months.

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    FHA 90-Day Rule Put On Hold

    Peter G. Miller
    January 18th, 2010

    In an effort to stimulate home sales, HUD has announced that as of February 1st it will suspend its 90-day anti-flipping rule. This should have the effect of making FHA loans more easy to obtain for recently refurbished homes.

    With certain exceptions, says HUD, “the FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.”

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    Lenders Fight Increased Responsibility For FHA Loans

    Peter G. Miller
    January 13th, 2010

    In little-noticed testimony last month HUD Secretary Shaun Donovan laid out the grounds for a new FHA, one which would make lenders more responsible for the FHA loans they originate.

    “We will step up efforts to ensure lenders assume responsibility for any losses associated with loans not underwritten to FHA standards,” said Donovan.

    “We will hold lenders accountable for their origination quality and compliance with FHA policies, increasing our review of mortgagee compliance with FHA program requirements.

    “And we intend to expand enforcement for new loans as well. That includes requiring lenders to indemnify the FHA fund for their own failures to meet FHA requirements, and holding lenders accountable nationally for any improper activities, as we are presently limited to sanctioning individual branches.”

    Reading between the lines, what Donovan is saying is this: If you’re a lender and use a mortgage broker to sell FHA loans that’s fine — but if the mortgage broker does something wrong the lender will be responsible and may be forced to pay off any FHA losses.
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    HUD Blasts ARM Mortgages, Payments Can Triple

    Peter G. Miller
    January 11th, 2010

    HUD has published a new Shopping For Your Home guide for consumers and it could not be more blunt when it comes to private-sector adjustable-rate mortgages.

    “Two of the most common types of mortgage loans are fixed-rate mortgages and adjustable rate mortgages. The interest rate on a fixed-rate mortgage will remain the same for the entire life of your loan while the interest rate on an adjustable rate mortgage (ARM) may adjust at regular intervals and may be tied to an economic index, such as a rate for Treasury securities. When the interest rate on an ARM adjusts it may cause your payment to increase.”

    Notice the expression, ARMs MAY cause your payment to increase? Not WILL cause your payment to rise, or ABSOLUTELY WITHOUT A DOUBT your payment will shoot up, but perhaps, maybe the payment may rise.

    HUD then says this:
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    2010 and the FHA

    Peter G. Miller
    January 6th, 2010

    It was in mid-December when the National Association of Realtors released some interesting figures: FHA loans accounted for the financing used by 39 percent of all recent buyers while the number of first-time home buyers continued to climb to 51 percent.

    “FHA helps provide affordable mortgage financing to homeowners, particularly first-time home buyers who are so important in drawing down inventory to help stabilize the current housing market,” said NAR President Vicki Cox Golder. “These recent survey results reaffirm that, despite its current challenges, FHA is a critical part of the American housing fabric.”

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    FHA Allows Higher Fees For Lenders

    Peter G. Miller
    January 4th, 2010

    HUD released a new directive for lenders which says they may charge more than a 1% origination fee for most FHA loans, those made under the 203(b) program.

    Think of it as a holiday gift for lenders.

    According to the HUD announcement, the FHA “no longer limits the origination fee to 1 percent of the mortgage amount for its standard mortgage insurance programs. However, both Home Equity Conversion Mortgage (HECM) and Section 203(k) Rehabilitation Mortgage Insurance Programs retain their statutory origination fee caps.”

    So how much can lenders charge?

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