FHA has announced plans to require a minimum FICO credit score of 500 for borrowers to qualify for FHA loans. Although this requirement isn’t likely to begin until sometime in 2011, the decision begs the question of whether establishing the low minimum requirement is necessary. read more

In a mass action, the FHA has announced sanctions against more than 1,000 lenders, including some of the largest and best-known financial names in the country. The result will be an environment where FHA loan borrowers will have fewer choices (because more than 900 lenders can no longer offer FHA financing) and more rigorous loan applications (because remaining lenders will want to make sure that every requirement has been met and verified).

“Lenders should know by now that FHA will not tolerate fraudulent or predatory lending practices,” said FHA Commissioner David Stevens. “Any FHA-approved lender that does business with us must follow our standards. If we determine that our partners are not playing by the rules, we will take action — it’s that simple.”

In a 15-page announcement in the Federal Register, FHA’s Mortgagee Review Board (MRB) included large numbers of fines and suspensions.

The FHA says its “Mortgagee Review Board sanctions FHA-approved lenders for violations of the agency’s program requirements. For serious violations, the Board can withdraw a lender’s FHA approval so that the lender cannot participate in FHA programs. In less serious cases, the Board enters into settlement agreements with lenders to bring them into compliance. The Board can also impose civil money penalties, probation, suspension, and issue letters of reprimand.”

Without admitting fault or liability, 32 lenders agreed to settle allegations against them, including CitiMortgage (which paid a fine of $700,000), Equitable Trust Mortgage Corporation, Baltimore, MD ($277,500), Financial Mortgage USA, Inc. Honolulu, HI ($97,500), Franklin First Financial LTD, Melville, NY ($413,500), Ideal Mortgage Bankers, Ltd. d/b/a Lend America, Melville, NY ($512,500), PrimeWest Mortgage Corporation, Lubbock, TX ($168,500), ProMortgage, Incorporated, Claremore, OK ($124,000) and Premium Capital Funding LLC d/b/a TopDot Mortgage, Jericho, NY ($674,000).
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I have to laugh at a recent post on Seeking Alpha, a blog I like and ordinarily have a lot of respect for. But they missed the mark with this one. The author pulls this statement from the FHA site as evidence that FHA loans are government-backed subprime loans.The emphasis is his.

“Why should you choose an FHA loan?

There are many good reasons to choose an FHA loan, especially if one or more of the following apply to you … If you have less than perfect credit: You don’t have to have perfect credit to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA loan than a conventional loan.”

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In 2010 thus far, the Federal Housing Administration’s Mortgagee Review Board (MRB) has sanctioned nearly 1,500 lenders. Actions taken include reprimands, probation, suspensions, approval withdrawal, and fines.

A list of the spanked lenders can be found in the Federal Register. read more

With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act it might seem as though we’ve seen about as much action as we’re going to see on the mortgage reform front for some time. Alas, that’s not the case.

The legislation contains various provisions which leave final definitions, options and distinctions up to various regulators. In the best case private-sector loans will wind up with strict but obvious standards of lender responsibility, similar to what we now have with FHA loans. However, given the past history of federal regulators to act in the best interests of mortgage borrowers you can bet that we will now see a maximum push by industry lobbyists to overturn by regulation what they could not avoid by legislation.
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Financial reform legislation impacts mortgage lenders, borrowers, and brokers in certain ways that can be viewed as helpful or not depending on your viewpoint. Here are the basics of how new rules can impact your FHA loan or refinance mortgage: read more

For all the talk about foreclosure prevention, the role of FHA loans in shoring up the housing market is generally not discussed or thoroughly ignored. This is now becoming difficult because the foreclosure-assistance numbers are simply too big.

How big?

The July housing scorecard is out from HUD and the role of the FHA is easy to see:

“HAMP permanent modifications are on pace, as more than 51,000 trial agreements graduated to permanent in June: Servicers report the number of homeowners receiving restructured mortgages has increased to a new total of 2.95 million, including more than 1.2 million homeowners under HAMP trial modifi cations and nearly 400,000 benefitting from FHA loss mitigation activities. However, cancellations from HAMP trial plans remain high as many borrowers who received temporary modifications were not able to meet eligibility requirements such as verifying their income and successfully making trial payments.”

Meanwhile, while HAMP has a high level of cancellations the FHA does not. HUD has reported that in fiscal 2009 — last year on the government calendar — “82.7 percent of the HUD-held loans that are 90 days or more delinquent were brought under control.”

