The National Association of Realtors (NAR) reports a 9.4% jump in home sales during September. Increasing sales typically suggest rising home prices, but this may not be the case as first time buyers scramble to qualify for the federal tax credit program before it expires on November 30. Other factors contributing to low home prices include rising unemployment rates and the ongoing glut of foreclosed properties on the market in many areas. If you want to buy or refinance , FHA home loans provide a competitive solution for buyers with little cash, or who have credit issues.

Less than 20% Down? FHA Home Loans Can Help

Current mortgage rates are a strong incentive for first time home buyers, and there are no guarantees about how fast and how much rates will increase. FHA mortgage rates are competitive and can help first time buyers get into a home or home owners with little equity refinance their home loans.

Understanding Private Mortgage Insurance and FHA Mortgage Insurance

Mortgage lenders consider home loans with a loan to value ratio (LTV) of more than 80% a higher risk, and require borrowers to pay for mortgage insurance (MI). This insurance reimburses the lender for losses associated with mortgage default and foreclosure. If you’re buying a home with less than 20% down, you’ll be paying for MI. FHA insures its approved lenders against losses in much the same way by charging borrowers an up-front mortgage insurance premium (UFMIP) of up to 1.75% of the mortgage amount at closing. The UFMIP is typically rolled into the mortgage amount. FHA guidelines require homeowners to pay MI premiums until their LTV ratio reaches 78%. FHA mortgage insurance costs can be lower than for MI premiums charged by private mortgage insurance companies, depending on your loan amount and the size of your down payment.

FHA Loan Requirements More Flexible

MI companies insuring conventional mortgage loans are tightening credit requirements for insuring conventional loans; minimum FICO scores of 720 may be required regardless of other lending guidelines. If you’ve had good payment records for the past year but have had past credit problems, an FHA refinance or home loan may meet your needs. Borrowers with a foreclosure a minimum of three years ago or a bankruptcy discharged at least two years ago may be eligible for FHA home loans.

An FHA refinance can assist homeowners who want a lower mortgage rate but don’t have enough home equity or cash to meet conventional lending requirements. If you’re shopping for a new mortgage loan, consider getting FHA mortgage loan quotes.

The mortgage industry has come out against changes in the RESPA rules which are due to start January 1st.

“The RESPA rule,” says a coalition of industry associations, “is scheduled to take full effect on January 1, 2010 – less than three months from now. Despite the best motivations of HUD, and the sincerest efforts of the industry, there are simply too many unresolved issues to allow the industry to be fully RESPA-compliant by the first of the year. HUD’s guidance has come far too late in the process and has been inadequate and often contradictory. Due to unresolved issues and critical unanswered questions, many lenders and settlement service providers are unprepared to comply. This, in turn, will cause very inconsistent implementation and confusion for consumers seeking to purchase a home.”
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Although FHA (Federal Housing Authority) loans have largely replaced sub-prime mortgages, the agency is moving to reduce its exposure to home loan delinquencies by changing underwriting guidelines for FHA loans written under the agency’s streamline refinance program. The changes which are designed to document homeowners’ ability to pay for their refinanced home loans become effective November 17. There’s still time to apply and get approved for a streamline refinance under current FHA loan requirements, but don’t wait if you cannot verify employment and income.

FHA Refinance Guidelines Changing to Minimize Foreclosure Losses

Recent news reports indicate that FHA reserves are close to falling below the amount mandated by Congress. In a move to protect itself against future losses associated with defaulted mortgage loans, FHA is changing loan requirements for its formerly lenient “no (or very few) questions asked” streamline refinance program for homeowners whose present mortgage loans are insured by FHA:

• Under current guidelines, FHA streamline refinance transactions don’t require verification of income and employment provided the mortgage loan is current at the time of applying for refinancing.
• Homeowners will no longer be able to roll closing costs into the refinance loan amount without paying for a home appraisal. Current FHA guidelines do not require an appraisal.

Homeowners who’ve experienced a major loss in home value may experience difficulties in qualifying for a streamline refinance once new FHA loan requirements become effective.

