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Welcome to FHA Mortgage Guide.

We take long-term mortgages for granted today, but it wasn't always that way. Long ago it was likely that if you financed a home you borrowed money with a five-year "term" mortgage -- and even then you needed 50 percent down. FHA's have changed dramatically, learn why! FHALoanPros.com is devoted to providing useful information about FHA Loans, but please note that neither FHALoanPros.com nor any of the products advertised on FHALoanPros.com are affiliated with or endorsed by the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA), or other US Government department or agency.

FHA retreats from reverse mortgage claims

Peter G. Miller
April 17th, 2011

If you’re a federal department you likely do not want to incite the attention of a powerful lobby. For the future education of government bureaucrats he’s why: It took HUD less than a week to back down after facing a lawsuit from one of the most important groups in Washington, AARP.

The dispute began in the waning weeks of the Bush Administration. Until this point it had been plainly understood when an individual with a reverse mortgage–or a Home Equity Conversion Mortgage (HEMC) as HUD calls them–moved, sold or passed away that the loan could be entirely paid off by giving title to the lender. Neither the lender nor HUD had any right to go after the borrower’s estate, spouse, children or heirs to make up any loan losses.

Big claims against spouses & heirs

But in late 2008 HUD came out with a new ideas.

“The HECM is a “non-recourse loan,” said HUD. “This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.”

“Some program participants mistakenly infer from this language that a borrower (or the borrower’s estate) could pay off the loan balance of a HECM for the lesser of the mortgage balance or the appraised value of the property while retaining ownership of the home. This is not correct and is not the intended meaning of the quoted provision. Non-recourse means simply that if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure.”

Get it?

Under HUD Mortgagee Letter 8-38 a spouse or heir who wanted to keep the property had to pay all that was owed to the lender, not just property’s appraised value. In other words, HUD would not pay lender claims if the family wanted to keep the property. Since a reverse mortgage is a negatively amortizing loan, in time the size of the mortgage debt would likely pass the value of the home–especially during the past few years as home values have generally fallen.

According to AARP, “HUD rules in place since 1989 clearly state that a borrower or heirs would never owe more than the home was worth at the time of repayment. But at the end 2008, HUD abruptly changed the policy and said that an heir–including a surviving spouse who was not named on the mortgage–must pay the full mortgage balance to keep the home, even it if exceeds the value of the property. This does not just violate HUD rules; it violates existing contracts between reverse mortgage borrowers and lenders, and negates a key purpose for which borrowers had been paying insurance premiums.”

New rules

Caught, HUD retreated with a new mortgage letter published April 5th:

“On December 5, 2008,” said HUD, “the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter (ML) 2008-38 to provide clarification to mortgagees regarding the requirements for repayment and termination of a Home Equity Conversion Mortgage loan. HUD’s intent in issuing ML 2008-38 was to supplement and explain provisions contained in the regulations at 24 CFR §206.125 and HUD Handbook 4235.1 (Home Equity Conversion Mortgages). Since there has been some uncertainty regarding the guidance in that ML, HUD is rescinding ML 2008-38, effective as of the date of this ML.”

In other words, let’s go back to the old understanding, a key reason to get a reverse mortgage.

Nope, there was no uncertainty. No clarification was needed. HUD tried to gut the FHA reverse mortgage system through the back door and got caught. It tried to change the contracts HUD had with existing reverse mortgage borrowers even though borrowers had not agreed to any revisions.

The next step, of course, will be to see what new “guidance” the government will proposes–and whether there will be another attempt to raid the wallets of the elderly.

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FHA retreats from reverse mortgage claims

Peter G. Miller
April 12th, 2011

If you’re a federal department you likely do not want to incite the attention of a powerful lobby. For the future education of government bureaucrats he’s why: It took HUD less than a week to back down after facing a lawsuit from one of the most important groups in Washington, the American Association of Retired People.

The dispute began in the waning weeks of the Bush Administration. Until this point it had been plainly understood when an individual with a reverse mortgage — or a Home Equity Conversion Mortgage (HEMC) as HUD calls them — moved, sold or passed away that the loan could be entirely paid off by giving title to the lender. Neither the lender nor HUD had any right to go after the borrower’s estate, spouse, children or heirs to make up any loan losses.

