FHA Loans category archives

UPDATE

HUD has officially moved the deadline to December 7th, 2009.  There is no official announcement online, but I have received an email forwarded from HUD directly regarding the extension.

The deadline has moved from October 1st, 2009 to November 2nd, 2009.  Here is a link to the official announcement.  The actual mortgagee letter has not been updated, so if you download HUD Mortgagee Letter 2009-19, it still states the deadline is October 1st.  Only on the above link is this change mentioned.

Are you condo owner or prospective condo buyer?  Then you need to pay attention to some recent changes HUD (Department of Urban Housing and Development) is making that affects condominiums.

In the past, you only needed to satisfy one of the following two criteria’s to finance a condo unit using FHA financing.

1.) The Condo Project has a FHA warranty

- This requires the Homeowners Association of the condominium project to apply and receive a warranty on the project from the HUD.

2.) The unit must pass a questionnaire called a “Spot Check” done on an individual basis

HUD just released an announcement that they will be changing the guidelines which includes the removal of “Spot Check” approvals which means you will only be able to get a FHA loan on a condo if the project has a warranty. (Mortgage Letter 2009-19).

FHA loans now represent more than 25% of all ho Read the rest of this entry »

To use one of my favorite Dirty Harry quotes, “A Man’s gotta know his limitations.” With all of the talk recently of Fannie Mae Jumbo loans, Fannie Mae High Balance Loan Programs, FHA Jumbo’s, VA Jumbo’s, and the like; I thought it would be a good idea to show you how and where  to find out exactly with the loan limits are in your specific State and County.

The first step is to go to this site: HUD/Fannie Mae Loan Limits .  A couple of important things to remember when navigating this site: you initially just need to input the State(all Counties will be listed), the Limit Type(Fannie Mae, FHA, or HECM-reverse mortgage), and the Limit Year (It’s 2009, folks). Once you find your County, the loan limits are pretty self-explanatory.  If you own a multi-unit property, your loan limits will be higher than a single family home.

For VA Loans, the loan limit is $417,000 unless otherwise noted here: VA Loan Limits  .  Financing may be available above the loan limit for a VA limit with a down payment.  A calculator and examples are listed here: VA Calculations .

Keep in mind pricing and qualifiaction terms may vary with “high balance” loans above the traditional loan limits of $417,000.  I hope this helps!

Yesterday, President Obama signed the Helping Families Save Their Homes Act of 2009 (S.896) into law. The goals of this law are to prevent mortgage foreclosures and enhance mortgage credit availability.

Some of the highlights are listed below.  The law:

1. Improves the Federal Housing Administration’s (FHA) Hope for Homeowners program, by reducing the program fees and streamlining borrower certification requirements.  It also allows the the Department of Housing and Urban Development to make incentive payments to participating loan servicers and originators.
2. Expands the reach of the Making Home Affordable Programs by allowing FHA lenders to offer more substantial loan modifications.  And, it protects loan servicers who modify loans from lawsuits as long as the modification is consistent with Hope for Homeowners program.  Up until now, servicers have been reluctant to modify troubled loans, fearing lawsuits from the investors who own the loans. 
3. Gives the FHA additional enforcement tools to police lenders who employ false or misleading marketing tactics.
4. Streamlines how HUD supports homeless support programs across the country, by giving local communities greater flexibility with how they use federal funding.
5. Finally, it includes an amendment (S.AMDT.1035) to the Truth in Lending Act which states that any creditor who purchases or is assigned a mortgage loan must notify the borrower in writing within 30 days.  If notification is not given, borrowers are allowed to recover damages.

So there has been a lot of rumors regarding the $8000 first time home buyer tax credit and that it can be used as a down payment for a new home with an FHA loan.

At first, I thought it was just another “mortgage scam”. Trust you me, the real mortgage industry always leaves room for the next “million-dollar-idea”. If you pay close attention, you may even end up seeing your next door neighbor on the 6 o’clock news getting caught for selling “ARMS” from the back of his van in a dark alley.

After doing a little bit of research to see the legitimacy of this rumor, I ended up finding the official HUD Mortgagee Letter 2009-15.

Who Can Offer It

Let’s begin with who can offer this “loan” on a loan. (Is that a conundrum?)

According the letter, Federal, state, local governmental agencies, non-profit governmental subsidiaries, and FHA-Approved nonprofits will be able to offer this to home buyers.

How It Works?

Essentially, this is a bridge loan. You are borrowing this money for a short amount of time until you get your tax credit, and then it is paid back to these agencies.

What happens is you are taking out a second lien on your home, and that amount CANNOT be more than:

Down Payment + Closing Costs + Pre-Paid Expenses

Here is a list of some more facts on how this works:

1.) You cannot get any cash back at closing.
2.) You will have a deadline to pay this money back, and if you do not, principal and interest will begin automatically. (What a concept!)
3.) If payments are required, it will be calculated as a monthly liability when qualifying for the loan.
4.) If payments are deferred, it must be for at least 36 months and will not be used against you when qualifying.

