According to FHA mortgage lender Jason Sklar, “Unfortunately, VA and FHA home loans are usually the only options for borrowers seeking a refinance loan.” Sklar continued, “One of the major problems is that there are still millions of homeowners that are seeking refinancing options, but they don’t fit into the government lending boxes.”
The government-insured share of new mortgage loan applications continues to increase compared to conventional home loan applications, according to the weekly application survey of the Mortgage Bankers Association. During the month of October, 33% of home loan applications were for government-insured mortgages, the MBA said. That compares to 10% in October of 2007. The October high water mark for Federal Housing Administration and Veterans Affairs loans is the highest government-loan share of the market seen since 1991. The government share hit a low of 6% in August of 2005.
FAQ – Home Equity Conversion Mortgages (HECMs)
QUESTION: What is the Home Equity Conversion Mortgage Loan Limit?
ANSWER: The HECM loan limit is set at the GSE limit, currently $417,000. However, FHA is considering how the high cost limits apply and whether the home equity conversion mortgage loan limit will vary by area median housing price.
QUESTION: What are the limits on selling other financial products in conjunction with reverse mortgage loans?
ANSWER: The new law prohibits mortgagees or any other party from requiring mortgagors to purchase insurance, annuities or other additional products as a requirement for or a condition of eligibility for HECM insurance by the Secretary. This provision does not restrict title insurance, hazard, flood, or other peril insurance or other products that are customary or normal. HERA requires firewalls in companies that originate HECMS and sell annuities and insurance.
QUESTION: When do these “cross-selling” restrictions apply?
ANSWER: FHA says it will be proposing guidance on this.
QUESTION: Can HECMs be used for purchase transactions?
ANSWER: Yes, a borrower can purchase a home and convert the home equity loan to a HECM in the same transaction. FHA mortgage lenders must follow the guidelines issued by HUD. A Mortgagee Letter on this topic is expected within 30 days.
QUESTION: What is the maximum origination fee permissible on HECMs under HERA?
ANSWER: Today the maximum origination fee is 2% on the maximum claim amount. HERA applies a tiered approach: 2% of the maximum claim amount of the mortgage, up to a maximum claim amount of $200,000, plus 1% of any portion of the maximum claim amounts exceeding $200,000, not to exceed a total origination fee of $6,000
QUESTION: Is counseling required for borrowers who want reverse mortgage loans? Can the originator pay for HECM counseling?
ANSWER: Borrowers must receive sufficient counseling from an independent 3rd party. Reverse mortgage lenders involved in the transaction are prohibited from paying for counseling or providing a lump sum contribution to counseling agencies.
QUESTION: Who is permitted to receive compensation on originating a HECM?
ANSWER: Only approved mortgagees can receive compensation for a home equity conversion mortgage origination. Non-approved mortgagees cannot get paid a fee for a referral for this type of FHA loan. Data was provided by HUD and Mortgage Bankers Association.
Filed under FHA Mortgagee Letters, FHA news · Tagged: Manufactured home
This proposed rule would amend HUD’s regulations governing manufactured homes that are to be the security for Federal Housing Administration (FHA) Title I loans and Title II insured mortgage loans. The proposed rule would permit, as eligible for FHA insurance, home mortgages on manufactured homes to be installed in accordance with the Model Installation Standards, which were the subject of notice and rulemaking that resulted in a final rule published on October 19, 2007. Many FHA mortgage lenders who plan to offer home financing to their customers with manufactured homes should understand these new FHA mortgage lending rules and how they apply to their borrowers.
Acceptance of mortgage loans on these manufactured homes for FHA insurance will provide for better flexibility of design, thereby permitting additional options for affordable housing. This proposed rule would apply to all newly installed manufactured homes that are to be security for Title I and Title II loans and any manufactured home that has been previously set up and erected at another location and that is to be security for a Title I home loan. An existing manufactured house that secures a Title I loan and that has been installed or erected on a home-site in compliance with the manufacturer’s requirements for anchoring, support, stability, and maintenance would be exempt from compliance with this proposed rule, unless it is relocated from the site of its original installation after the effective date of this proposed rule. Read more at HUD.gov
The Hope for Homeowners program has had very little effect in the mortgage refinance market in the effort to provide a lending alternative for foreclosure prevention. HUD reported that it received a total of 111 H4H loan applications in October and were not able to approve any of the loan applications. In addition, HUD said that it approved 88,784 FHA mortgage loans during the last few weeks of October.