Big Claims Against Spouses & Heirs

But in late 2008 HUD came out with a new ideas.

“The HECM is a “non-recourse loan,” said HUD. “This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt.”

“Some program participants mistakenly infer from this language that a borrower (or the borrower’s estate) could pay off the loan balance of a HECM for the lesser of the mortgage balance or the appraised value of the property while retaining ownership of the home. This is not correct and is not the intended meaning of the quoted provision. Non-recourse means simply that if the borrower (or estate) does not pay the balance when due, the mortgagee’s remedy is limited to foreclosure and the borrower will not be personally liable for any deficiency resulting from the foreclosure.”

Get it?

Under HUD Mortgagee Letter 8-38 a spouse or heir who wanted to keep the property had to pay all that was owed to the lender, not just property’s appraised value. In other words, HUD would not pay lender claims if the family wanted to keep the property. Since a reverse mortgage is a negatively amortizing loan, in time the size of the mortgage debt would likely pass the value of the home — especially during the past few years as home values have generally fallen.

According to AARP, “HUD rules in place since 1989 clearly state that a borrower or heirs would never owe more than the home was worth at the time of repayment. But at the end 2008, HUD abruptly changed the policy and said that an heir — including a surviving spouse who was not named on the mortgage — must pay the full mortgage balance to keep the home, even it if exceeds the value of the property. This does not just violate HUD rules; it violates existing contracts between reverse mortgage borrowers and lenders, and negates a key purpose for which borrowers had been paying insurance premiums.”

Caught, HUD retreated with a new mortgage letter published April 5th:

“On December 5, 2008,” said HUD, “the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter (ML) 2008-38 to provide clarification to mortgagees regarding the requirements for repayment and termination of a Home Equity Conversion Mortgage loan. HUD’s intent in issuing ML 2008-38 was to supplement and explain provisions contained in the regulations at 24 CFR §206.125 and HUD Handbook 4235.1 (Home Equity Conversion Mortgages). Since there has been some uncertainty regarding the guidance in that ML, HUD is rescinding ML 2008-38, effective as of the date of this ML.”

In other words, let’s go back to the old understanding, a key reason to get a reverse mortgage.

And no, there was no uncertainty. No clarification was needed. HUD, under the Bush Administration, tried to gut the FHA reverse mortgage system through the back door and got caught. It tried to change the contracts HUD had with existing reverse mortgage borrowers even though borrowers had not agreed to any revisions.

Congratulations to AARP for protecting its members and their families.

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Will The FHA Down Payment Rise?

Peter G. Miller
April 5th, 2011

This is the month when the annual FHA mortgage insurance premium will rise and you have to wonder if the same thing will happen to the FHA down payment requirement, currently 3.5 percent for most borrowers.

On April 18th the annual mortgage insurance premium will rise for new FHA loans from .90 percent to 1.15 percent for most borrowers. The change will cost a new FHA borrower about $30 a month or $360 a year and is entirely unnecessary.

The increased insurance premium is unnecessary for the very simple reason that FHA reserves are growing, not falling. HUD tells us that the FHA’s Mutual Mortgage Insurance fund — it’s reserve account — should grow by $9.76 billion in fiscal 2011.

So why would FHA guidelines be changed if the FHA is doing so well? Don’t higher costs hurt borrowers?

Working For The Private Sector

It is critical, says HUD Secretary Shaun Donovan, “that we pave the way toward a robust private mortgage market. This was a central goal of the Administration’s recently released report on Reforming America’s Housing Finance Market, which proposed to wind down Fannie Mae and Freddie Mac, fix fundamental flaws the mortgage markets, better target the government’s support for affordable housing, and provide choices for longer-term reforms.

“Taking steps to bring private capital back is a process that HUD began many months ago — and I want to thank you for passing legislation in the last Congress to provide more flexibility to FHA’s mortgage insurance premium structure. With this authority, FHA announced a premium increase of 25 basis points last month.”

Actually, I don’t think it is critical at all for HUD to pave the way toward a robust private mortgage market. I think that’s the job of private-sector lenders and Wall Street.

HUD, after all, ought to be doing what it was designed to do, to help entry-level purchasers and those in the lower and middle income brackets.

