As FHALoanPros reported on January 10th, we expected that the HUD would continue to waive it’s FHA anti-flipping rule and now the waiver has officially been continued until December 31, 2011.

While the continued waiver is not surprising, the year-end deadline is.

Under the anti-flipping rule, FHA loans were not allowed for any property that had been sold within the past 90 days. If the property had been sold within the past 180 days then HUD reserved the right to ask for a second appraisal and if the property had been sold within the past year then HUD — under the rule — had the right to ask for additional verifications.

The purpose of such FHA loan guidelines was to prevent the use of FHA financing by illegal flippers — individuals and groups that buy properties and then extract an artificially higher value through such steps as appraisal fraud, underwriting fraud, mortgage fraud, property tax evasion, etc. By refusing to finance quickie re-sales HUD was striking directly at illegal flippers because such individuals want to have the fastest possible sales to maximize profits.

But there are also read more

The Los Angeles Times is reporting FHA’ s suspension of it’s “anti-flipping rule” for another year. The Federal Housing Administration (FHA) intended to prevent mortgage fraud when it developed and “anti-flipping” rule preventing FHA borrowers from buying homes that had been owned by sellers for less than 90 days. Unfortunately, unintended consequences squelched legitimate purchases of foreclosed and damaged homes by small scale investors planning to repair and resell such homes.

Vacant and abandoned homes cause blight in communities, draw crime, and negatively impact surrounding property values. In extending its suspension of the anti-flipping rule, FHA is demonstrating its commitment to communities and improving housing markets.  Small scale investors who buy and renovate damaged homes are providing a source of affordable housing for first-time buyers and others wanting to purchase homes in move-in condition, and who don’t want to concern themselves with the risks associated with buying foreclosed homes sold in as-is condition.

Such home renovations and sales are contributing to the nation’s housing recovery. The benefits of allowing quick turnovers of homes by legitimate investors outweighs the risks of mortgage fraud perpetrated by “straw buyer” schemes.

FHA: balancing community revitalization and mortgage fraud risk

A popular method of mortgage fraud involves straw buyers, which are fictional or “dummy” buyers used for buying homes with FHA loans. Once such loans are closed, title to the mortgaged homes are quickly transferred to investors or other entities in violation of FHA regulations. Considering the recent depletion of FHA  cash reserves dedicated to reimbursing mortgage lenders for mortgage defaults,  it’s understandable that the agency strives to take steps for reducing exposure to further losses associated with mortgage loan defaults and foreclosure.

Affordable homes and accessible mortgage loans essential to US housing recovery

We believe FHA is taking the right step in further suspending its anti flipping rule. With promising signs of economic recovery, housing markets continue to lag, and any efforts supporting communities and individuals toward revitalizing neighborhoods through providing access to affordable homes is a welcome step.

In the meantime, FHA must work with its network of approved mortgage  lenders to ensure due diligence in mortgage underwriting and fraud prevention efforts. Under FHA guidelines, approved FHA lenders are responsible for originating home loans under FHA loan programs; instead of implementing regulations that hamper home sales, it seems logical to hold mortgage lenders accountable for due diligence in their approval of mortgage loans under FHA programs.

Buying damaged and/or foreclosed homes — FHA 203 (K) provides funding

For home buyers looking for a “fixer,” FHA offers a home rehabilitation program that provides financing based on the “as-repaired” appraised value of a home. This permits buyers or homeowners to purchase a home and repair it, or refinance their current mortgage and have funds for rehabbing their existing home. This program falls right in line with the potential for cleaning up blighted neighborhoods while providing affordable home ownership options.

Here’s a bit of news which benefits both home buyers and small builders: HUD no longer allows builders to use Master Appraisal Reports (MARs) to figure property values.

At first this may seem like insider mishmash, but if you want to buy a newly-built home or a condo with an FHA loan this change will be important.

It used to be that if you were a builder that you could get one appraisal for a single model and that appraisal would apply to all similar units for up to one year and sometimes even two years. This seems superficially reasonable, after all if a new-home project has 25 model “A” units then all are identical in terms of design, floor space, etc.

In 2009 HUD changed the FHA guidelines so that MARs were only good for 120 days.

Whatever the validity period, the MAR concept has been questionable from day one.

Why? read more

A borrower wrote to me about closing a mortgage fast because he found a very good deal on a condo but there was a backup offer and it was a cash deal. He had some credit boogers in the past and didn’t think he’d be able to get conventional mortgage insurance, but did not know if an FHA lender would be able to close the deal fast enough.

Condo approval can be iffy

If you need to close an FHA mortgage on a condo purchase, there can be issues. Condo projects need to be FHA-approved or you can’t finance your unit — if there are too many units owing HOA arrearages, too many FHA-financed condos in the development, or too many foreclosures, you won’t be able to get FHA financing. But even if the project would pass muster, the process takes time.