FHA Streamline Refinance Program: Not so Streamlined Under New Rules

The new streamline refinance requirements may cause problems for homeowners with non-traditional credit, employment, and income. Requiring an appraisal is also viewed as an obstacle for homeowners whose property values have tanked and who need to include closing costs in their refinance amount. If you have these concerns, applying for a streamline finance now can help you avoid potential delays and expenses caused by new FHA loan requirements. Contact FHA mortgage lenders today for quotes on streamline refinancing; you can use free mortgage calculator tools for estimating potential savings and new payment amounts.

Low Mortgage Rates: Don’t Wait

No one can accurately predict mortgage rates will do, but they won’t stay at current lows forever. Take advantage of current mortgage rates (and the more lenient FHA refinance requirements today.

As a governmental agency, the FHA mortgage program operates from October 1st of one year to September 30th of the next — that’s the government’s “fiscal” year. Since we now have the final FHA figures for September we can see what’s really happened with the program.

First, FHA mortgage applications rose 63 percent as nearly 2.9 million people sought FHA mortgages.

Second, the FHA insured almost 1.95 million loans — a figure that was up 62.3 percent.

Third, the FHA reverse mortgage program rose 2.3 percent to 114,691 loans.
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US lawmakers have noted the rapidly increasing number of FHA loans, and wonder if it could represent heightened risk to FHA’s dwindling reserves, and ultimately, taxpayers. With the demise of sub-prime lending, FHA has become the primary source of home loans for people with bad credit, and borrowers who have minimal cash for meeting down payment and closing costs. In 2007, FHA home loans accounted for about 6% of US home loans, but so far in 2009, FHA home loans account for more than 21% of US single family mortgage loans.

Perceived FHA Home Loan Risk Concerns Lawmakers

In response to FHA’s expanding role in guaranteeing home loans for cash-strapped and credit-challenged borrowers, lawmakers are concerned about the rising delinquency and foreclosure rate for FHA home loans. The delinquency and foreclosure rate for FHA mortgages has increased from 5.5% in early 2006, to about 8% at the end of June 2009. Reasons for concern over growing FHA exposure include:

• FHA loans for people with bad credit: FHA offers more lenient credit requirements compared to underwriting requirements typical of conventional mortgage lenders. Although FHA guidelines have recently been tightened, increasing delinquency and foreclosure rates pose a threat to FHA’s reserves for reimbursing mortgage lenders for losses associated with foreclosure.
• Low down payment requirement: FHA allows a minimum 3.5% down payment; this could soon increase to 5%. Conventional mortgage lenders typically don’t accept less than 1% down, and may require no less than the traditional 20% down payment for people with anything less than a perfect application. Lower down payments allow people of moderate income to achieve home ownership, but critics suggest that homeowners with little investment in their homes may be more inclined to walk away when problems arise. FHA’s growing home loan delinquency rates appear to substantiate this concern.
• Been there, done that:Lessons from the sub-prime crisis suggest that owning a home is a financial responsiblity that many are not prepared to handle. Homeowners who can still make payments have asked why those in trouble should be bailed out by government sponsored programs. As an agency of the federal government, FHA risks potential public backlash if its lenient lending policies lead to higher foreclosure rates and a cash bailout should its reserves disappear.

As FHA adjusts its lending requirements to achieve optimum risk management, it must also consider its niche of providing accessible home financing to people of moderate income, and yes, even people with credit problems. Recent economic conditions render everyone vulnerable to bad credit; many of us are but one layoff or medical emergency away from deciding whether to buy groceries or pay medical bills, credit cards, or even our mortgage.

There has been a big to-do during the past week with the announcement that more than 500,000 trial loan modifications in progress under the Making Home Affordable program.

This is good stuff and a huge change from what we had before. What we had before 949 applications under the Hope for Homeowners Program and ONE mortgage approval. As to the FHASecure program, it allowed just 3,794 delinquent conventional borrowers to refinance with FHA loans in fiscal 2008.

