Well, even after extensive inquiry, I never did find a list of lenders participating in the FHA short refinance program, although I did get an avalanche of inquiries from beleaguered homeowners. The demand for the programs in obviously there, but how about the supply?

The latest in a series of government-sponsored attempts to right the mortgage ship is proving even less effective than I had anticipated.

If you are the government and you pretty much own Freddie Mac and Fannie Mae, and you can’t get THEM to sign on (perhaps someone should stop their allowance?!) the chances of any other lender turning performing loans into losses out of the goodness of its  heart seems unlikely.

HUD released its September FHA Outlook and the numbers speak for themselves (but this is my blog post so I will add my two cents anyway). Remember, the government estimated that 1.1 million homeowners would be eligible for this program.

“With respect to the refinance applications, 94,351 were prior FHA mortgages and 51,663 involved conventional seeking FHA insurance. It should be noted that the refinance total included 20 H4H applications as well as 14 applications under the new Short Refinance program.”

Kind of like trying to bail out the Titanic with a teaspoon.

And if that wasn’t bad enough….

HUD doesn’t say that any of these applications were approved.

Stay tuned.

We mentioned last week that HUD is establishing a new standard for FHA loans that it insured as a result of, er, lender creativity and not playing by the rules.

There’s more to this. In a new letter, FHA Commissioner outlined additional steps HUD is taking to protect borrowers — and itself.

“HUD,” says Stevens, “seeks to force indemnification for violations of FHA origination requirements that are ‘serious and material’ to the extent that the mortgage never should have been endorsed by the lender in the first place, just as FHA would not have insured the mortgage on its own.”

What lender sins might cause a forced buy-back? Stevens says lenders may be required to indemnify HUD if they read more

In the wake of scandals involving fraudulent lending and questionable mortgage loan servicing practices, FHA commissioner David H Stevens notes that the mortgage lending industry is suffering from a lack of public trust. In a meeting with the Mortgage Bankers Association, Mr. Stevens said, “There’s a reflection in the media and a reflection in the industry that we’re not being held accountable enough.” FHA currently insures about 30 percent of US home loans, and its policies have major influence on mortgage lending practices and housing markets.

Mortgage lenders: Reluctant to participate in government foreclosure avoidance programs

Commissioner Stevens notes that mortgage lenders’ and servicing companies’ failure to participate in federal programs designed to save homes from foreclosure are adding to the negative perception of the mortgage lending industry. These programs include Making Home Affordable modifications and mortgage refinance programs, and the FHA short refinance program, which requires that mortgage lenders agree to reduce mortgage balances by a minimum of 10 percent. To date, mortgage lenders aren’t lining up to write down mortgage amounts as a method of preventing foreclosure. We’re wondering why mortgage lenders aren’t willing to avoid the costs and delays associated with mortgage foreclosure by participating in this program. Here’s why saving on foreclosure costs by reducing mortgage amounts by known amounts makes sense. There are a lot of what-ifs in the foreclosure process:

• State law: Foreclosure proceedings are governed by state law, which determines whether a court of law or a non-judicial entity oversees foreclosure proceedings. Judicial proceedings require attorneys, and can take several months or longer. Non-judicial proceedings cost less and may take less time.
• Bankruptcy filings: Homeowners may file bankruptcy immediately prior to a foreclosure sale or auction, which further delays a mortgage lender’s ability to take title to the affected property. Bankruptcy courts are experiencing backlogs, and mortgage lenders must hire attorneys to obtain permission to continue foreclosure.
• Accruing interest: While homeowners in foreclosure continue living in their homes (or not) without making payments, mortgage lenders are losing interest on their mortgage loans.
• Property maintenance: Distressed homeowners may abandon their homes. Vacant homes are frequently vandalized and can become magnets for crime. Depending on local law, mortgage lenders may be required to secure abandoned properties and abate nuisances and hazards that may occur during the foreclosure process.