Mortgage Brokers Network director, Steve Park said, “Clearly HUD and the participating FHA mortgage lenders are out of touch with what homeowners need for refinancing in this type of economy.” Park added that “good intentions and shallow lending guidelines will not get us out of this foreclosure crisis.”
HUD now says that it will provide new “flexibility” for the Hope for Homeowners program, something that certainly has not happened so far this year. According to HUD, “the HOPE for Homeowners Board of Directors has approved changes to the FHA program to help additional struggling homeowners refinance into more affordable, government-insured mortgage loans. These revisions will lower the product costs for borrowers and FHA mortgage lenders alike while also expanding eligibility by reducing the homeowner’s monthly loan payments.”
Proposed Modifications to HOPE for Homeowners Loans include:
___ Raising the loan to value ratio to 96.5% for some Hope for Homeowners loans;
___ Streamlining the process to remove 2nd mortgages by permitting upfront payments to subordinate mortgage companies
___ Enabling FHA mortgage lenders to extended amortization schedules from thirty to forty years.
“These changes will further encourage lenders to take a hard look at this program before heading down the path to foreclosure and will provide families with another resource to refinance into a loan they can afford,” said FHA Commissioner Brian D. Montgomery. “HOPE for Homeowners will continue to serve as another loss mitigation tool that can be used to help families keep their homes.”
Given that more than 8,000 a day receive foreclosure notices it would be great to have a robust, successful Hope for Homeowners program. In 2008 only 3,794 delinquent conventional borrowers were able to refinance with FHA home loans.
Increasing the Loan-to-Value and Adjusting Debt-to-Income Ratios
The program will increase the loan-to-value ratio (LTV) on Hope for Homeowners loans to 96.5 % for borrowers whose mortgage payments represent no more than 31 % of their monthly gross income and household debt no more than 43 %. This change will expand the number of eligible borrowers. Raising the loan-to-value ratio reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary mortgage servicers. In addition, this FHA loan product will continue to provide borrowers with higher debt burdens a 90 % loan-to-value ratio on their FHA home refinance loans with the Hope for Homeowners. This LTV ratio will include borrowers with debt-to-income ratios as high as 38 and 50 %. In conjunction with the LTV change, H4H will eliminate the trial modification that was previously required. This measure was too complicated and required delicate negotiations among the existing mortgage lenders, the new H4H lender, and the borrower.
Immediate Payments to Second Mortgage Companies
H4H will offer second mortgagors an immediate payment in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lienholders who released their liens were only eligible to receive a small recovery payment when the home owned by the H4H borrower was sold. Given the amount of time that would pass between the creation of the H4H and the ultimate sale of the home, as well as the tremendous market uncertainties, subordinate lien companies were not guaranteed any return at all. To address this problem, the second mortgage companies may now receive an immediate payment at the time the H4H loan is originated.
Extending Loan Terms from 30 to 40 years
To assure that borrowers are put into the most affordable monthly payment possible, HOPE for Homeowners will permit FHA mortgage lenders to extend the mortgage term from 30 to 40 years. For borrowers with very high mortgage and household debt loads, extending out the amortization period may reduce their monthly payments enough to make it possible for them to qualify for this rescue product and save their homes.
Consistent with statutory and regulatory requirements, borrowers must continue to meet the following criteria:
___ Their mortgage must have originated on or before January 1, 2008.
___ They cannot afford their current loan.
___ They must have made a minimum of six full payments on their existing first mortgage and did not intentionally miss mortgage payments.
___ The FHA home loan amount may not exceed a maximum of $550,440.
___ The Initial Mortgage Insurance Premium is 3% and the Mortgage Insurance Premium Paid Annually will be 1.5 %.
___ The mortgage holders of existing mortgage loans must waive all pre-payment penalties and late payment fees.
___ They cannot own a 2nd home.
___ They did not knowingly or willfully provide false information to obtain the current mortgage loan, and they have not been convicted of fraud in the last 10 years.
___ They must follow FHA mortgage underwriting policy of fully documentation that ensures income and employment.
The FHA HOPE for Homeowners Loan program was authorized by the Housing and Economic Recovery Act of 2008. A Board of Directors was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new insured FHA mortgage loan. The program began October 1, 2008 and will end September 30, 2011.
The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry. You can read more and get additional information about the FHA HOPE for Homeowners Loans at www.hud.gov/hopeforhomeowners.
The mortgage game continues to change just when you thought you had seen the evolution of the mortgage loan completed. FHA home loans may still be available from a few lenders and FHA mortgage lending institutions. While some may prefer the idea of a physical name brand bank such as Wells Fargo or WAMU, many borrowers continue to utilize traditional mortgage brokers to fulfill their home financing needs. Recently, FHA has surged in popularity because FHA has provided refinancing opportunities for borrowers who need bad credit mortgage loans.
