Welcome to FHA Mortgage Guide.

In case you’re interested, here are the 2 steps involved for participating in this program:

1. You, a homeowner with a non-FHA mortgage that you are paying as agreed, ask your current mortgage lender to write down your outstanding balance by at least 10% so that you can replace the loan with an FHA mortgage.

2. Your lender says no. read more

As we reported last week, beginning September 7th there will be a new schedule for FHA mortgage insurance premiums made after that date. In basic terms, the upfront premium will decline from 2.25 percent to 1.0 percent and the annual fee will increase from .55 to as much as .90 percent.

All of this raises a question: If the FHA expects to raise an additional $300 million per month with the new program — and it does — are borrower costs rising by $300 million? The answer has to be yes, but the increase may be a lot less per loan than most people anticipate.

Here’s why: read more

The HUD will shortly announce new FHA mortgage requirements that will start as of September 7th for FHA loans made on or after that date.

With the passage of H.R. 5981 by both the House and the Senate, a measure expected to be quickly signed by the President, the FHA will have the authority to change both the up-front mortgage insurance premium and the annual mortgage insurance premium

The changes for most borrowers will look like this:

___ The up-front mortgage insurance premium will be REDUCED from 2.25 percent to 1.00 percent. For a $200,000 FHA loan the upfront MIP will drop from $4,500 to $2,000.

___ The annual mortgage insurance premium will be INCREASED from .55 percent to .85 to .90 basis points. For an FHA loan with a balance of $200,000 the monthly fee will change from $1,100 divided by 12 ($91.67) to as much as $1,800 divided by 12 ($150).
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The latest numbers to Congress from the FHA show that despite an historically-weak housing market — the worst since the Depression — the FHA loan program is surprisingly strong.

In a report to Congress by Bob Ryan, the FHA’s chief risk officer, it’s apparent that worries about the program are vastly overblown.

Claim: FHA reserves are running out. Nope. Not close. The real numbers look like this: The FHA’s Mutual Mortgage Insurance (MMI) fund now holds $33.1 billion — that’s up from $30.9 billion a year ago. This is the key reserve for FHA loans.

Claim: The FHA is the new subprime. Nope. Not close. A typical borrower had a 698 credit score, that’s up from 628 in 2007.

Claim: FHA guidelines create hideously-risky loans. Nope. Sorry. It turns out that the FHA loss projections were appropriately conservative — as they should be. That’s why the reserve fund is increasing and why, as well, that a mortgage insurance premium increase is unnecessary.

FHA Loans & Risk

The FHA is an insurance plan. The government doesn’t actually make “FHA loans,” instead it insures lenders from the private sector who make loans which meet FHA loan guidelines. Of, course, as we have seen lately, a large number of lenders have not met such guidelines and are no longer in the program.

If you’re in the insurance business you try to set premiums on the basis of expected claims. This is usually a conservative process because while a reserve surplus is okay a reserve shortfall is a disaster. Many have been claiming that the FHA forward loan program is failing and therefore taxpayer subsidies have been made or will be necessary.

Nope. Wrong. Not close.

The facts are these:
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The Washington Post recently clarified several proposed changes to FHA guidelines, and spells out how they may impact potential borrowers of FHA loans. The changes FHA is seeking appear to balance the needs of first time and under-served homeowners with responsible risk management. Although giving away the store is not a great idea, FHA adheres to its mission of providing access to home ownership when times are tough. read more

Imagine that you own a condo and have to sell it. You get several interested buyers who will need to get financing from and FHA loan or a conventional mortgage. You accept an offer and happily proceed with the sale. And then the poop hits the fan. You can’t sell your condo because your neighbors blew off their condo dues! read more

Treasury Secretary Hank Paulson said in a Washington Post article that using government (read: taxpayers) to support home ownership (read: The American Dream) has been misguided and needs to change. What brought us down was the combined efforts of Fannie Mae, Freddie Mac, and FHA to make home ownership available to as many as possible. The benefits of a high rate of home ownership have proven to be more anecdotal than quantifiable, and the costs have become all too apparent.

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Are FHA guidelines wrong to make borrowers wait for several years after a bankruptcy or foreclosure?

Barbara writes and offers this situation:

“Let’s consider this scenario: You have purchased a home with private lending sub-prime hard money, all the documents are properly recorded. Due to present economic conditions, you fall behind, home falls into foreclosure, and you file BK. The mortgage is included in the BK, the automatic stay is lifted and the foreclosure concludes with the private mortgage holder now owning the property. You commence repairing your life after the BK while saving for a home of your own again. Those in the know all tell you that you have to wait at least two years after the BK before you are eligible for any type of mortgage financing. When you evaluate your credit report with a mortgage broker in anticipation of purchasing your own home again in the near future, you are told that according to FHA financing “rules” you are unable to qualify for FHA financing until FIVE (5) YEARS AFTER the property sells because the mortgage from the private lender was never reported to the credit bureaus (it’s apparently too costly for private lenders to report). So, the private mortgage company that did not report the mortgage continues to mess with your credit for five years after the foreclosured upon home is sold. That’s just not right! Is there anything that can be done in such a situation?”

Questions

From one end to the other this example raises questions.

First, a “sub-prime hard money” means that the borrower could not qualify for a lower-cost FHA loan to purchase the property. This is a case where the buyer was likely best served by renting. The reason? A hard-money mortgage loan might have a high interest-rate (think 15 percent), a stiff downpayment requirement (think 30-35 percent) and points. The terms of such loans are so stilted that they make no economic sense for borrowers.

Second, read more

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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