There are two ways condo projects may be approved; one is the HUD Review and Approval Process or HRAP, and that can take a while because the application has to go through a HUD Home Ownership Center (yes, a government agency).

The other route is the Direct Endorsement Lender Review and Approval Process (DELRAP), available to lenders with unconditional Direct Endorsement authority and qualified staff for reviewing and approving condominium projects. If you are going to try for FHA condo approval and need it fast,  apply with an FHA Direct Lender.

Direct Endorsement lenders get loans approved faster

When you’re in a big hurry, working with a Direct Endorsement (DE) lender is essential. DE lenders have to meet fairly strict criteria set forth by HUD. Applicable guidelines include HUD’s review of the company’s experience, its adherence to lending practices, its financial strength, and overall business ethics.  DE lenders get to approve and close FHA mortgages.

Other lenders / brokers can originate FHA loans. These Sponsored Third Party lenders submit files to DE lenders, which then underwrite, approve and fund the mortgages. The Direct Endorsement lenders are responsible for the accuracy of the submissions of their Sponsored Third Party Lenders for quality control, auditing, etc. DE lenders are on the hook for any mistakes or misrepresentations of mortgage brokers / lenders they choose to do business with. This additional layer of administration means that loans submitted by Sponsored lenders generally take longer to close. When timeliness matter, use a DE lender.

Before the housing crisis, conventional (non-government) mortgages were a lot more popular than FHA home loans. They were generally cheaper to obtain, you didn’t need a down payment, and you often didn’t need to prove your income.  The annual percentage rates (APRs) of conventional mortgages, which included mortgage insurance when applicable,  were generally lower on than they were with FHA mortgages, which include monthly mortgage insurance plus an upfront mortgage insurance premium. However, today the reverse is often true.

Why are FHA mortgage rates lower than conventional mortgage rates? read more

HUD is working on new FHA mortgage called the PowerSaver. As of yet there are no FHA guidelines to review but there are hints regarding how the new mortgage option might work.

Speaking in Washington, HUD Secretary Shaun Donovan says “in a few weeks, HUD will be selecting lenders to offer a product called FHA Powersaver — the first federal financing program focused on single-family home retrofits.

“Powersaver will allow homeowners to borrow up to $25,000 to make energy efficiency and renewable energy improvements to their homes — stimulating demand for jobs and for contractors to do this important work.”

Because we do not yet have FHA guidelines in hand, we’ll need to see how this program differs from current FHA offerings. For instance, you can get an FHA Title 1 loan for as much as $25,000. If you borrow less than $7,500 there’s no mortgage or deed of trust, meaning that closing costs are reduced significantly.

Or, if you want to buy and fix-up a property and have financing in place when you purchase then you could consider an FHA 203K rehabilitation mortgage. With this type of loan you finance up to 100 percent of the after-improved value at the time you close, as much as $35,000 above the acquisition price of the mortgage.

But, even if the PowerSaver program is like current rehab offerings it still should be welcomed.

There is a huge need to read more

The U.S. Department of Housing and Urban Development (HUD) is proposing  a regulation prohibiting lending discrimination based on sexual orientation and gender identity. Although HUD and Federal Housing Administration (FHA) guidelines currently forbid housing discrimination, sexual orientation and gender identity are not currently included in the list of classes protected from discrimination. In addition to including  lesbian, gay, bi-sexual and transgender (LGBT) persons in groups protected from housing discrimination, the proposed regulations specifies that FHA home loans and access to HUD assisted housing  cannot be denied based on actual or perceived LGBT status. In comments related to the proposal, HUD Secretary Shaun Donovan noted that the proposal addresses a “fundamental issue of fairness,” and will help ensure that all Americans have equal access to public housing programs.

FHA loans covered under proposed anti-discrimination regulation

The proposed regulation would apply to all HUD and FHA housing programs including rental and owner occupied properties subsidized or insured through HUD and FHA programs.  Owners and landlords of FHA insured and HUD assisted housing, whether rental or owner occupied, would be prohibited from asking about the sexual orientation or gender identity of applicants for housing under the new regulations.  Although more than 150 local governments already have laws preventing LGBT based housing and lending discrimination, the  HUD proposal would  help ensure uniform anti-discrimination rules related to HUD and FHA programs, and is expected to close loopholes in areas where anti-discrimination laws don’t include sexual orientation and gender identity.