Why is this important to FHA loan borrowers? Ah, let me explain.
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Mobile or manufactured homes predominate in many communities (don’t call these upgraded developments trailer parks!). However, financing them can be tough, especially in today’s harsher underwriting climate. Manufactured home builders say that the difficulty folks encounter when trying to finance these affordable homes has curtailed the industry severely. The average manufactured home interest rate is nearly 4% higher than the average rate for traditional homes, according to financier Warren Buffet. Fannie Mae and Freddie Mac do finance manufactured homes, but there are pricing add-ons, and mortgage insurers won’t touch these properties, so you’d have to come up with at least 20% down. So FHA may be your best bet for mobile home financing. read more

When the housing boom party was in full swing, lavish extras were often thrown in to “help” buyers decide to purchase property. Sellers tossed in cars, plasma TVs, hot tubs, snow blowers, and boats to give their properties an extra edge in the market. Today’ those inducements are making a comeback, thanks to the expiration of the home buyer’s tax credit. Sellers need to get buyers interested in any way they can, short of giving their homes away. But be careful about purchasing such a property with an FHA mortgage — the lender isn’t going to be keen on financing your new big screen along with the house. read more

Federal programs for home loans including FHA and VA loans are driving current volumes of activity for home purchases and mortgage lending, according to a report issued by the Mortgage Bankers Association (MBA). The report credits an 8 percent increase in government loan applications for pushing purchase loan applications upward by 3.4 percent over one week. read more

A new report suggests that mortgage fraud for FHA loans is double the level associated with conventional financing.

According to its 2010 Mortgage Fraud Trends Report, CoreLogic says that “on average, lenders are reporting 55 basis points of fraud on conforming loans, and 122 basis points of fraud on Federal Housing Administration (FHA) loans.” (A “basis point” is 1/100th of a percent, so the numbers here translate into a .55 precent fraud level for conforming loans and 1.22 percent for FHA financing.)

CoreLogic also says that in 2009 the FHA program insured loans worth $615 billion. If 1.22 percent involved fraud, then FHA financing read more

The days of waiting until you are married to buy a home are over. Today, about a third of home purchases are made by singles. According to real estate firm Coldwell Banker, however, it is getting more common for singles to purchase their homes with another co-buyer. In fact, 13% of them buy homes with other purchasers, and half of these folks co-own with their parents. read more

One of the biggest drawbacks for FHA reverse mortgages, or HECMs, is the high upfront cost for the mortgage insurance. It’s higher than a regular FHA loan because the fee is calculated from the property value, not the amount borrowed. So a 2.00% upfront mortgage insurance premium based on a $400,000 property may be 4% of the loan proceeds if you can only borrow $200,000. That’s $8,000 right off the top.

But wait, there’s more. read more

With less than one percent of FHA borrowers having FICO credit scores of less than 580, the FHA decision to impose a minimum credit score of 500 isn’t likely to impact many borrowers. Most FHA borrowers have credit scores in excess of 620, so imposing a minimum of 500 isn’t going to impact access to mortgage loans by credit challenged borrowers. If you’re looking for a home loan, and cannot qualify for a conventional mortgage loan, FHA home loan programs offer the following benefits

• Low fixed or adjustable rate mortgage loans backed by the federal government
• Flexible credit requirements including lower credit scores and alternative credit documentation for borrowers without traditional credit
• Ongoing support through FHA foreclosure avoidance programs for homeowners experiencing financial hardship

Low credit scores can impact your ability to find an affordable loan, as mortgage rates are higher for those with credit problems.  Taking time to improve your credit can save money over the long term, as homeowners typically pay tens of thousands of dollars in interest over the term of a mortgage loan.

Preparing for Your FHA Mortgage Loan: DIY Credit Repair

The first thing consumers need to know about improving credit is that there are no instant fixes. No one can make your bad credit “disappear,” overnight, nor can they “fix it.” No one can improve your credit scores but you.  Before shopping for a home, you’ll want to look for a home loan. Here are a few things to do before requesting mortgage quotes:

• Order your credit reports and scores: Keep this information for future reference.
• Review your credit reports for errors: Reading credit reports is about as exciting as reading the tax code, but it can help with finding errors on your credit reports that could negatively influence your credit scores.  Your credit reports contain contact information and directions for disputing incorrect information.
• Take charge of your debts: Mortgage lenders approve loans based in part on how much debt you have. Paying down credit card debt can help you qualify for a mortgage loan more easily.
• Don’t use or close credit card accounts: The less credit card debt you have when applying for a home loan, the better your chances for getting approved at lower mortgage rates. Freeze your credit cards in a block of ice or stash them in a tank of piranhas, but don’t close your accounts. This reduces your total available credit, which raises your credit utilization ratio. The more available credit you use, the lower your credit scores. 
• Save, save and save: Having savings suggests financial responsibility. You’ll also need to save toward a down payment and closing costs for your new home. FHA guidelines require a minimum of 3.5% down; your closing costs and the up-front mortgage insurance premium (UFMIP) can cost a few thousand more. Arrange automatic deposits for your savings accounts; you’ll be less likely to miss the money.

Talking with a HUD approved housing counselor can help you plan for buying a home with an FHA loan.

FHA’s reverse mortgage program, the Home Equity Conversion Mortgage (HECM) is going through some rough times, thanks to the erosion of home equity and some program changes. You’d think that with 60% to 80% of seniors owning their homes free and clear (depending on which survey you read), rock-bottom low interest rates, the expanding senior population, and the growing trend of lenders foregoing the mortgage origination fee, that business would be booming. But that’s not the case. Here’s why. read more