The NY attorney general’s office said “Mortgage relief companies target homeowners facing foreclosure by promising to restructure their home loans with an affordable loan modification. Cuomo accused these mortgage relief companies of operating in deceptive practices that lure distressed homeowners to pay them for mortgage relief services, yet they often fall short to modify the mortgage.

The FHA Mortgage Solution

First of all FHA has been helping struggling homeowners since 1934. With their flexible FHA guidelines, HUD has been a leader in the foreclosure prevention arena. FHA has solidified a good reputation for rectifying FHA loans in default.  In 2009 the FHA annual report says that “82.7% of the FHA mortgage loans that were 90 days or more delinquent were brought under control.”

To get FHA mortgage relief, you need to contact a HUD foreclosure avoidance counselor at http://www.hud.gov/offices/hsg/sfh/hcc/fc/. There is no fee for their mortgage relief services so you have nothing to lose.  FHA refinance guidelines remain more flexible than conventional loan programs.   For borrowers who don’t have much home equity, they may still qualify for a rate and term FHA refinance at 96.5%.

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.

Detailed instructions on changes to FHA Connection will be issued in a new mortgagee letter. However, lenders should be aware that the requirement for inputting the appraiser ID and the appraisal assignment date in the FHA Connection case number assignment screen will be removed.  Instead, home loan lenders will be required to enter all appraisal data, including the appraiser ID, in the Appraisal Update Screen once the completed appraisal is received by the lender and prior to closing the FHA loan.

The proposed FHA lending changes or new FHA guidelines include:

*  HUD will increase “up front” cash required on a home purchase loans, giving the buyer more “skin-in-the-game.” FHA said it can tap several options, and analysts say it will mean some increase to the current minimum down payment of 3.5%. About 31% of purchase loans done in the first eight months of 2009 had the maximum 96.5% loan-to-value. Another 55% had 95% to 96.5% LTVs for FHA mortgage options.

*  The FHA will raise the minimum credit score for new borrowers. The FHA has yet to determine the minimum “FICO” and may factor in the down payment.

*  HUD will increase compliance and hold FHA lenders accountable for losses associated with loans that do not meet FHA standards. As of Dec. 8, the FHA this year has suspended eight lenders and withdrawn approvals for 270 others.

*  HUD might increase the 1.75% up-front premium and/or annual mortgage premiums. It is asking Congress to raise annual premiums since that would raise capital with the lowest borrower impact, Donovan said.

*  HUD cut allowable seller concessions to 3 % from 6 % in a move to limit incentives to inflate appraised values. The move reduces the money the seller can contribute to a buyer’s closing costs, discount points and other concessions without impacting the buyer’s mortgage.

*  It will boost enforcement and hold FHA lenders accountable for losses associated with loans that do not meet FHA requirements. As of December 8th, the FHA this year has suspended eight lenders and withdrawn approvals for 270 others.

A bill introduced Oct. 1 by Rep. Scott Garrett, R-N.J., would raise the minimum down-payment for FHA loans to 5% and prohibit financing of closing costs. HR 3706, which has 27 co-sponsors, has been referred to the House Financial Services Committee.  Housing Secretary Shaun Donovan, briefing committee members on the administration’s plans Wednesday, said there are several ways to make sure borrowers have more “skin in the game” currently under consideration.  HUD has “made the decision to exercise our authority to increase the upfront cash that a borrower has to bring to the table in an FHA loan,” Donovan said, but there “are several ways to accomplish this, and so we are currently analyzing various options to determine which is the most effective and consistent with our mission.”

Testifying on behalf of the National Association of Realtors, Vicki Cox Golder urged Congress and the administration to “exercise caution before introducing proposals that may have a profound adverse impact on our economic recovery.”  NAR is strongly opposed to HR 3706, she said, because increasing FHA’s down-payment requirements would make it impossible for many borrowers to use the program, and “not add a penny to FHA’s reserves.”  Dan Green, a Cincinnati-based loan officer for Mobium Mortgage Group Inc., said an increase in minimum FICO could have “a much larger impact than increasing down-payment requirements from 3.5 to 5%.  The minimum FICO score for FHA mortgage loans was raised from 500 to 580 earlier this year, he said, although most lenders already have even higher minimums.  “Most consumers are going to walk into their bank, and their bank will say 620″ is the minimum score needed to obtain a mortgage, Green said.

FHA loan programs find themselves in a difficult position, Green said, because Fannie Mae and Freddie Mac continue to tighten their guidelines, and that pushes more borrowers who are less creditworthy into FHA loans.  “They are trying to limit their exposure to the riskiest borrowers,” Green said. “Your median FHA borrower looks decidedly worse today than 18 months ago.  Green noted that Fannie Mae will implement a minimum 620 FICO score and other underwriting changes over the weekend of December 12th as part of its rollout of its Desktop Underwriter Version 8.0 software. 

With claims on its mortgage insurance fund rising, HUD is also considering raising FHA mortgage insurance premiums, Donovan told the committee.  Borrowers currently pay an upfront premium of 1.75%, plus annual premiums of 0% on FHA home loans with loan-to-value ratios of up to 95%. The annual premium on loans with higher LTVs is 0.55%.  Although HUD has the authority to raise the upfront premium to as high as 3% without additional input from lawmakers, annual premiums are at their statutory limits.  Donovan said HUD is requesting authority from lawmakers to raise annual premiums for new borrowers, “as this is one of the most effective means of raising capital” for the FHA’s capital reserve fund, which has dipped below statutory minimums.  Raising the annual premiums of FHA borrowers would likely be a greater hardship than increasing their upfront premiums, since the cost of upfront premiums can be financed into a mortgage, said Faramarz Moeen-Ziai, a mortgage banker at San Ramon, Calif.-based Bank of Commerce Mortgage.

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.