Unfortunately wholesale mortgage brokers find themselves at the mercy of the economy more than ever. Just a few years ago, homeowners relied on home equity loans to consolidate debt or get cash out to finance their family needs, but now they can’t find a second mortgage to save their life.
To many homeowners, the only hope of lower their mortgage payment could come from a loan modification negotiated from a foreclosure prevention company. These companies charge a few grand to renegotiate the interest rates on your home loan if you can document a financial hardship.
FHA launched the Hope for Homeowners loan plan launched Oct. 1 and initially HUD had projected that this program would help as many as 400,000 struggling borrowers avoid foreclosure over the next few years. But fewer than 100 homeowners applied to the program in October, and the Federal Housing Administration now projects that just 13,300 will be helped in its first year. An FHA official told a mortgage industry conference recently that one large mortgage lender had reported that in a group of 23,000 troubled borrowers only 1,200 would actually be eligible for this new FHA loan program. Hope for Homeowners is designed to allow borrowers who are behind on their payments to refinance into more affordable loans that are insured by the FHA. The idea is to reduce the mortgage balance and, if necessary, the interest rate to cut the monthly payment by 30 percent and to restore the borrower’s equity in the home. When the property is sold, half of any increase in its value goes to the government. But lenders, mortgage investors and borrowers all see drawbacks in the FHA home loan plan and have been slow to embrace it, industry and government sources say. In some cases, the interested parties are waiting, hoping that other potential foreclosure-prevention options, among them a proposal promoted by FDIC. Chairman Sheila Bair, will be more attractive. The initial reaction suggests that the FHA Hope for Homeowners Loan Program could be just the latest in a series of government and industry efforts that have failed to stem the rising tide of foreclosures.
“None of them have worked very well, and we’re all pretty disappointed,” said fair-housing advocate John Taylor, president of the National Community Reinvestment Coalition. The experience has implications for foreclosure-prevention proposals said to be under discussion by the Treasury Department and the White House, including the Bair plan, which would use $50 billion from the $700 billion financial bailout to provide government backing for modified mortgages. The Bush administration is also reportedly considering a proposal by the mortgage industry to split home loan losses with the government, costing taxpayers about $50 billion. White House and Treasury officials didn’t respond to requests for comment. For FHA mortgage lenders who originated the troubled loans, and the investors in mortgage securities who now own most of them, a major downside to the Hope for Homeowners program is that they must record a big loss on each mortgage loan refinanced through the program. For a borrower to participate, the owner of the existing loan – usually investors in mortgage-backed securities – must agree to accept as repayment the proceeds of the borrower’s replacement loan, which isn’t to exceed 90 percent of the value of the home. > Read the Complete Loan Article (Written By E. Scott Reckard)
Most mortgage executives would agree that FHA home loans have replaced sub-prime for offering mortgage products to borrowers with bad credit. Recently, many would argue that FHA loans have also replaced Fannie and Freddie mortgage products for borrowers seeking prime rate mortgages.
Many FHA lenders have commented that the banks are putting too much pressure on FHA mortgage loans. According to CFB Loan Services, President, Ben Lyons, FHA has become the Alpha home loan because they have a financing option for most types of borrowers.” Lyons continued, but you have to wonder when the banks are going to step up and lend.” In terms of considering non-prime credit evaluations, some mortgage lenders have either abandoned completely from limited and no credit borrowers or have implemented various pricing hits for these types of mortgage loans.
More than 3 million homeowners currently find themselves in mortgage trouble, and another 2 million are expected to join them. Among the 10 states with the highest home foreclosure rates Nevada, Florida, Michigan, Colorado Ohio and California are the states that house the most distressed homeowners looking for options to prevent foreclosures. Most political figures believe now that government needs to be involved on some level for bailing out homeowners to protect real estate and the housing market.
John McCain recently called on FHA to initiate a new loan work-out program to transition struggling homeowners into more affordable FHA mortgage loans. He even proposed to spend $10 billion aiding sub-prime homeowners with loan modifications. Congress put together a similar package, which industry insider’s claim would rescue 400,000 borrowers. President elect, Barack Obama has suggested he will budget $10 billion into a fund to stop foreclosures and he’s indicated he is willing to give another $10 billion to cities to buy foreclosed houses. Polls show considerable resistance to a government bailout of mortgage loans. Over 30% homeowners don’t owe any money on their properties and a majority of those who have a mortgage are not delinquent presently.