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Increase Shot Down: FHA Down Payment Remains 3.5%

Gina Pogol
April 28th, 2010

Yesterday the House Financial Services Committee defeated a proposed measure that would have increased the minimum down payment for an FHA mortgage from 3.5% to 5%. This is good news for FHA’s primary market: borrowers who can afford a mortgage payment but do not have a lot of cash to put down on a house.  If the down payment requirement were raised, it would create an insurmountable obstacle for many potential homeowners, those for whom even 3.5% is a stretch.

The rejected provision would also have prohibited property sellers from making any contributions towards buyers’ closing costs. The proposed FHA seller contribution limits seem somewhat unfair, as borrowers getting conventional loans are allowed 3% in seller concessions. read more

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FHA Annual Premium to Triple?

Gina Pogol
April 28th, 2010

In order to increase FHA’s capital reserves, the House Financial Services Committee approved a bill to increase the maximum annual mortgage insurance premium payments collected from 0.55% to 1.5%. When FHA increased its upfront MIP to 2.25%, it indicated that it would seek authority to increase the annual premiums charged and then request a corresponding drop in the upfront MIP. But the upfront MIP was increased by only 0.5%, from 1.75% to 2.25%. The annual MIP increase could be nearly a full percent, payable every year! That could make FHA mortgages a lot more expensive in the future. read more

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FHA Commissioner Cites Reverse Mortgage Loan Program in Request for $250 Million

Karen Lawson
April 27th, 2010

During recent testimony before a House Appropriations Subcommittee, FHA Commissioner David H. Stevens noted that without additional funding, loan limits for home equity conversion loans (HECM), also called reverse mortgage loans, would be reduced.

As FHA continues to walk a policy tightrope between reducing risks and serving homebuyers and homeowners depending on its mortgage loan programs, the agency’s latest request for funding cites the HECM loans as a potential casualty if appropriate funding is not provided during the 2011 fiscal year. In particular, Commissioner Stevens notes that loan limits would be reduced for HECM mortgage loans, a situation that could make reverse mortgages less accessible for seniors depending on converting their home equity into cash through a HECM loan. read more

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FHA “GREEN” Mortgages On Horizon

Peter G. Miller
April 27th, 2010

Given all the yelling and screaming in Washington, I am happy to report a bit of bi-partisanship: On April 22nd, Earth Day, the House Financial Services Committee approved H.R. 2336, the GREEN Act, a bill that would add a large number of affordable FHA loans to the housing mix. Next it needs to be considered by the full House and then by the Senate.

It’s a linguistic stretch but the “GREEN” in GREEN Act stands for “Green Resources for Energy Efficient Neighborhoods.” The bipartisan measure was co-sponsored by Rep. Ed Perlmutter (D-CO) and Rep. Judy Biggert (R-IL), among others.

According to the Committee, part of the legislation “directs HUD to establish a four-year, 50,000-unit demonstration program to highlight the cost effectiveness of funding a portion of the costs of meeting the enhanced HUD energy efficiency standards. In addition, the Federal Housing Authority (FHA) is encouraged to insure at least 50,000 energy efficient mortgages by December 31, 2012. As FHA begins seeking these types of mortgages, a market will emerge among homebuilders, home owners and lenders seeking to acquire federal insurance on mortgage products.”

Translation: The bill is an effort to push out 100,000 additional FHA mortgages.
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FHA To Accept Some Electronic Signatures, But Not All

Peter G. Miller
April 26th, 2010

HUD has announced that it will now accept electronic signatures on certain FHA mortgage documents.

You could look at this and say, wow, FHA loan closings are coming into the modern era. This will speed things up and make closings less expensive.

And, in fact, HUD should be congratulated for moving forward in a technological sense.

That said, I don’t think there’ll be much change in the marketplace. It just won’t happen that you’ll have a totally paperless closing anytime soon involving FHA loans or any other type of financing. Here’s why:
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FHA Reports Sharp Increase in March Mortgage Applications

Karen Lawson
April 22nd, 2010

The Federal Housing Administration (FHA) reports a 68% increase in March 2010 home loan applications over February. Applications for FHA home loans, refinance mortgage loans, and HECM (reverse mortgage loans) increased during March. read more

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No FHA Bailout

Peter G. Miller
April 21st, 2010

I was surprised to find out that the FHA has benefited from the Wall Street bailout. That’s the claim of some who say that the cost to taxpayers will be merely $89 billion rather than $250 billion.

“What the $89 billion included,” reports the New York Times, “were costs associated with stabilizing Fannie Mae and Freddie Mac, the mortgage finance giants; loan guarantees by the Federal Housing Administration; and liquidity programs offered by the Federal Reserve, such as those authorizing the purchase of mortgage-backed securities from financial institutions. It also included the Troubled Asset Relief Program — which, nameless Treasury officials contended, may someday generate a profit.” (See: This Bailout Is a Bargain? Think Again, April 19, 2010)

This is nonsense. There has been no government bailout of the FHA mortgage program. Not a dime in taxpayer money has gone to the FHA. Notice that the claim stems from unnamed sources. If I said something that absurd I wouldn’t want my name associated with it, either.
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New Mortgage Calculator Lets You Compare FHA with Conventional Loan

Gina Pogol
April 19th, 2010

A new mortgage calculator from mortgage insurer PMI allows you to see which home loan would cost you less on your next home purchase or mortgage refinance–FHA or conventional. read more

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Got an FHA Loan? There’s a HAMP for That!

Gina Pogol
April 19th, 2010

New and Improved! Borrower Pay-for-Performance Compensation

FHA-HAMP was unleashed in July 2009 to help troubled homeowners with FHA mortgages. And now, the program has some new updates.

