There continues to be a lot of talk about FHA mortgage lending in the news. The housing sector continues to sputter and interest rates are rising. FHA home loans are government-insured mortgages that have supported much of the mortgage industry since the sub-prime mortgage crisis, may not be as affordable in the near future. FHA has pledged to raise insurance premiums in April and many approved FHA lenders are reporting higher closing costs and 3rd-party lending fees.
FHA loans are very popular with first time homebuyers and borrower who are unable to qualify because of 10-20% down-payments that are common with traditional loans. FHA is also the go-to loan for borrowers with less than perfect credit. The FHA loan requirements have always been more flexible than conventional mortgages until recently. Many lenders have announced minimum credit scores for borrowers seeking FHA home loans.
FHA requires at least 3.5%, while in most cases conventional mortgages typically require 10 to 20% more. Last November, lenders implemented minimum credit score of 500 and for borrowers that had credit scores below 580 would have to come up with a 10% down-payment.
Many non-prime and bad credit mortgage programs have been discontinued, but for many struggling consumers, FHA is the only chance to qualify for mortgage rate refinancing or home buying because of the flexible credit criteria. Wells Fargo recently lowered its minimum required credit score for a FHA loan to 500 from 600. The National lender also lowered their required debt-to-income ratio to 43%. For FHA borrowers with less than perfect credit, the Wells Fargo increased their minimum down-payment requirements to 10%.
Since the sub-prime mortgage crisis began in 2008, “FHA has been the only haven for borrowers,” said Sean Welsh, a senior loan officer at Campbell Financial Services in West Haven, Conn. But the agency’s capital reserves have fallen below levels mandated by Congress, which is why the rise in the annual insurance premium was authorized. Mr. Welsh said the increase, while “not too bad,” was still “additional pain” atop the November change.
FHA mortgage lending continues to play a major role in home financing and refinancing for the American homeowners. The state of FHA lending remains positive as the loan defaults are declining and interest rates remain more affordable than any other time in deades.
|The Department of Housing and Urban Development spokesman Lemar Wooley said in a recent interview with NPR that FHA paid about $12.8 billion on almost 100,000 such claims on foreclosed homes in 2010. The average FHA mortgage was $128,000 per claim. In 2009 FHA paid on 70,000 claims at an average cost per FHA loan was $117,000 totaling almost $8.2 billion.
Will FHA mortgage loan originations rise in 2011? Most analysts believe that FHA loan originations will decline because rates are predicted to rise. However, the popularity of FHA lending should continue to increase.
It is no secret that FHA home mortgages have become very popular since the mortgage industry crashed in 2006. Since then FHA mortgage lending has increased about 30% of the total mortgage market-share. FHA lending continues to have a lower foreclosure rate than conventional mortgages. At the end of the 3rd quarter of 2010, the foreclosure rate for all home mortgages was 4.39% compared to 3.32% for FHA mortgage loans. FHA rates remain extremely low and the cost for FHA refinancing continues to be less than conventional lending.
Bank of America closed their wholesale mortgage lending leaving many FHA lenders and brokers pondering their next step. BofA eliminated mortgage broker access to their FHA loan programs including FHA mortgages. Remember that Bank of America Home Loans abandoned wholesale lending back in 2007, but resumed following their purchase of Countrywide Home Loans. Once again the lending giant has quit wholesale mortgage business.
Other banks have made a similar decision, citing the greater likelihood of broker-originated loans to end up in default. Studies indicate that home loans originated by a bank employee have less of a chance of defaulting based on several other published lender reviews. According to BofA president Doug Jones, “Bank of America remains committed to purchasing and financing FHA home loans from Correspondent Lending companies, including those approved to originate loans from mortgage lenders.” FHA loan rates continue to fall to record levels, so most people in the mortgage industry still consider FHA mortgage lending a significant opportunity looking ahead to loan business in 2011 and 2012.