There is no way to accurately estimate exactly how much foreclosing a home loan can cost, but mortgage lenders can estimate minimum costs based on the cost of an “uneventful” foreclosure that experiences no delays or extra expenses. Agreeing to write off less than the estimated amount and save the time and expense associated with foreclosing home loans.

Some readers report having problems with sellers refusing to accept offers that include FHA financing in the deal.  You know it’s a buyers’ market, so what gives?! Why isn’t that seller kissing your feet, washing your car and breaking out the Champagne? Here are some of the reasons this may be the case:

Sellers may be aware that their property could not pass muster with an FHA appraiser.

Perhaps the most common reason a house fails this test is that it was both built prior to 1978 and has some amount of peeling paint.  Other safety issues include site hazards, undesirable topography, outdated well or septic systems, abandoned gas wells, industrial areas, and flood zones. Safety problems may also be associated with the building itself, for example steps but no handrail, broken glass, exposed outlets or wires, or outdated utilities. They know the house blows ugly boogers so they want to make it your fault.

Security is another issue — a house can be entered via a back door with no lock, a broken door, or a broken window.  Sometimes new construction or recent improvement have missing doors or wall sections.  Whatever the case, a home must be able to be sealed off and locked in order to be called “secure.”

The construction must be sound. Leaks, foundation cracks, termite tunnels and holes, a worn roof, water in the basement or attic or other obvious physical deficiencies are going to be flagged by the appraiser.

Finally, if the home is a condo unit in a development that is not FHA-approved, the seller won’t take an FHA offer. Like if no one is paying their HOA dues and there is a meth lab on the third floor….

Sellers may confuse FHA with subprime. read more

Borrowers who need to close on their home purchase or complete a refinance quickly may be a bit worried about getting an FHA mortgage approval, especially because these days most lenders impose their own stricter requirements on top of FHA’s guidelines. These extra requirements are called investor overlays and mean that just because FHA says that you can get a loan approval with a 580 credit score doesn’t mean that a lender will approve your loan.

For borrowers on the edge, these overlays are a major concern — while FHA borrowers’ credit scores averaged 621 a few years ago, today it’s nearly 700. And it’s not because people’s scores overall are increasing in these economic times; it’s because lenders don’t want to chance losing their approval to do FHA loans by having too many defaults, so they make their requirements tougher.

So if you have been at your job for a year and have a 623 credit score, will you be approved for an FHA loan? read more

The Mortgage Bankers Association (MBA) has written to HUD pleading for a break, claiming that new HUD foreclosure policies are punitive and arbitrary — fancy language from a special-interest group asking for a special favor.

HUD is moving to speed the time it takes to start a foreclosure from 12 months to six months. The logic is that a faster process will save HUD big money in terms of lender claims. Lenders, of course, are paid either by the borrower when mortgages are performing or by HUD when FHA mortgages are in default.

The Mortgage Bankers Association says it want to revise the penalties HUD has established when lenders fail to promptly start read more

The demise of stated income loans (and stated assets loans, and stated employment loans, and all the other fog-a-mirror mortgages out there) has focused folks on income again. The more information you read, the more confused you may get about what income is required to get approved for a mortgage.  Mortgage sites and their pre-qualifying calculators toss out a wide range of income needed to buy or refinance your next home. That’s not helpful to you if you want to cut to the chase: what debt-to-income ratio is acceptable to get approved for an FHA mortgage? 28 percent? 38 percent? 48 percent?

Those of you who dislike fuzzy right brain stuff will hate me because I’m here to tell you that there is no right or wrong answer to this. The FHA’s own guidelines don’t put limits on debt-to-income ratios. But they do direct underwriters in analyzing your financial position. Here are a few factors that allow you to stretch and get approved with less income (or cause you to need more). read more

Speaking at an event held by Women in Housing and Finance, FHA commissioner David Stevens said that “[Mortgage] servicers and lenders have got to start writing down principal” for homeowners whose homes are worth less than their mortgage loan balances. Underwater homes create a variety of issues for homeowners, mortgage lenders, and communities:

• Inability to sell: Selling your home when it’s underwater requires your mortgage lender to approve a short sale. This can take months, and potential buyers may withdraw offers in frustration.
• Inability to refinance: Mortgage lenders base their approval of home loans on how much a home is worth. Short refinances are being offered by FHA, but are contingent upon existing mortgage lenders agreeing to write off a minimum of 10 percent of the current mortgage balance; underwater borrowers who could benefit from a mortgage refinance can’t qualify for traditional refinancing.
• Borrowers walking away from “underwater” homes: Homeowners who have lost home value through no fault of their own, and who have tried in vain to work with their mortgage lenders, may abandon homes that hare hopelessly underwater. This leads to more vacant homes and mortgage foreclosures.
• Abandoned homes: Homes abandoned before and during foreclosure may become blighted and magnets for vandalism and other crime. This causes decreasing home values in surrounding areas and loss of property tax revenue for communities.

Commissioner Stevens asserts that writing down mortgage loans to reflect current home values is important for boosting US housing markets; as long as high foreclosure rates and large numbers of bank-owned foreclosed properties are available, housing markets aren’t likely to improve. Writing down mortgage balances could help homeowners avoid foreclosure and allow some of them to refinance into FHA mortgage loans at current FHA mortgage rates. The benefit of writing down mortgage loans seems simple, but it isn’t. Here’s why.

Mortgage investors, and PMI companies: More players in mortgage write down process

Most mortgage loans are sold to investors after they’ve been originated by mortgage lenders; day-to-day loan administration and customer care responsibilities are often handled by mortgage servicing companies hired by the investors. Homeowners typically deal with a mortgage servicing company, but the mortgage servicing company must obtain approval from mortgage investors and insurers before agreeing to write down a mortgage loan amount. This process can be complex, and it’s unlikely that investors currently being reimbursed for foreclosure losses by FHA will be motivated to write down principal balances.

Rewriting FHA requirements for future mortgage loans insured by FHA could be an option, but FHA is currently between a rock and a hard place with its current commitment to reimburse lenders for foreclosure losses and the need for addressing problems caused by homes worth less than the mortgage loans financing them.

Want to be a landlord? FHA insures mortgages for the construction, rehab, and purchase of apartments. Finance your building with FHA-approved multifamily housing lenders.

What kind of down payment is required?

Typically 15 percent, but your mortgage is limited to the lower of these four calculations:

1. 85 percent of the appraised value
2. 85 percent of the purchase price
3. Loan limits as defined by law
4. The mortgage amount supported by 85% of the property’s net income read more

Dow Jones is reporting that FHA Commissioner David H. Stevens wants lenders to write-off principal for upside-down borrowers. The remarks were made before Women in Housing and Finance.

If I were the FHA Commissioner I’d want the same thing. If I was a lender I’d think the idea is ridiculous.

Let me explain.

Mr. Stevens heads the FHA. The FHA is a mortgage insurance program. When a lender with an FHA mortgage has a loss guess who steps in? That would be the FHA.

One way to reduce FHA claims is to have lenders forgive principal. If less is owed then claims against the FHA will be smaller. Mr. Stevens is simply making an argument which plainly benefits his program.

But the principal-reduction proposal is not going to get read more

You can finance multi-family homes with FHA loans, letting you buy both a home and an investment with only 3.5% down! Tight financing guidelines, making it harder for people to buy homes, combined with an unprecedented number of families turned out of their homes by foreclosure has rents increasing in many parts of the country. This makes being a landlord a lot more attractive than it used to be. You can finance up to 96.5% of your duplex, triplex, or fourplex as long as you live in one of the units. read more

If you spend much time reading about FHA mortgages, you come across two terms: “Buying down” your mortgage rate, and “2-1 buy-down.” They sound similar, but they are completely different concepts.

Buying down your mortgage rate

This simply means getting a lower interest rate by paying higher fees. For example, you might be able to get a 30-year mortgage with a 5% interest rate at no cost — no loan fees, no appraisal fees, no nothing. Or you might be offered 4.5% with standard fees. But what if you want 3.5%? You’d have to pay extra — that extra cost is in the form of what are called “discount points.” Each point is one percent of the loan amount, and gets you a discount on your mortgage rate. It might cost you several extra discount points to lower your mortgage rate by a full percent.