HUD to study LGBT housing discrimination

In related news, HUD is planning to conduct a national study of LGBT housing discrimination. Although HUD currently conducts housing discrimination studies based on race and color, the LGBT housing study will be the first of its kind, although previous studies of a smaller scale have suggested that members of the LGBT community are treated differently when applying for a home loan or attempting to rent. HUD cites findings contained in a 2007 report by Michigan’s Fair Housing Centers indicating that approximately 30 percent of LGBT applicants were treated differently when attempting to rent or purchase a home. In July, HUD  added language including discrimination based  on sexual orientation and gender identity as sexual discrimination under the Fair Housing Act. This step, and the proposed regulation, should provide needed protection for the LGBT community against discriminatory lending and housing practices.

FHA loan programs offer variety of home loans

FHA guidelines are more flexible than conventional mortgage lending requirements, and HUD/FHA guidelines are clear in their enforcement of anti-discrimination laws. Contact FHA lenders to learn more about FHA low down payment requirements, lending guidelines, and specialized mortgage loan programs for rehabilitating your home.

A new problem for people who have just started to use credit or who are “underbanked” as the socio-economic analysts like to say is the imposition of minimum credit scores for FHA mortgages (580 with a 3.5 percent down payment). Add the lender overlays, which can require minimum scores of 640 or even higher, and the number of deserving folks who can’t make the cut goes up. In the past, folks with low scores but little or no bad credit could still get a mortgage. Underwriters were directed to comb the borrower’s accounts and a conservative attitude regarding credit use was not to be held against them. In fact, it was considered a good thing in many cases.

Today, however, these underbanked people, who use little or no credit and may not even have checking accounts are at a serious disadvantage when it comes to securing FHA financing because they may not have a high enough credit score even if they never ever missed a payment.

But there is good news! Experian has announced it has begun incorporating rental data from its RentBureau Division into the traditional credit file, providing a boost to the scores of an estimated 50 million underbanked consumers, which can include everyone from college students and recent graduates to immigrants.

According to the National Multi Housing Council, nearly 96 million people currently renting are not getting credit for those payments included in their credit reports. Positive rental history will now help many renters, including those who lost their homes and must now rebuild their histories after foreclosure or bankruptcy.

What this means though for renters is that you won’t be able to make your payment late with a late charge being the only consequence. Make sure that the credit that gets included in your report is positive.

One of the chief sources of homeowner frustration with mortgage foreclosure prevention programs is the seemingly arbitrary way foreclosures are handed out, not to mention the way mortgage servicers appear to get to make up the rules themselves. Throw in the fact that such programs are optional even for lenders that took advantage of bailout funds (provided courtesy of taxpayers) and you have a recipe for despair.

FHA borrowers, however, have less frustration on that score and are less likely to end up in foreclosure when other solutions could be found.

That’s because FHA mortgages are insured by the government, and HUD is not going to kick out a mortgage insurance payment to make a lender whole until the lender has exhausted a predefined list of solutions to keep the borrowers in their home. Because HUD, not the FHA lender, gets to make the rules, FHA mortgages only get foreclosed when other steps have been tried first or it’s very clear that they won’t work. The lenders don’t get to apply an NPV test which pretty much guarantees that if you are not underwater you won’t get a loan mod, or which comes up with a less than ideal conclusion like “You don’t earn enough to make a modified payment of $1,500 a month, so we’re going to deny your mod and force you to make your current payment of $2,200 a month.” read more

For a growing number of borrowers, FHA loans are the key to financing and refinancing real estate.

The National Association of Realtors reports in its 2010 study of buyers and sellers that “homeowners continued to make sacrifices in order to reap the benefits of
homeownership, giving up some luxury goods and some of their savings in
order to invest in a home purchase. While the mortgage market has been
tighter, the overwhelming majority of home buyers had little or no difficulty
obtaining mortgage financing. Of those obtaining a mortgage, a considerable
share (43 percent) turned to FHA loans that offered much smaller down
payments. Also, ninety-three percent of first home buyers and just under half
of repeat buyers took advantage of the home buyer tax credit, which offered
a credit of up to $8,000 on a home purchase.”

Notice the big number? That 43 percent?

The question that arises is whether the FHA read more

There are a large number of markets where selling a home is likely to lead to a real loss. The latest numbers from RealtyTrac show that more homes received foreclosure notices in 2010 than ever before — some 2.9 million.

These properties, however, were not spread out uniformly across the country. RealtyTrac says “five states accounted for 51 percent of the nation’s total foreclosure activity in 2010: California, Florida, Arizona, Illinois and Michigan. Together these five states documented nearly 1.5 million properties receiving a foreclosure filing during the year despite annual decreases in the three states with the most foreclosure activity.”

The large number of owners facing foreclosure — and the concentration of homes in the major foreclosure states — raising the idea that perhaps selling is not a reasonable option. Instead, the alternative might be to rent the current property and buy elsewhere.

