FHA Mortgage Defaults Creating Problems

Posted on April 5, 2010 by admin 
Filed under FHA Credit, FHA First Time Home-Buyers, FHA Guidelines, FHA news, FHA requirements · Tagged:

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 loan 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

Posted on January 28, 2010 by admin 
Filed under FHA Credit, FHA First Time Home-Buyers, FHA Guidelines, FHA news, FHA refinance, FHA requirements · Tagged:

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.

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 Loans and the Tax Credit for First Time Home Buyers

Posted on November 9, 2009 by admin 
Filed under FHA First Time Home-Buyers, FHA Mortgagee Letters, FHA news · Tagged:

FHA lenders have been hoping the tax credit for first time home buyers would get extended.  President Obama signed HR 3548, the Worker, Homeownership, and Business Assistance Act of 2009, legislation which should help FHA loan applicants, but legislation which is likely to be re-done early next year.  The first-time homebuyer tax credit is for first-time purchasers could get as much as $8,000 in tax reductions if only they would please, please buy a home and buy one before December 1st. For homebuyers in 15 states, this was the last down-payment assistance program at least for home buyers in 15 states because the tax credit is considered a down-payment with FHA mortgage loans.

With December 1st soon upon us, the government responded in two ways it extended the deadline until April 30th AND it improved the benefit. What is did not do was increase the first-time write off to $15,000 from $8,000 as some in the real estate industry wanted.  The first-time homebuyer credit is no longer just for first-time homebuyers. The new FHA mortgage program has been expanded to include many current homeowners as well.

The FHA loan program for current homeowners has expanded guidelines: If you have owned a home for five consecutive years out of the last eight and purchase a new principal residence between November 7, 2009 and April 30, 2010, you can get a tax credit of up to $6,500.  One of the qualification factors under the 2009 credit was that you could not have an income of more than $75,000 if single or $150,000 if married. The new rule increases the income limits to $125,000 for singles and $225,000 for joint filers to get the full write-off.

FHA Mortgage Loans Introduced to Stimulate Markets as Housing Recovery Faces Challenges

A recent rise in mortgage rates and rising foreclosures and job losses are just a few of the challenges standing in the way of a lasting recovery, economists say. New FHA loan programs have helped struggling homeowners qualify for mortgage refinancing. In addition FHA announced new financing incentive for 1st time homebuyers with attractive incentives to finance a new home. HUD created these new FHA mortgage lending programs in an effort to stimulate the real estate market that has been sluggish nationwide for several years. With the economy ailing, affordability remains the primary concerns for most Americans considering financing a home.

The US residential real estate market is caught in the worst correction in decades with few reasons to be optimistic as the economy worsens, according to a key housing report released Monday. “Despite unprecedented federal efforts to stimulate the economy and help homeowners make current mortgage payments, house prices continued to fall and home foreclosures continued to mount in most areas through the 1st quarter of 2009,” according to the executive summary of the State of the Nation’s Housing annual report released by Harvard University’s Joint Center for Housing Studies. “While new and existing home sales and single-family starts have shown some signs of stabilizing, ongoing job losses, house price deflation and tighter mortgage underwriting and credit are placing any recovery at risk,” the report said.

“Although there are some signs of improvement or at least steadiness in new construction and sales, housing starts stand near 60-plus year lows, and any life in home sales is coming from distressed foreclosure sales, temporary 1st -time buyer tax credits and low mortgage interest rates for purchase and refinance that moved higher in recent weeks,” said Nicolas Retsinas, director of Harvard’s Joint Center, in a press release. “The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery,” added Eric Belsky, executive director of the Joint Center. “For now, markets remain under considerable stress,” Belsky said.

The bleak study coincided with a separate report from the World Bank warning of more damage in the global economy. This week, investors will be focusing on housing data and any commentary the Federal Reserve offers on the economy. “On the economic front, new and existing home sales should show improvement but from very low levels,” said David Kelly, chief market strategist at JPMorgan Funds. “The recent back-up in FHA mortgage rates, although unwelcome, really should not be enough to prevent pent-up demand and still very good affordability from triggering a housing rebound.” Resource: John Spence, Jeff Moran

FHA Promotes Homeownership with 8 Thousand in Tax Incentives for Homebuyers

In a recent article, Tara-Nicholle Nelson writes about the significance of FHA mortgage loans and tax credits for first time home-buyers. A few weeks ago, it came out that the number of existing home sales had skyrocketed over the first quarter in the areas hardest hit by the foreclosure crisis: they were up 117% in Nevada, 81% in California, 50% in Arizona and 25% in Florida, year-over-year, and Virginia and Minnesota also had double digit increases. FHA mortgage lenders have been frothing at the mouth all year, because with low FHA mortgage rates driven by Fed cuts and tax incentives, FHA lending is stronger than ever. From January to February, prices rose a tiny, but encouraging, .7 %, according to the Federal Housing Finance Agency’s monthly index.

Just last week, the Secretary of HUD announced new federal guidelines for FHA home loans which allow First-Time Homebuyers (FTH) to monetize their $8,000 Obama Tax Credit upfront, for use toward their down payment or closing costs, rather than only after close of escrow. How will this work? No one really knows yet – federal lending guideline changes usually take a month or so to manifest into concrete checklists and phone numbers you can call to take advantage of them. But it looks like state Housing Finance Agencies and HUD-approved nonprofit organizations will be involved, and will provide the upfront funds to borrowers (for a small fee, of course), which they’ll be reimbursed at tax time next year.

However, the author of the article, noted that she has not heard anyone actually suggest that the upfront monetization of the FHA tax credit won’t be effective at stimulating home sales. On the flip-side, the National Association of Home Buyers’ projections show that about 160,000 homes will be sold as a direct result of this new incentive. But there are folks who don’t like it, and their arguments tend to focus on the worry that no-skin-in-the-game borrowers are the sort of problem homeowner who created the market madness by just walking away when their homes devalued. The pestimistic crowd says that that we might be returning to the bad old days of 100 % financing.

FHA loan overview:
This is a new era of mortgage lending than the stated income days of old (old =2005). It wasn’t no-skin-in-the-game borrowers who walked away and created the foreclosure crisis, it was no-skin-in-the-game borrowers who couldn’t afford their escalating mortgage payments who were the problem children of the real estate market. The upfront monetization of the $8,000 tax credit will only be available for FHA loans, which require full documentation of income, impose strict and low debt-to-income ratios and are characterized by low, 30-year fixed interest rates and payments. This is not a return to the subprime era, when you only needed to be human and alive to get a loan (notwithstanding those few times we saw the deceased and the canine get mortgages).

On careful reading of the few details we do have on this program, it’s clear that it does not, in fact, reduce the amount of down payment funds that need to be deposited by the buyer to get an FHA loan. The $8,000 credit cannot, under current law, be used to meet the minimum 3.5% down payment requirement (although gifts from relatives can). The upfront $8,000 is available for home-buyers to use as extra down payment money (to buy more or lower monthly payments), to pay discount points (reducing their interest rates) or to defray closing costs.  That’s it.

This FHA loan program changes the time frame in which First-Time Homebuyers who close escrow by December 1, 2009 will be able to benefit from their tax credit. Frankly, I’d imagine this will mean lots more folks will put the funds into their homes and into making their loans more affordable.