FHA-HAMP is not just regular HAMP with a longer acronym. It’s very different from the Fannie / Freddie (and non-GSE) program. FHA is prohibited by federal law from permanently reducing the principal balance on the mortgages it insures, but the agency allows up to 30% of the balances to deferred (and not accrue interest) until the properties are sold. Another significant difference is that FHA-HAMP does not make use of NPV testing. This is a calculation lenders can use for conventional HAMP to determine if it’s more profitable for them NOT to modify your loan (and perhaps foreclose). If it is, you are out of luck! The absence of the NPV test is a huge help to FHA borrowers. read more

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FHA Home Loans: Don’t Fall for Mortgage Fraud Schemes

Karen Lawson
April 19th, 2010

FHA officials are concerned about alleged non-profit organizations offering to assist mortgage companies with keeping their FHA loans out of delinquency during the first two years of their repayment terms, when loans are most at risk of default and foreclosure. The Washington Post focuses on a specific firm that operates under the guise of a financial counseling firm but actually helps mortgage lenders disguise defaults during the critical two year period when FHA is most closely monitors mortgage loan defaults. read more

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FHA Volume Dives — But Why?

Peter G. Miller
April 19th, 2010

The FHA mortgage volume figures will be out shortly but if they follow what happened in February then there should be a lot of head scratching on the home front.

During February, says HUD, there were 165,239 FHA loan applications — that’s down 26.4 percent from 2009. It follows that if loan applications are down then we will shortly see loan endorsements also fall.

It could be that the February numbers came up short because the weather was lousy in much of the country. However, offsetting the issue of blizzards and floods there is the little matter of April 5th — that’s the day when upfront mortgage insurance premiums will rise for all new FHA mortgages from 1.75 percent to 2.25 percent.

Translated into dollars, if you have a $200,000 FHA loan the up-front MIP will increase by $1,000 after April 5th — a very good reason to get an application in now, before FHA loan guidelines change and costs go up.

Or, there could be something else at work here, something which impacts both the FHA and the real estate market in general.
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Proposed FHA “Short Refinance” Program Facing Obstacles

Karen Lawson
April 16th, 2010

As part of the revised provisions of the Home Affordable Modification Program (HAMP), plans are being made to permit FHA to refinance distressed mortgage loans for less than the current mortgage balances. This would theoretically assist homeowners who could not refinance to more affordable mortgages after their homes lost significant value, but how well the proposal will work depends on the ability of the federal government, mortgage lenders and the secondary mortgage market to cooperate. Here are some of the obstacles that can limit participation in this proposed program:

Mortgage write-downs: Someone loses money

Most mortgage loans are sold to investors; the investors hire mortgage servicing companies to collect payments and handle day-to-day administration and maintenance of their mortgage loans.

Investors in securities backed by mortgage loans are unlikely to approve reductions of mortgage amounts.  Mortgage loans that have been made part of large investment pools may not be eligible for any type of modification. The thinking behind offering mortgage write-downs make sense when so many homes are worth less than the mortgage amounts against them, but the complex nature of the secondary mortgage market and its rules can sink well-meaning loss mitigation efforts.

FHA refinance option requires lenders to reduce mortgage balances

Although the HAMP provisions under consideration would allow homeowners to qualify for FHA refinancing mortgage at a lower amount, the mortgage would have to be reduced by at least 10 percent. This would require mortgage servicers to get approval from mortgage loan owners/investors and to gain approval from any private mortgage insurance company if applicable. All of this takes time and delays can negate potential advantage of modifying a mortgage as opposed to foreclosing it.

Mortgage lenders: participation in mortgage write-downs voluntary

The federal government can’t force the private sector to agree to lose money by reducing loan balances for accommodating FHA refinancing to lower mortgage amounts. Given the amount of paperwork, and number of eligibility and approval processes required between FHA, mortgage servicers, mortgage investors, and mortgage insurance companies, it seems unlikely that many well intentioned short refinances to FHA mortgage loans will actually be completed.

FHA Commissioner Cites Inability to Help All Homeowners

Testifying before a recent House Financial Services subcommittee hearing on initiatives designed to improve government programs assisting challenged homeowners, FHA Commissioner David H Stevens noted that the FHA, “must balance the need to help struggling homeowners with the recognition that we cannot and should not help everyone.”

Although reducing the balances of underwater mortgage loans may encourage homeowners to keep making mortgage payments, the complexity of the US home loan industry and ethical concerns about fairness to homeowners fortunate enough not to need mortgage help may well quash the FHA short refinance option.

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Mortgage Loan Write-downs: Why FHA Guidelines Can’t Force Lender Cooperation

Karen Lawson
April 14th, 2010

Government mortgage relief programs along with current FHA mortgage rates may offer distressed homeowners opportunities for getting back on track while saving their homes. Unfortunately for many homeowners, having a home equity loan can potentially represent an obstacle to getting foreclosure help or a new refinance mortgage.

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Is The FHA Too Risky?

Peter G. Miller
April 14th, 2010

A research paper has been floating around for the past few weeks which argues that the FHA mortgage program faces risks which have not been fully recognized. This would be a big ho hum except that if the authors are right it would mean far fewer FHA loans and far tougher FHA loan guidelines.

But are they right?
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FHA Mortgages: What’s Considered an Affordable Payment?

Gina Pogol
April 13th, 2010

Trying to figure out how much house you can afford? Sorry, there’s no magic number. But you can try several sources. You can use a general rule of thumb, input your data into a mortgage calculator, have a loan officer run your application through an automated underwriting system (AUS), or get a human underwriter to look at your file. But don’t overlook the highest authority–your gut. read more

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