“We project that FHA will continue to support the housing market,” says Donovan, “insuring $218 billion in mortgage borrowing in 2012. These guarantees will support new home purchases and re-financed mortgages that
significantly reduce borrower payments. Over the last two years, FHA has helped over 2 million families buy a home – 80 percent of whom were first-time buyers. FHA also has helped nearly 1.5 million existing homeowners refinance into stable, affordable products, with monthly savings exceeding $100 in most cases. FHA financing was used by 38 percent of all homebuyers, insuring, along with the VA and federal farm programs, 81 percent of all loans to African Americans and 73 percent to Hispanics in 2009.”

The Conflict

You can see the basic conflict: On one hand HUD correctly crows about fulfilling its historic mission while on the other with higher insurance costs it’s plainly not acting to further borrower interests.

You have to wonder why HUD suddenly feels compelled to make it’s own products less attractive with an unnecessary insurance increase. You also have to wonder what’s next.

If I were guessing I can see a situation where there will be a need to raise the basic FHA down payment from 3.5 percent to, say, 5 percent. That would make FHA loans less attractive and for many borrowers no different than private-sector financing.

Now that’s some real paving….

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FHA numbers turn down despite low rates

Peter G. Miller
March 23rd, 2011

February turned out to be a woeful month for the FHA, despite interest rates which hovered around five percent.

Comparing February 2011 with the same period in 2010, figures from HUD show a distinct FHA mortgage slowdown.

  1. Applications: Down 30.9 percent.
  2. Endorsements: Down 33.1 percent.
  3. Purchase money mortgages: Down 35.8 percent.
  4. Refinances: Down 33.6 percent.

HUD has also run into problems with its much-touted FHA reverse mortgage “SAVER” product. Apparently it’s tough to give this one away: There were 6,092 standard reverse mortgages insured during the month versus just 296 for the Saver.

There are some reasons why FHA numbers might be down.

First, February was a tough month on the weather front. A lot of areas got pounded with deep snow and high winds, not the best time to look at houses or plunk down offers to buy.

Second, unemployment continues to be remarkably high. Official figures show that nonfarm payroll employment increased by 192,000 in February, and the unemployment
rate was little changed at 8.9 percent, according to the Bureau of Labor Statistics. While the unemployment rate has dipped in terms of percentages, the important point is that millions of Americans remain unemployed, underemployed and nervous about job prospects, all reasons to avoid major financial decisions such as the purchase or refinancing of a home.

“The number of job losers and persons who completed temporary jobs, at 8.3 million, continued to trend down in February and has fallen by 1.2 million over the past 12 months,” said the BLS.

Well, really, could not the government come up with a better word than losers?

Delinquencies

For February there were 619,712 seriously-delinquent FHA loan borrowers. That’s an 8.9 percent delinquency rate for folks who are at least 90-days behind. The “good news” is that the rate a year ago was 9.5 percent.

The catch is that while the percentage has declined, the absolute number of delinquent loans has increased from 570,799 last year to 619,712 this February.

In other words, the delinquency percentage is down not because we have fewer borrowers making late payments or no payments but because the universe of loans is growing faster than the number of delinquent borrowers.

To its credit, the FHA has done an unusually good job converting delinquencies to paying loans. However, when you have an additional 48,913 delinquent loans you also have a large number of additional chances for claims against the system.

There is at least one group which should be elated at the decline in FHA loans: Private-sector lenders have been screaming about the need for more, well, private sector loans. The latest FHA results should make the private sector very happy.

Whether it will also make borrowers happy is a different question. What is it, exactly, that private-sector lenders are offering which is better than an FHA mortgage? Less down? Lower rates? Lower mortgage insurance costs? A high cure rate for defaults?

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Outgoing FHA Commissioner to head MBA

Peter G. Miller
March 21st, 2011

While millions of people struggle to find jobs, and while Congress works feverishly to reduce the safety net which barely supports them, outgoing FHA Commissioner David H. Stevens has had the good fortune to instantly find work.

It was on March 11th that statements made available from both HUD and Mr. Stevens explained that he would leave his position as FHA Commissioner. On March 15th, the Mortgage Bankers Association announced that John A. Courson, the association’s President and CEO, will be leaving the association, effective June 1, 2011.