Should you pay extra to lower your mortgage interest rate?

It depends on how much it costs and how long you expect to keep the mortgage. An FHA mortgage calculator can help with this. For example, if you take out a $300,000 mortgage with no points at 4.75% and expect to keep you home for five years, does it make sense to pay points? A point costs you $3,000, and if it lowers your mortgage rate to 4.5%, the difference in your monthly payment is $45 ($1,565 – $1,520).  In five years, you would have saved $2,700. It doesn’t make sense to pay $3,000 to save $2,700. So what if you shop around for better FHA mortgage rates and find a better lender that will drop your rate to 4.25%  for that same $3,000? Your new monthly payment is $1,476, your monthly savings increases to $89, and your savings over five years increases to $5,340. It may then be worth buying your rate down.

The 2-1 buydown

Mortgage rate buydowns are a different story. The FHA 2-1 buydown gets you an interest rate that is lower than the going rate for the first couple of years. So if the market rate on a 30-year mortgage is 4.75%, your interest rate the first year would be 2.75%, the second year it would be 3.75%, and then it would be 4.75% from year three on out. But it’s not like the lender just gives you that sweet deal for nothing. Rate buydowns require that you pay the difference upfront.

Huh?

Yep. Here’s an example of how the cost of a buydown is calculated.

Example: Standard 30-year FHA loan

$100,000 loan amount

8% interest rate = $8,000 a year in interest.

With the 2/1 buy-down the transaction would be as follows:

$100,000 loan amount

1st. year = 6% Interest rate = $6,000 in interest, a savings of $2,000

2nd. year = 7% interest rate = $7,000 in interest, a savings of $1,000

So the lender would charge you $3,000 now for the privilege of saving $3,000 over the next two years.

This is slightly oversimplified because the calculations are a bit more complicated, but it’s pretty much how it works. So unless you can get your seller to pay for it, there is little advantage in the 2-1 buydown for you.

The difference between buying your rate down and a 2-1 buydown is that the 2-1 won’t ever save you more than you pay for it. Buying your rate down can potentially save you more than the cost of the points.

In his article for the Huffington Post, HUD Secretary Shaun Donovan addressed demands for a national moratorium on mortgage foreclosures.  He stressed concerns for falling home sales caused by such a moratorium while indicating that sales of foreclosed homes currently account for about 25 percent of U.S. home sales. A moratorium on all foreclosures could cause home sales to plummet, as mortgage lenders cannot sell foreclosed homes until they acquire the title through a sheriff’s sale or public foreclosure auction.

FHA guidelines: FHA monitoring mortgage lenders

Mr. Donovan notes that FHA will be monitoring its approved lenders to ensure that they are following proper foreclosure procedures.  He points out that neighborhoods are being revitalized by the sale of foreclosed homes, Secretary Donovan asserts that stopping the foreclosure of all mortgages would adversely impact housing markets and home values, particularly those in neighborhoods with many foreclosed homes.

FHA home loans include the FHA 203 (k) program, which provides qualified borrowers with a mortgage loan based on the estimated repaired value of a home. This streamlines the process of buying and repairing a damaged home, as  buyers don’t have to qualify for a separate home renovation loan. Would-be buyers of foreclosed homes could be affected as foreclosure moratoriums cause vacant and abandoned homes to remain unavailable for purchase. Mortgage lenders are powerless to sell homes until the foreclosure process has been completed according to state law. Foreclosure moratoriums render properties ineligible for sale until the moratorium is lifted and foreclosure can be completed.