In contrast, the Obama Administration reports that 2,484,783 borrowers have sought information under the Home Affordable Modification Program (HAMP) through the end of September. Of this number, 757,955 were offered three-month trial modification and 487,081 trial modifications have begun. If the borrower makes three lower payments during the trial period then the loan is permanently changed to that lower rate and hopefully the home is saved from foreclosure.
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The headlines are now filled with dire worries regarding the FHA mortgage program.

___FHA: Another Shoe Dropping — Baltimore City Paper.

___ FHA Could Be Next Up For Bailout — NBC News, Los Angeles

___ FHA mortgage loans stumble — St. Louis Examiner

These items would be interesting if only they got to the major issues.
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The Mortgage Bankers Association’s weekly survey of home loan and refinance applications indicates stronger demand that could signal the end of rock bottom mortgage rates. The survey covering the week ending October 2 indicates that applications for home purchase loans were up 16.4 percent, seasonally adjusted to 13.2 percent. This figure remains about 2 percent less than one year ago.  Refinance applications rose to 18.2 percent, also seasonally adjusted, and the highest rate for refinance applications since mid-May.

FHA Providing Home Loan Opportunities for Challenged Borrowers

With the demise of sub prime lending, many homebuyers and homeowners who have little cash or home equity, and/or credit problems cannot qualify for mortgage loans at current mortgage rates. FHA has assumed the lion’s share of this market, as indicated by the MBA survey. For the week ending October 2, FHA home loan applications have risen 14.4 percent, the highest level reported since the survey’s inception in 1990.

Current Mortgage Rates and Lenient FHA Guidelines: Is the Party Ending?

This may be great news for homebuyers and homeonwers wishing to refinance, but as FHA assumes more risk by insuring growing numbers of loans,  it may be forced to further tighten its lending requirements in an effort to avoid heightened risk. Recent concerns about FHA reserves falling near the 2 percent minimum required by Congress have led to raising the minimum down payment for FHA home loans from 3.5 to 5 percent, and reducing loan amounts for cash out refinances and cash payouts for reversee mortgages. If FHA guidelines are tightened further, first time buyers and others may be out of luck, espcially if mortgage rates start rising.

FHA Resources for Homewners and Homebuyers

If you’re buying for a home, or refinancing your current home loan, get quotes for FHA home loans from our lenders. If you need information about preparing to buy a home, paying off debt or learning about local housing programs in your area, please contact a HUD approved housing counselor for assistance.  

To Buy or Not to Buy: Are You Ready to Buy a Home?

Home ownership is traditionally viewed as a sign of achievement and financial stability, but it is also likely to be the largest financial obligation you’ll ever have. Don’t be pushed into buying a home you’re not ready to own. Taking time to save for a down payment, establish or improve your credit, or stabilize your career can be worthwhile, particularly if you have doubts about buying a home right now. Attending a first time homebuyer class can help you understand the cost and responsibilities of home ownership. Don’t allow pressure from family or others to influence your decsion about buying a home. When you’re ready, you’ll know.

There’s a lot of concern regarding FHA reserves and with good reason — you sure would like them to be larger.

The Wall Street Journal, in it’s latest anti-FHA blast, notes that “the agency acknowledged this month that a new but still undisclosed HUD audit has found that FHA’s cash reserve fund is rapidly depleting and may drop below its Congressionally mandated 2% of insurance liabilities by the end of the year.

“At a 50 to 1 leverage ratio, the FHA will soon have a smaller capital cushion than did investment bank Bear Stearns on the eve of its crash. Its loan delinquency rate (more than 30 days late in payments) is now above 14%, or from two to three times higher than on conventional mortgages. Its cash reserve ratio has fallen by more than two-thirds in three years.”

Of course, looking at loans that are at least 30 days late is absurd. The more important issue is not whether loans are late, it’s whether they are being foreclosed. As we pointed out earlier this week:
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In a move to address an estimated shortfall of $798 million within the next fiscal year, FHA Commissioner David H. Stevens has announced cuts in the amounts seniors can receive under FHA’s popular reverse mortgage program. Effective with applications received on and after October 1, 2009, the FHA Home Equity Conversion Mortgage (HECM) loans will provide 10 percent less cash to seniors.