“Courson,” said the Association, “will be replaced by David H. Stevens, Assistant Secretary for Housing and Commissioner of the Federal Housing Administration at the U.S. Department of Housing and Urban Development in May. Stevens had announced earlier that he would be resigning from his position at HUD. He will leave HUD on March 31, 2011.”

Reuters announced the change with a headline that read: “Obama housing aide to be mortgage banking lobbyist.”

Or, as New York magazine explained, “The Former Heads of the FCC and FHA Will Soon Be Lobbying for the Industries They Regulated”

Well, not quite. Let’s see why:

Mr. Stevens cannot possibly become a mortgage banking lobbyist — for at least for two years read more

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What about proportional FHA loan limits?

Peter G. Miller
March 16th, 2011

The House of Representatives is busily chewing away at the FHA program, but largely missing what needs to be done.

First, of course, there has been the passage of H.R.830, the FHA Refinance Program Termination Act. With a vote of 256 to 171 the House has moved to dump the FHA short refi program. Since this program has resulted in just 44 FHA loans it’s not a big deal and is likely to pass in the Senate.

Second, in the kick-people-while-they’re-down-department, the House also passed H.R.836, the Emergency Mortgage Relief Program Termination Act with a vote of 242 to 177. This legislation denies emergency mortgage assistance to individuals who have lost their jobs. The result, of course, will be more foreclosures and thus additional pressure to reduce local home values. Passage in the Senate is uncertain.

This legislative work curiously goes after one federal program that doesn’t matter and a second program which is a reasonable necessity at a time when the housing market remains hugely depressed. Such activity reminds one of George Santayana, who said “fanaticism” is when you redouble your efforts and forget your purpose.

The oddity here, one of them anyway, is that the House could actually have done something useful. Here’s how: read more

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Stop the presses! Banks on board with FHA Short Refinance program?!

Gina Pogol
March 15th, 2011

Amazingly, after mortgage bloggers including us have spent months snickering at that stupid Short Refi program, America’s five largest mortgage servicers have agreed to participate! If they actually agree to allow a significant number of these refis for underwater borrowers, it would really shake up the mortgage landscape.

Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally Financial/GMAC are all reportedly participating in the struggling program, according to spokespeople for HUD and JP Morgan Chase.

To recap, the program allows homeowners in underwater mortgages to refinance out of a current, conventional mortgage and into an FHA mortgage with neutral or slightly positive equity. The lender currently holding the mortgage (this has been the booger!) must agree to write down enough principal so that the borrower can qualify for a new FHA refinance.

The news comes only a few days after the House of Representatives voted to kill the program on a near party-line vote. Republicans (and just about every mortgage industry commentator) have criticized the $8 billion program as ineffective, correctly noting that only 44 homeowners had been approved for assistance by mid-February, approximately 6 months after the program’s launch.

One wonders if the lenders were scared into getting with the program before something more onerous was concocted by the Administration or Congress. The Obama administration has defended the program, claiming that it isn’t yet on its feet and that bringing the major lenders on board as part of the issue, along with the need to develop procedures and infrastructure. And, yes, for what it’s worth, the number of homeowners assisted under the program has more than doubled over the past month.

For lenders, the program offers to opportunity to get rid of a risky mortgage while possibly recovering much of what they’re owed, and likely more than what they would get for the property in foreclosure (ignoring the fact that these loans are not delinquent and so foreclosure isn’t exactly on the near horizon).  For  homeowners, it offers a chance to reduce their mortgage debt  and start building positive equity in the property again.

Is this new spirit of cooperation a real change or is it lip service on the part of mortgage servicers?

My money’s on lip service, but I wouldn’t mind being wrong.

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FHA vs USDA: Which is better for you?

Gina Pogol
March 15th, 2011

In many parts of the country, home buyers can choose between USDA and FHA programs. If you’re one of them, run through this checklist to see which program best meets your needs.