I cannot stress to you enough -BE VERY CAUTIOUS with this type of transaction. It leaves so much room for deception, and if you end up in the wrong hands, you may kiss your $8k tax credit goodbye very fast!

While it may bring an influx of new potential buyers to Realtors and open a lot of doors to potential buyers, it is a double-edged sword and I do not particularly agree with it. In my opinion, it can do more bad than good and is basically bringing back “100% financing” and that is part of what has caused the “Mortgage Meltdown”.

I would suggest stopping and thinking as to why many down-payment assistance programs went bye-bye towards the end of 2008. It was simply because more buyers defaulted on those types of loans. The LAST THING we need is the Federal Housing Administration (FHA) getting into financial issues.

Tommy’s 2 Cents:

Use it IF you absolutely HAVE to. The $8,000 is yours one way or another.

The recent FHA ruling (HUD Mortgagee Letter 2009-15),  designed to allow a subordinate lien, cross-collateralized by the anticipated First-Time Homebuyer Tax Credit, has been stalled.  Less than one hour after the ruling was posted on the HUD website, the provision was rescinded.  From Boston.com:

According to contacts with both FHA and HUD, Mortgagee Letter 2009-15, which stated that first-time homebuyers would be allowed to use the tax credit for their downpayment, has been rescinded. On a phone call with FHA, Kim Kahl was told, “The mortgagee letter has been rescinded for the time being.” NAEBA President John Sullivan was told something similar when contacting HUD. Neither FHA nor HUD gave further details.

This is not to say that the policy won’t be reintroduced soon.  Government relations’ executives at mortgage banks believe that HUD wanted to avoid the implementation problems the temporary agency-jumbo loan limits increase order created when the agencies and lenders weren’t prepared.

Can a home buyer borrow money for his/her down payment today? Of course they can provided the loan is documented and the repayment terms are figured into the debt-to-income ratios.  Current sources for downpayment loans, which are acceptable to HUD, are not limited to but include:

• personal loan from a family member
• unsecured line of credit (credit card)
• 401-k retirement plan loan

For example, if a home buyer wanted to purchase a $300,000 home, which required a $10,500 down payment, they could take a cash advance against a credit card.  Underwriters would most likely require that a 4% per month minimum payment ($420) be used to calculate the debt-to-income ratios (regardless of the actual minimum payment).  Is this a prudent use of credit?

Perhaps. In our example, the home buyer might pay nine months interest on that credit card loan, at 24%, until the tax credit could be realized.  That interest (in our example) would be about $1,900.  if the home buyer were reasonably certain that the home they were buying was offered at such a compelling price that the $1,900 cost was minor, then I’d suggest it might be a prudent use of credit.

Perhaps not. I’m not convinced that the compelling deals won’t be here in 8-9 months.  In short, it would seem a bit impetuous to me to use that credit card loan.

It has amazed me how many people (mainly Realtors and lenders) are already out there proclaiming that you can now go back to the days of the “No money down” loans with FHA and you can do it right now.   Well, that’s not quite the whole story.    Let me explain:

What I know:

• I know that FHA is now allowing a borrower who qualifies for the $8000 tax credit to use that tax credit as the downpayment for purchasing the house.
• I know that they can’t get any cash back - if they need $7000, they can only get $7000.
• Government agencies and non-profits can do second liens against the house for the downpayment.
• The payments on that second lien need to be counted into qualifying rations.   In other words, if you are going to borrow the $8000 so you can use it for your down payment, you need to be able to pay that amount back.  Gee, there’s a novel concept.
• FHA approved mortgagees can do a “bridge loan” against the tax credit.

What I don’t know:

• I don’t know whether any FHA approved non-profits are going to be willing to do second liens in situations like that.
• I don’t know whether any FHA mortgagees (such as my bank) are going to be willing to do a bridge loan against a tax credit.   Typically banks don’t like to do unsecured loans and I’m not sure how you can secure a loan against a tax credit.
• I don’t know what fees and rates will be charged for such a bridge loan.

Personal feelings:

• In today’s volatile market, if you aren’t able to come up with 3.5% for a downpayment on a house, maybe you should continue to rent for a while.
• The “tightest” 12 to 18 months that a home buyer typically has is their first 12 to 18 months when they are getting used to the house payment.   Do we really want to add the cost of having to pay back a bridge loan on top of that?

So I guess my recommendation is essentially this:

• Take a deep breath.
• Wait to give the financial institutions the time to sort this all out.
• Once we know how the details of how that would work, then we can start promoting it as a done deal.   Right now, FHA is saying, “We’ll allow it.”   But I haven’t heard of anyone who has yet said, “We’ll write the loan.”   Until we have that, it’s going to be hard to know whether this is really a good idea or not.