How Revised FHA Guidelines Affect HECM Borrowers

A reverse mortgage loan is an option for borrowers aged 62 and above who want to convert home equity to cash and eliminate monthly mortgage payments. Falling property values have led to narrower margins between home value and home equity, and FHA guidelines reducing the amounts seniors can receive with a HECM loan may put reverse mortgage loans beyond the reach of some borrowers. Reduced FHA loan limits can make it more difficult to cover the cost of paying off an existing mortgage, meeting closing costs on the new HECM mortgage. Seniors who need to use the proceeds of a HECM loan for living expenses may find that there’s not much cash left  after paying off their existing mortgage and costs of their reverse mortgage loan.

Borrowers on Fixed Income: Reverse Mortgage as Life Raft

Homeonwers who live on a fixed income or otherwise have limited resources may find their existing  mortgage payments too high. Taking out a reverse mortgage can help these homeowners by eliminating monthly mortgage payments and possibly providing extra cash for paying taxes and hazard insurance and meeting living expenses. Borrowers with reverse mortgage loans are guaranteed the right to remain in their homes as long as they wish, and do not have to repay their mortgage loans unless they vacate the property securing the reverse mortgage loan. The change in FHA loan limits for  reverse mortgage payouts may result in some borrowers losing the opportunity to improve their finances with an FHA reverse mortgage loan.

Using a Reverse Mortgage Calculator

You can use a mortgage calculator to estimate potential benefits of getting a reverse mortage loan. Although the calculations provided don’t take into account regional variables and individual cirmstances, they can help in determining if a reverse mortgage loan may work for you.

FHA Cautions Homeowners Against Reverse Mortgage Scams

Although reverse mortgage loans are also available through conventional mortgage lenders, borrowers are cautioned to avoid “too good to be true” offers made through the mail or online. AARP provides consumer information about reverse mortgage loans here. FHA reverse mortgage counselors can also answer questions and provide information about FHA guidelines and reverse mortgage loans.

Rep. Scott Garrett (R-NJ) has a new bill that would cut off FHA mortgages from large numbers of borrowers.

Under the grossly mis-named FHA Taxpayer Protection Act of 2009 (HR. 3706), Garrett would increase the minimum FHA mortgage downpayment from 3.5 percent to 5 percent AND prohibit the financing of closing costs under such mortgages.
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In a recent letter to the New York Times, FHA commissioner David H. Stevens responds to allegations that FHA loans are taking the place of the sub-prime loans that were largely responsible for record foreclosure rates. Concerns about heightened risk prompted a proposal to increase down payments for FHA loans to five percent from the current minimum of 3.5 percent.

Commissioner: FHA Loans are Profitable, Borrower Credit Scores Increasing

There are several good reasons for getting an FHA loan; FHA is an agency of the federal government, overseen by the US Department of Housing and Urban Development (HUD). Unlike here-today-gone tomorrow sub-prime lenders, FHA insures home loans made by its approved mortgage lenders. This creates an alliance between mortgage industry lending and loan servicing  expertise and more than $30 billion in reserves held by FHA for reimbursing lenders for foreclosed FHA loans.

FHA: Dedicated to Protecting Lenders and  Assisting Homeowners

FHA offers support for lenders and homeowners wanting to avoid foreclosure. It works with community housing services, credit counselors and other financial professionals to assist distressed homeowners before foreclosure becomes necessary.

Getting an FHA loan may be the only affordable way for many homebuyers to get the mortgage they need for buying a home. As credit standards have tightened, FHA loans have become a predominant resource for those who have less than a 20 percent down payment. Although borrowers pay an up front mortgage insurance premium (UFMIP) and continue to pay annual mortgage insurance premiums until certain conditions are met, an FHA home loan can provide a gateway to the benefits of owning a home.