Property

USDA loans require that its financed properties be located in areas designated “rural.” That doesn’t mean miles from nowhere; it just means outside major metropolitan areas. For example, I live just south of Reno and am in a designated rural area — 5 minutes from a city of over 350,000 people! You can find out if a property is located in a designated rural area by typing it into the USDA’s property eligibility screen.  The FHA does not restrict properties by area, but does require the property pass an inspection. Condominium projects must be FHA-approved.

Borrowers

FHA imposes no income eligibility requirements. USDA requires borrowers earn less than 80 percent of the adjusted median income for their household size to get a subsidized mortgage funded directly by the government, and less than or equal to 115 percent of the median for a guaranteed mortgage at market rates from a private lender.  You can see if you meet income limits by checking the income eligibility screen of the USDA Rural Housing Web site.

Costs

USDA mortgages require no down payment at all for the purchase of a modest sized and moderately priced home. USDA does impose a fee of 3.5 percent that can be rolled into the loan. There is no mortgage insurance. FHA mortgages require down payments of 3.5 percent for borrowers with credit scores of at least 580, and 10 percent down for those with scores of 500-579. FHA charges an upfront mortgage insurance premium of 1 percent and monthly mortgage insurance premiums calculated at 1.15 percent of the mortgage balance per year.

Here’s a comparison of a USDA vs FHA mortgage on a $200,000 loan.

USDA

Sales price: $200,000

USDA funding fee: $7,000

Loan amount: $200,000

Payment for guaranteed loan at 5 percent: $1,073.64

Payment if funding fee is financed: $1,111.22

Payment for direct loan (33 year term, financed funding fee, 4.5 percent subsidized rate: $1,004.37

FHA

3.5 percent down payment required, 1 percent upfront mortgage insurance premium can be financed

Loan amount: $195,000

Payment at 5 percent rate: $1,046.80

Add 1.15 percent mortgage insurance: $186.88 per month

Total payment: $ 1,233.68

While it looks like USDA is the better deal, there are some times when it isn’t.  An FHA borrower putting down 3.5 percent has $7,000 equity in the property right away while the USDA borrower has nothing. It takes over 43 months of higher FHA payments to make up that difference.

In addition, FHA imposes mortgage limits but does not state that your home cannot have features considered luxury items like swimming pools. FHA may allow you to buy a more expensive home than USDA. In short, USDA financing is similar to what FHA may become if the government decides to scale back its involvement in American mortgage financing — with its availability limited to low- to moderate-income borrowers purchasing modest homes.

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FHA short refi program: Obama administration vows to veto legislation cutting mortgage relief programs

Karen Lawson
March 14th, 2011

The  FHA short refinance program hasn’t been wildly successful with mortgage lenders due to the requirement for mortgage holders to write off a minimum of 10 percent of the unpaid principal balance for each loan retired through the short refinance program.

We’ve previously observed that the complexity of the secondary mortgage market would likely quash the short refinance program, but House legislators backing legislation to kill the program note doing so would save tax payers money. How would cutting government-sponsored mortgage relief programs such as the Home Affordable Modification Program (HAMP) and the short refinance program impact taxpayers?

Protecting taxpayers, or not:  Do you have foreclosures in your neighborhood?

The problem with the short refinance program is that those owning the mortgage loans aren’t willing to write down mortgage balances by a minimum of 10 percent as required by FHA guidelines. Much of the reason for this rests with the nature of how mortgage loans are sold on the secondary mortgage market; groups of home loans are frequently grouped together and these groups of loans “securitized” and sold to organizational investors including mutual funds, and pension funds. Changing the mortgage balances and interest rates for such mortgage loans is difficult as it changes the value of home loans used to back the investment “securities.”

This is a simplified version of a complicated situation, but the Obama Administration has taken a simple stance toward protecting federal homeowner assistance programs. They’ve vowed to veto any legislation killing these programs. That’s good news, but how can mortgage holders and loan servicing companies be persuaded to see that preventing foreclosure is financially and ethically preferable to allowing families and communities to be ruined by the specter of homelessness, lost tax revenue, and the blight of vacant and abandoned homes?

Mortgage loans: Foreclosure costs money and depletes community resources

What happens to Joe and Jane taxpayer when their neighbors lose their home to foreclosure? Joe and Jane would likely be surprised to know that their neighbors were denied a loan modification through HAMP. Or worse, they contacted their mortgage company and could not get through, or never received responses to her requests for help. Joe and Jane’s neighbors finally abandon their home when they find work in another state.