FHA likely watchdog as foreclosure mess sorted out

While several mortgage lenders have voluntarily ceased foreclosure proceedings pending investigation of alleged legal issues in their foreclosure processes, it’s likely that other lenders may follow suit. FHA has recently publicized its intention to step up its review of approved lenders and their mortgage servicing procedures. This can benefit home buyers and homeowners in several ways:

• Mortgage fraud: Closer FHA scrutiny will help home buyers avoid unintentional participation in mortgage fraud schemes. FHA guidelines require borrowers to provide detailed documentation of employment and income; failure to do so can lead to federal prosecution for mortgage fraud.
• Foreclosure avoidance programs: FHA expects its approved lenders to offer foreclosure avoidance options to qualified borrowers. Complaints about lack of assistance are influencing FHA plans to strengthen enforcement of its requirements.
• Reduce inappropriate foreclosures: Enforcing FHA requirements for mortgage servicing will help mortgage lenders and homeowners avoid unjustified or incorrect foreclosure proceedings.

If you’re in the mortgage insurance business — which is actually what the FHA does — you want to make very certain that you are not hit with excess claims. Now HUD is telling lenders that if they don’t get their FHA paperwork right they’ll have to pay big money to clean up the mess.

None of this is especially new or different. The usual deal with home private-sector loans is that originators — the folks who sign you up for a nifty new mortgage — must actually buy back the loan if the borrower fails within 120 days or at any time if the origination involved fraud.

Now HUD is setting out new standards for FHA mortgage lenders, standards that should bother no one if they play by the rules.

“It’s important that our expectations are crystal clear,” said FHA Commissioner David H. Stevens. “We need to clarify which circumstances we’ll require indemnification and the level of loan performance we expect lenders to maintain.”

Specifically, says HUD, “lenders may be required to indemnify HUD if they failed to: (1) verify and analyze the creditworthiness, income, and/or employment of the borrower; (2) verify the source of assets brought by the borrower for payment of the required downpayment and/or closing costs; (3) address property deficiencies identified in the appraisal affecting the health and safety of the occupants or the structural integrity of the property; or (4) ensure that the property appraisal satisfies FHA appraisal requirements. HUD may seek indemnification irrespective of whether the violation caused the mortgage default.”

Five Years

HUD says it “will seek indemnification in cases of fraud or misrepresentation at any time, the Department intends to codify a ‘reasonable time period’ for requiring indemnification in cases where the mortgagee failed to meet FHA requirements. For those cases not involving fraud or misrepresentation, it has been HUD’s long-standing practice of requiring indemnification “within five years from the date of mortgage insurance endorsement.”

The HUD standard is very different — and better — when compared with what has been required in the private sector.

For instance, later this month Michael W. Hudson will release his book, The Monster: How a Gang of Predatory Lenders and Wall Street Bankers Fleeced America–and Spawned a Global Crisis. Hudson, a former reporter with the Wall Street Journal, explains that some lenders arranged for borrowers to get a “free” first payment by funding it themselves. The advance money would then be recovered from the insanely-high fees paid by borrowers.

Not only did the “free” first payment help rope borrowers into lousy loans, it also helped with another problem — it made the loans appear to be current. If a loan failed after a few months then the originator still got to keep its fees and the investor was stuck with a bad mortgage, unless it could show fraud.

Get a copy of Mr. Hudson’s book — it’s available October 26th. The Monster is by far the most readable explanation of the mortgage meltdown, something everyone who has faced declining home values should read.

A letter from HUD to lenders last week suggested that there might be a situation where borrowers can walk away from closing with actual green cash.

“Due to the change in up-front mortgage insurance premiums (UFMIP),” said HUD, “there may be an opportunity for FHA-to-FHA refinance borrowers to receive cash refunds for unearned MIP premiums that had been financed through their FHA-insured loan. FHA is now reviewing a process to provide the benefit of the unearned MIP to eligible borrowers. FHA will be releasing policy guidance shortly.”

Hmmm. Is this a big deal? Actually, it may be.

The latest figures from HUD show that through August some 322,795 borrowers refinanced one FHA loan with a replacement FHA mortgage. That’s a lot of people and suggests that a new policy which allows refunds for FHA-to-FHA refinancing could help many homeowners.

How much money may be involved read more