Credit Challenged Borrowers May Qualify for FHA Home Loans

Conventional mortgage lenders may not lend to borrowers who have a foreclosure or bankruptcy on their credit reports. FHA guidelines permit both, provided that a foreclosure occurred at least three years prior to the borrowers’ loan application, and a bankruptcy occurred at least two years prior to applying for an FHA mortgage loan. FHA guidelines also provide borrowers without traditional credit an opportunity to document their credit using rent receipts, utility payments and other “non-traditional” proof of creditworthiness. As financial institutions are cutting credit lines and refusing to issue consumer credit, it seems that FHA’s willingness to consider alternative credit documentation may become more important for homebuyers who have not established traditional credit lines. Although FHA is tightening some credit requirements, such as requiring lenders to certify verification of income and employment, FHA loan requirements provide those with little cash and less than perfect  credit an opportunity for owning a home.

With FHA mortgage rates holding steady, first time homebuyers can potentially take advantage of lower home prices and mortgage rates to qualify for affordable FHA home loans.

In a move intended to reduce taxpayers’ exposure to losses associated with defaulted FHA loans, legislation is being proposed that would tighten FHA loan requirements:

• The minimum down payment would increase from 3.5% to 5% of the loan amount.
• Closing costs would no longer be permitted to be “rolled into” the loan amount.

This would mean that potential homebuyers would need to have more cash available for coverin these costs. The principle concern behind these proposed changes is that lenient lending requirements can encourage people to take out home loans they;re not prepared to pay over the long term.

Demise of “Sub-Prime” Lending Increases FHA Market Share

As mortgage lenders have restricted sub-prime lending and ceased offering mortgage loans with exotic terms including negative amortization and interest only payments, more and more homebuyers are turning to FHA for affordable mortgage loans. Low down payment requirements and the ability to roll closing costs into the mortgage amount can help cash-poor homebuyers purchase a home. Critics argue that creditworthiness is in part determined by meeting higher down payment requirements; borrowers who have little investment in their homes may be more inclined to walk away during hard times.  As FHA’s reserves decrease as the result of paying mortgage insurance claims resulting from mortgage foreclosures, Congress may be required to act if reserves fall below minimum required amounts.

During 2008, FHA insured home loans accounted for about 21 percent of the market as compared to less than 5 percent of the market during 3005 and 2006, when sub prime home loans were widely available. As mortgage credit requirements have become increasingly stringent, homebuyers are turning to FHA for home loans. Congress is concerned that if increasing numbers of FHA loans “go south,” taxpayers will be footing the bill for paying mortgage insurance claims filed by lenders.

Federal Reserve Chairman Ben Bernanke noted at a recent hearing that FHA remains the primary source of mortgage loans requiring less than a 20 percent down payment, and is assisting people who would not otherwise be able to buy homes. It appears that FHA could be caught between a rock and a hard place in terms of weighing the risk of making riskier home loans against serving those who want to buy a home, but can’t meet conventional lending requirements.

FHA is awaiting the results of an actuarial study that is expected to shed light on potentially increasing risk due to insuring more lenders against foreclosure losses. In the meantime, if you’re sitting on the fence, this could be a good time to find out if you’re eligible for an FHA home loan. Interest rates remain low and FHA guidelines have not yet changed.

Beginning next year FHA mortgage appraisals will become portable.

At first this may not seem like a profound idea, but it’s actually a big advance for borrowers.

The FHA requires full-blown appraisals for all new and refinanced loans, except when there’s a streamline refinance of an existing FHA mortgage. Because FHA appraisals require a licensed appraiser to physically examine the inside and outside of the property, such valuations are expensive, typically a few hundred dollars.

Traditionally it has been very difficult to get an appraisal and then decide to get a better loan with another lender. Lenders have no incentive to encourage such thinking even though borrowers have no obligation to use a given loan source. So, to lock in borrowers, lenders typically have charged “application fees” and made it difficult or impossible to transfer appraisals from one lender to another.
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Imagine that you have an FHA loan and would like to get a loan modification. You’re nearby happy lender offers you a rate which is less than what you are paying today, so your monthly costs will go down and that sounds pretty good.However, the problem here is that while monthly costs go down, they may not go down as much as they could given current loan rates. In other words, the lender is selling a loan at an above-market price.
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