Foreclosure impacts entire communities; local governments receive less tax revenue when home values fall, and public safety resources are tapped when vacant foreclosed homes attract crime or become unsafe. Meanwhile, homeowners with formerly good credit find that financial options and career opportunities are limited by their newly poor credit and public record of a mortgage foreclosure.

There must be a more fiscally sound method of addressing the problem of owing more on a mortgage than homes are worth than foreclosing such mortgages.  Not everyone who’s “underwater” on their mortgage and cannot sell or refinance is a “deadbeat.”  It’s time to find workable solutions to problems caused by devalued homes and homeowners experiencing long-term unemployment.

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Commissioner Stevens Leaving FHA

Peter G. Miller
March 14th, 2011

The word is out that FHA Commissioner David H. Stevens will be leaving his position within the next few weeks. A replacement has not been named.

Stevens was nominated to his post in March 2009 and has guided the FHA through difficult times with considerable skill.

He had the great advantage of actually having expertise in his field, not a quality to be assumed with all political appointees. Stevens’ background, according to HUD, includes having served as Executive Vice President, National Wholesale Manager at Wells Fargo Home Mortgage’s wholesale channel; Vice President of single family business at Freddie Mac; and, a 16-year tenure at the World Savings Bank, where he began his career. He was also the founding executive sponsor of the Women’s’ Mortgage Industry Network and while at Freddie Mac, he coordinated the first Latino joint venture initiative with Freddie Mac and Latino mortgage industry leaders.

The Marketplace Impact

The FHA, like all real estate and mortgage programs, has been impacted by the difficult market conditions experienced across the country. To his great credit, Stevens kept the FHA solvent, increased FHA reserves, maintained FHA loan requirement, dumped more than 1,500 lenders who did not meet FHA standards and has been an articulate spokesman for HUD, the FHA and the idea that we can prudently lend to entry-level borrowers.

One by-product of FHA success has been the ongoing clamor by the private sector to make the FHA less competitive. Unfortunately, such views have gained traction in recent months, not good news for individuals without executive bonuses.

Foreclosures

Of particular interest has been the FHA’s ability to hold down foreclosures under Stevens, a program which ought to be a model for the private sector.

There has been a lot of clamor regarding FHA delinquency rate. The Mortgage Bankers Association said the FHA mortgage delinquency level reached 12.26 percent in the fourth quarter of 2010. This compares with 5.48 percent for prime loans and 23.01 percent for subprime financing.

What’s not mentioned is the FHA cure rate.

In fiscal 2009 HUD reported that “82.7 percent of the HUD-held loans that are 90 days or more delinquent were brought under control.”

In fiscal 2010 the cure rate dipped to 73 percent, still a terrific outcome when one considers the unemployment rate and the relative inability of the private sector to duplicate such results.

Alternatively, the Bank of America, according to the HousingWire, “recently sampled 100 mortgages reaching 60 days or more delinquent, and found that only 14 of them qualify for a permanent modification through HAMP.”

“Assuming this position and the challenges addressed since I took office have been the most intense and significant in my career,” says Stevens. “It has been my honor to serve President Obama, Secretary Donovan, and the entire Administration. I am extremely proud of everything we accomplished to put the FHA back on stable footing.”

Fair enough.

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Who really benefits from FHA short refis?

Peter G. Miller
March 9th, 2011

With the end of the FHA short refi program plainly in view, it might be useful to take a look at who wins and who loses.

As explained earlier, the program allowed underwater borrowers to refinance provided the lender is willing to take at least 10 percent of the principal.

This sounds as though the lender is taking a beating, and no doubt that’s true. Equally true is that the program could have helped many lenders.

To understand why let’s take a look at the housing market. The Federal Housing Finance Agency home prices in November were 14.9 percent below their April 2007 peak and roughly the same as values in August 2004.

Home Values

The catch is that home values have not fallen equally. From November 2009 through November 2010 home values fell by an average of 11.2 percent in the Mountain states — Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico.

At the same time, home prices fell just 1.2 percent in Oklahoma, Arkansas, Texas, Louisiana — the South Central area.