As a friend of mine likes to say after giving his opinion…..

“That, and $3.50, will get you a cup of coffee.”

Tom Vanderwell

P.S.  The details of what I’ve put in here came from HUD Mortgagee Letter 2009-15.

FHA and the $8000 Tax Credit

What if I told you that I just got a “new” loan program that didn’t require income verification or asset verification? Many of you know what I am talking about — these have been called NINJA loans or NINA loans in the past. “No such thing” was one response from one mortgage guy I asked about it.

Guess what?

They still exist.

Kind of.

The FHA streamline loan program is a no income, no asset loan that allows people who are currently in an FHA loan to take advantage of lower interest rates if they are available without having to completely re-qualify for a new loan.

• No income verification.
• No asset verification.
• Possibly no appraisal depending on how much you have paid down your original loan balance.

FHA Streamline: Qualifying Criteria

The main criteria for participating in the FHA streamline program are that you must live in the property and that you can’t have more than two, thirty day late payments on your existing FHA mortgage in the last 12 months.  some lenders are now requiring a minimum of 620 middle credit score, but not all lenders require a minimum credit score.

Assuming that you live in your house and that you have less than 2 thirty day late payments in the last 12 months on your existing FHA mortgage, you are probably eligible to participate in the FHA streamline program

FHA Streamline Program Without Appraisal

The only way that you will need an appraisal when you go through the FHA streamline program is if your new total loan amount exceeds your original loan amount by 1.5% of your loan amount. So, if you originally had a $100,000 loan, your new loan amount cannot exceed $101,500 or you will need a new appraisal on your property when you go through the FHA streamline program.

FHA Streamline Closing Costs

There are costs involved with the FHA streamline program, but they can either be rolled into your loan or paid by your lender in exchange for a higher interest rate. This is also known as the FHA streamline program with no out of pocket closing costs or the FHA streamline program with no closing costs.

Most often, when a person participates in the FHA streamline program, they will still be in a FHA 30 year fixed rate loan with an interest rate that is lower than what they had before.  Often this reduced interest rate can mean hundreds of dollars of savings each month in interest. Obviously, the FHA streamline program is popular only when interest rates have fallen to the point where it makes sense for people to streamline.

Is the FHA streamline program right for you? Find out by heading over to Zillows Mortgage Marketplace and get your mortgage quote from multiple lenders… possibly even me!

I’ve said it before, but I’ll say it again, over the next 12 to 18 months, we’re going to see a substantial tightening in the credit requirements for FHA loans due to the increasing losses.

If you need an FHA loan to accomplish your real estate plans, do them sooner rather than later.

Calculated Risk: FHA Mortgage Defaults Increase

… A spokesman for the FHA said 7.5% of FHA loans were “seriously delinquent” at the end of February, up from 6.2% a year earlier. Seriously delinquent includes loans that are 90 days or more overdue, in the foreclosure process or in bankruptcy.

FHA Loans

When the subprime market imploded and people starting rushing to FHA, the “chant” was that FHA is the new “subprime.”   FHA originations skyrocketed and anyone who didn’t have a 700 credit score and a downpayment of 5 to 10% was quickly led into FHA.   I remember reading statistics of different banks seeing a 150% jump in FHA loans.

At that point, I had a sneaking feeling that we’d start seeing some of the losses that hit subprime translating over into FHA.   Well,guess what, we are.

The article cited below is about the fact that FHA is experiencing a substantial rise in what are called “Early Payment Defaults.”   What does that mean?   Substantially more of the newly originated FHA loans are having default issues than is typical.

What does that mean going forward?

• Increased losses for FHA
• Tightening underwriting guidelines for FHA loans.
• Higher fees and rates for FHA loans

Fannie and Freddie are already in trouble and now we’re looking at the first signs that FHA is heading for trouble too.

Interesting times….

The Next Hit: Quick Defaults - washingtonpost.com

The last time the housing market was this bad, Congress set up the Federal Housing Administration to insure Depression-era mortgages that lenders wouldn’t otherwise make.

This decade’s housing boom rendered the agency irrelevant. Americans raced to aggressive lenders, seduced by easy credit and loans with no upfront costs. But the subprime mortgage market has crashed and borrowers are flocking back to the FHA, which has become the only option for those who lack hefty down payments or stellar credit. The agency’s historic role in backing mortgages is more crucial now than at any time since its founding.

With the surge in new loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans. In the past year alone, the number of borrowers who failed to make more than a single payment before defaulting on FHA-backed mortgages has nearly tripled, far outpacing the agency’s overall growth in new loans, according to a Washington Post analysis of federal data.

Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.

Trouble at FHA