FHA Lenders Receive Warning from Commissioner
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The Mortgage Bankers Association reported that FHA rates should remain affordable in the near future because of concerns in Europe financial problems, but they predict rate hikes in 2011. Most real estate financial advisors agree that low FHA rates are helping the local housing communities recover. Once again HUD has come down hard on FHA lenders over fraud and disclosure negligence. FHA commissioner David Stevens stated in a MBA meeting, “This is a mortgage market surviving purely on life support and sustained by the federal government.” Stevens continued his theme of FHA mortgage reform and made an effort to persuade FHA mortgage lenders to sacrifice the commissions at this time for the good of the industry.
The government agency tightened FHA loan requirements with amendments on the FHA guidelines making qualifying more challenging for new home buyers. Read the original FHA loan article online at > Home Buying Opportunities with Declining FHA Loan Rates
Assumable Loans with FHA
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Did you know that FHA mortgage loans are assumable? This means that if you sell your house, the buyers could actually take over your existing FHA mortgage. Using the “assumable” function with FHA loans extends some leverage to a seller that could potentially pass on a FHA mortgage with an interest rate that is locked well below the market.
According to FHA requirements, home buyers may qualify to assume the seller’s FHA mortgage loan. This is an attractive benefit if FHA rates are higher than your existing FHA loan at the time you’re selling your home. FHA mortgage lending programs provide an important service to buyers, homeowners, and housing markets. FHA has been in the news a lot lately because HUD is looking for new opportunities to rebuild the FHA mortgage reserves.
FHA Mortgage Defaults Creating Problems
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Realtors and mortgage brokers have been utilizing FHA mortgage lending for the last few years. FHA guidelines remain tight in 2010 as DE underwriters are expecting higher credit scores for FHA mortgage submissions.
Many first time home buyers are using FHA home purchase loans to get approved to buy their dream home. HUD reported that February delinquent levels for 90 days late FHA home loans dropped from 9.4% in January to 9.2% in February. Many FHA enthusiasts saw this as a supporting indication that FHA lending programs were moving in the right direction.
According to the Mortgage Bankers Association the FHA loan product had a 3.57% home foreclosure rate in the fourth quarter of 2009. That’s lower than the 4.58% home foreclosure rate for non FHA loans. A few years back, HUD created the Neighborhood Stabilization Program (NSP) in an effort to eliminate the stress from regions that high home foreclosure rates and home abandonment. Through the purchase and redevelopment of foreclosed and abandoned homes and residential properties, HUD moves to stabilize the housing markets and local economies. HUD just announced that the definition of “foreclosure” will be expanded to include homes with FHA mortgages that are 60 or more days in arrears, and “abandonment “means the property has a mortgage at least 90 days delinquent.
Tighter FHA Requirements for FHA Lending
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Expect to see increases in mortgage insurance for FHA mortgage loans typically have a low down payment requirement of only 3.5%, so borrowers must pay for mortgage insurance to offset that risk. Unlike private mortgage insurance, FHA borrowers are able to finance the mortgage insurance, thereby spreading its cost over the loan term.
The first change that will immediately impact borrowers is the FHA’s increase of the required up-front mortgage insurance premium to 2.25% of the base loan amount. This would add an additional $1,447 to a $300,000 mortgage. New Borrowers will see a minimum FICO credit score and 10 % down payment requirements. New borrowers will now be required to have a minimum FICO credit score of 580 to qualify for FHA’s 3.5% down payment program. Borrowers with a credit score below 580, while still able to qualify for a FHA loan, must now put down at least 10% of the purchase price–an amount that may be prohibitive for many borrowers with poor credit.
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The FHA is making an effort to lower its overall risk and improve the financial soundness of its insured loans, which in turn allows for the continued support of home buying in the United States. In doing so the FHA must find a way to keep their insurance fund’s capital ratio returns above the Congressionally mandated 2%, while continuing on their overall mission of aiding borrowers in underserved communities and facilitating the recovery of the housing market. These changes, along with the other FHA reforms will have varying effects on borrowers interested in a FHA home loan. For borrowers with low credit scores, some of these changes, such as the higher down payment percentage, will significantly affect their ability to buy a home. In the short term, the changes may motivate borrowers to lock into the old FHA guidelines before the new changes become effective.
FHA Mortgage Guidelines 10% Down for Low FICOs
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FHA continues to alter their FHA mortgage guidelines in an effort to improve its depleted cash reserves. A few days ago, the Federal Housing Administration unveiled tighter FHA guidelines with changes to the FHA requirements for underwriting new home loans and refinancing. For the first time, FHA credit requirements will penalize applicants with challenged credit. One of the FHA requirements changes will mandate larger down-payments for borrowers with bad credit or low FICO scores. In addition FHA will increase in the upfront mortgage insurance premium to 225 basis points. We also anticipate FHA, to expand their criteria for mortgage refinance guidelines in 2010.
FHA commissioner David Stevens declined to provide any guidance on how much money the changes will raise for the reserve fund. Most of the new FHA guidelines outlined Wednesday will go into effect in the next few months. The 10% down-payment is required for borrowers with FICOs of less than 580. The MIP will be increased in a few months from the current charge of 1.75 basis points.