So, if you’re a lender you might want to ask what’s better: To take a 10 percent loss or to take the vastly larger loss that might result if the property is foreclosed or the owner’s walk away.

For lenders there’s no good answer. Neither option is especially attractive.

The FHA loan guidelines for the short refi program might actually work for lenders read more

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FHA mortgages: Get an FHA lender, use an FHA loan officer

Gina Pogol
March 7th, 2011

My husband is a loan officer specializing in very high-end home purchase and construction lending. He’s an excellent loan officer with over a decade of experience, a great rep,  lots of pretty award thingies on his wall and a ton of expertise in his chosen mortgage financing niche.

The joke in his office is that my husband cannot spell FHA.

FHA loans are different. Only an FHA-approved lender can originate, underwrite, approve, and fund an FHA mortgage. Anyone else will have to broker it, submit a package, and pray. You are better off going to the source — a lender that is continually monitored by HUD that has proven itself and works to maintain that valuable approval.

But within every FHA-approved lender are loan officers, some who specialize in FHA lending and some who rarely see these loans. Hint: You want the experienced ones. The experienced ones can tell you if a condo project would pass muster with FHA and how long it would take to get it on the approved list. The experienced ones can help your immigrant parents who never had a checking account get their first home loan. The experienced ones can help you decide whether accepting a new job offer would jeopardize your FHA loan approval, or tell you what your chances of loan approval 24 months into a Chapter 13 plan are.

Finally, there is a difference between the typical FHA home buyer and a jumbo mortgage buyer, or the experienced property investor. Your FHA loan officer expects to furnish plain English explanations of forms like “FHA Amendatory Clause” and likely expects to accompany you to the closing table to answer any last minute questions. A loan agent who works with seasoned real estate buyers may forget that most people are not that comfortable or familiar with the process, or may assume that you know more than you do. An experienced FHA mortgage originator is less likely to do that.

So when you shop for your next FHA mortgage, get several quotes from approved FHA lenders. Then talk to individual loan agents within the organizations and go with one who knows his or her stuff.


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Will new rules increase dependency on FHA even more?

Gina Pogol
March 7th, 2011

Much of mortgage reform centers on changes to risk retention for mortgage lenders. It makes sense that if the fact that those responsible for lax underwriting and silly products were able to leave investors and homeowners and taxpayers holding the bag last time around, requiring them to remain on the hook when they make risky loans is a good idea, right?

Unfortunately, many analysts feel that upcoming changes to risk-retention rules  could increase the cost of mortgages for a great many people and make FHA forever a honking huge fixture of the American mortgage landscape.

Under the Dodd-Frank act, lenders will be required to retain capital reserves equal to five percent of all but the safest mortgage they originate.  The safe loans to be exempted from this risk retention are called “qualified residential mortgages” or QRMs. Rumors bounding round the Hill say that in order to be designated a QRM, a mortgage will max out at 80 percent of the home’s value or purchase price.  This means that those that do not have a down payment of at least 20 percent will be subject to increased mortgage rates in addition to private mortgage insurance to make up for the risk retention on the part of the lender.  The Treasury, the Federal Reserve, the FDIC, the FHA, and other regulatory and governmental agencies are responsible for defining a QRM.

The exception to the QRM rule is that if a loans is issued or guaranteed through government agencies it is exempt from the rule. As it says here:

‘‘(G) provide for—‘‘(i) a total or partial exemption of any securitization, as may be appropriate in the public interest and for the protection of investors;
‘‘(ii) a total or partial exemption for the securitization of an asset issued or guaranteed by the United States, or an agency of the United States, as the Federal banking agencies and the Commission jointly determine appropriate in the public interest and for the protection of investors, except that, for purposes of this clause, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation are not agencies of the United States;
‘‘(iii) a total or partial exemption for any assetbacked security that is a security issued or guaranteed by any State of the United States, or by any political subdivision of a State or territory, or by any public instrumentality of a State or territory that is exempt from the registration requirements of the Securities Act of 1933 by reason of section 3(a)(2) of that Act (15 U.S.C. 77c(a)(2)), or a security defined as a qualified scholarship funding bond in section 150(d)(2) of the Internal Revenue Code of 1986, as may be appropriate in the public interest and for the protection of investors; and
‘‘(iv) the allocation of risk retention obligations between a securitizer and an originator in the case of a securitizer that purchases assets from an originator, as the Federal banking agencies and the Commission jointly determine appropriate.