In terms of an FHA loan the idea of renting and then buying is read more

Addressing concerns about increasing default rates for reverse mortgage loans, FHA has issued new guidelines for servicing reverse mortgages, which HUD calls home equity conversion (HECM) loans. If you’re wondering how a mortgage loan that pays homeowners can go delinquent, the answer involves homeowners failing to pay property taxes and hazard insurance premiums as required in mortgage loan documents.  This represents a mortgage default as it puts the mortgage lender and FHA at increased risk. Taxing authorities can pursue collection remedies including auctioning off homes for recouping delinquent property taxes owed. If hazard insurance is allowed to lapse, FHA lenders, and ultimately FHA risk losses in the event of  fire or other catastrophic event.

In its first mortgagee letter of 2011, HUD provides guidelines for servicing these defaulted mortgage loans and resolving delinquent tax and insurance issues. HUD suggests three loss mitigation solutions for FHA lenders to use. Lenders are required to advance funds as necessary to avoid foreclosure by a taxing authority or allowing hazard insurance to lapse. FHA lenders may use the following methods of resolving defaults of reverse mortgages:

Establish a repayment plan for homeowners: FHA lenders advance payment of delinquent property charges and or insurance premiums, and establish a repayment agreement with homeowners. HUD allows FHA lenders to establish repayment schedules of three months to two years depending on the amount owed. In all cases, amounts advanced for paying taxes, insurance and other “property charges” such as space rents or special assessments, must be repaid by homeowners within two years.

Refer homeowners to HUD approved counseling agencies: These counseling agencies work with homeowners to resolve budget problems or other issues leading to mortgage defaults. Assistance is offered by non-profit counseling agencies at low or no cost to borrowers, depending on their financial circumstances.

Refinance HECM mortgage loans to new HECM mortgage loans:  In cases where there is sufficient home home equity, homeowners may refinance their existing HECM mortgage to a new mortgage for an amount sufficient to pay off the existing mortgage and pay any defaults of taxes, property charges, or hazard insurance premiums. This option is less preferable as the cost of refinancing can further diminish available home equity, but it is favorable to foreclosure.

FHA Guidelines: “Foreclosure is and must remain a measure of last resort”

The mortgagee letter clearly states that foreclosing reverse mortgage loans for delinquent taxes, property charges, and insurance is a measure of last resort. FHA expects mortgage lenders to fully inform homeowners of relief options and to extend every effort in preventing foreclosure of reverse mortgage loans within specified time frames.

HUD and FHA are clarifying their preference for FHA lenders to extend every opportunity to senior homeowners for repaying  tax and insurance defaults while remaining in their homes. We’re hoping that FHA will be vigilant in verifying that appropriate loss mitigation efforts are made before defaulted reverse mortgage loans are referred to foreclosure attorneys or agents.

It’s likely no surprise, bankruptcies across the US are on the increase, a reality which raises an important question: Can you get an FHA loan after a bankruptcy?

“U.S. consumer bankruptcies increased 9 percent nationwide in 2010 from the previous year,” according to the American Bankruptcy Institute (ABI).

“The data showed that the overall consumer filing total for the 2010 calendar year (Jan. 1 – Dec. 31, 2010) reached 1,530,078 compared to the 1,407,788 total consumer filings recorded during 2009. Annual consumer filings have increased each year since the Bankruptcy Abuse Prevention and Consumer Prevention Act was enacted in 2005.”

“The steady climb of consumer filings notwithstanding the 2005 bankruptcy law restrictions demonstrate that families continue to turn to bankruptcy as a result of high debt burdens and stagnant income growth,” said ABI Executive Director Samuel J. Gerdano. “We expect that consumer filings will continue to rise in 2011.”

Chapter 7

As HUD explains, a bankruptcy does not disqualify a borrower for getting a mortgage under FHA guidelines read more

Just because it’s in the New York Times doesn’t mean it’s necessarily correct.  For example, a current article about locking in your mortgage rate (FHA or otherwise) is riddled with inaccuracies.

Loans last year took an average of 5 days longer to close, which made the mortgage rate lock more problematic for some borrowers whose locks expired before their mortgages could close. However, the article contained some rather misleading statements that could further complicate things for those who rely on it. I’ll address these points one by one. read more

If you want a conventional conforming mortgage, it’s going to cost you more in 2011 thanks to an “updated” Fannie Mae fee schedule (little brother Freddie Mac already made this move at the end of last year).  The new Loan Level Pricing Adjustment Matrix shows that mortgages may cost even the nearly-flawless borrowers thousands of dollars more for mortgages (to be truly flawless you must pay cash and not require a mortgage at all). Even if you have a halo over your head and bundles of cash for a down payment you will likely pay more. And it gets worse if the recession etc. has done damage to your credit scores and your financial position. read more