As FHA mortgages would be exempt from QRM, you can see that demand for them will likely become even more skewed toward these loans than it already is as a result of the rule change.   FHA only requires a down payment of 3.5 percent (10 percent for those with lower credit scores) but folks with less than 20 percent down may well choose an FHA mortgage in order to avoid higher mortgage rates resulting from the risk-retention requirements, depending on how those loans — with their private mortgage insurance and risk-based pricing adjustments added to QRM premiums — stack up against FHA mortgage pricing. Lately, though, even without the QRM differential, FHA mortgages are on average cheaper than conventional loans.

This change could put the FHA in a tough spot as it is already under-capitalized and was never meant to insure the volume of loans that it does these days.  The VA and USDA could also see increased loan origination volume, putting a taxpayers in the mortgage business more than ever.

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FHA short refi program likely to end

Peter G. Miller
March 7th, 2011

The House Financial Services Committee has agreed to end the FHA’s short refinance program for homeowners facing foreclosure. The vote was 33 in favor and 22 against the proposal. To become law the bill must also be passed by the House, the Senate and then signed by the President.

Under the FHA Refinance Program Termination Act HUD will no longer be able to provide assistance under its short refi program.

The short refi program was introduced last year to help borrowers with good credit but negative equity. It required first lenders who participated in the program to write-off at least 10 percent of the principal debt. Lender participation was voluntary, lenders were not forced to write off principal amounts.

No Impact

If HUD is going to lose an FHA mortgage plan than this is surely the one to lose. As we have pointed out, the short refi concept has simply read more

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FHA raises annual premiums as gas, food prices increasing

Karen Lawson
March 6th, 2011

FHA recently announced an increase of 0.25 percent for mortgage loans assigned FHA case numbers issued on or after April 18. Details of the premium increase are contained in HUD Mortgagee Letter 11-013, and confirm that no increase to the up-front mortgage insurance premium, or UFMIP, is scheduled.

The UFMIP is currently set at one percent of the original mortgage amount before the UFMIP or other costs are added. In this instance, a $200,000 FHA loan would require a UFMIP in the amount of $2000 to be paid at closing or added to the mortgage loan amount.

FHA torn between providing affordable home financing and replenishing falling cash reserves

FHA is struggling with diminishing cash reserves used to pay mortgage insurance claims on defaulted and foreclosed FHA loans, and maintaining affordable home loan programs. FHA administrators are betting on the idea that the one quarter percent increase for annual mortgage insurance premiums charged to borrowers won’t inconvenience homeowners as much as it will help FHA.

HUD, the federal agency that oversees FHA, is predicting that increasing the annual mortgage insurance premium will add $3 billion annually to the mutual mortgage insurance fund. This projection is based on current loan volume estimates. The annual mortgage insurance premium for FHA loans is pro-rated monthly and added to monthly mortgage payments along with funds required for paying property taxes and hazard insurance premiums.

FHA estimates that the increased annual mortgage insurance would add about $30.00 per monthly mortgage payment, but the actual annual premium amount paid by individual borrowers varies depending on FHA loan amounts and and down payments.

Gas, groceries and FHA mortgage payments: Going up, anyone?

With escalating food and gas prices, the news about increasing FHA mortgage insurance premiums appears to be par for the course. FHA has to adhere to legislative regulations requiring it to maintain a certain level of cash reserves on hand, while also honoring its commitment to providing affordable home ownership options for moderate income Americans.

FHA has also taken on a larger market share of mortgage loans due to its ability to refinance up to 97.5 percent of current home value. This has provided an escape route for homeowners who would not otherwise qualify for refinancing to lower mortgage rates through no fault of their own.

What remains to be seen is how increasing FHA fees and costs for every day living expenses will impact the ability of moderate income buyers and homeowners to qualify for home purchase and refinance mortgage loans. We’re hoping that rising prices of everything from food to FHA loans won’t interfere with promising signs of an economic recovery.

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