Many mortgage brokers and FHA lenders are privately concerned about the prospect of FHA loan limits being reduced significantly in 2011. In high cost states like California, Virginia, New York and Colorado, the reduced loan limits could eliminate many homeowners from FHA loan eligibility. According to Shawn Downs, a Colorado mortgage lender who founded Downs Financial, “Unfortunately consumers from all types of neighborhoods may be unable to refinance if Congress decides to lower the loan limits on government loans next year.” Downs continued, “HUD must protect themselves against rising foreclosure rates, but lowering the FHA limits could end of backfiring and cause loan defaults to spike as many homeowners have mortgages with low rates that are about to reset into a higher rate that is variable.” The reality is that there is a very good chance that 2011 FHA loan limits could be quite a bit lower and this may prevent borrowers in higher priced markets from home buying or even refinancing.
The Wall Street Journal reports that HUD is strongly considering lowering the FHA loan limits. Unless Congress extends the current mortgage limits, FHA limits in high cost areas will likely be reduced to $625,000. This amount may provide many homeowners with the mortgage amounts needed to purchase pricier homes, but in areas such as New York and San Francisco, borrowers may be limited to conventional mortgage loans. Current FHA loan limits are set to expire until December 31, 2010 and many real estate professionals are starting to voice their concerns. Most lenders and realtors strongly back Congress to pass an extension, or announce higher 2011 loan limits by early next month. Otherwise, FHA lenders may be reluctant to originate and underwrite FHA home loans at current loan limits.
Filed under FHA Articles, FHA Guidelines, FHA Mortgage Articles, FHA news · Tagged: FHA lending, FHA mortgage insurance, FHA requirements
Why would HUD decide to raise FHA mortgage costs at a time when the economy and the housing sector nationally are struggling so much? Just a few years ago, FHA home loans were considered a financing dinosaur. FHA loans were nearly considered obsolete because they were time-consuming and more regulated, and sellers were usually not comfortable with FHA financing being written into the sales contract, because they knew at the time that the appraisal requirements and timeline for underwriting would drag out the process for closing the loan. Times have changed, and FHA has automated the FHA home loan process.
Today, an FHA mortgage remains the only low down-payment lending product, requiring just 3.5% from borrowers. Just five years ago, FHA loans had a market share of only 5%. In 2010, FHA lending accounts for about 30% of all home loan originations nationally. This surge of mortgage loan volumes has increased the pressure on the FHA Mortgage Insurance Fund. FHA is required to maintain this emergency fund of reserves above 2% based on all of its insured mortgages. This year we saw the reserves fall well below the 2% minimum and HUD has been forced to take drastic steps, like tighten the FHA guidelines.
FHA Mortgage Lending Back in Style
In an effort to preserve the sacred FHA loan program, HUD announced it will be raising its annual mortgage insurance premium from 0.55 % of the mortgage amount to 0.90% (for loan to values higher than 95%) or 0.85% (for LTVs lower than 95 %). This insurance premium hike will go into effect, October 4th, 2010. In an effort to save face, FHA will be lowering their upfront mortgage insurance to compensate homeowners for their rising monthly payments. This is good news for new homebuyers because the fees are dropped to 1% of the loan amount from 2.25%. Overall, it looks to add $300 million a month to the insurance fund by taking these actions.
FHA Borrowers to Pay More Monthly
So what does that mean to FHA buyers come October? It means they will be paying more each month. For example, let’s take a $250,000 purchase. Under the current FHA mortgage insurance framework, the upfront premium would be $5,428 for a total loan amount of $246,678. The monthly mortgage insurance would be $110.57. Take an interest rate of 4.625%, and the principal and interest payment would be $1,268.27. Add the $110.57 and you get $1,378.84.
Under the new FHA requirements, the new upfront amount would be about $2,500 on a FHA mortgage loan amount of $250,000. However, the monthly insurance jumps to $180.94. Take the same interest rate, and the principal and interest payment decreases to $1,252.76. But with the higher premium, that total payment comes in at $1,433.70, an increase of almost $55 a month. To a borrower who is just barely qualifying, that can have an effect. It also puts into play taking another look at private mortgage insurance as an alternative for the borrower. These types of adjustments shouldn’t be surprising as FHA tries to adjust to the marketplace. It recently released its quarterly report to Congress, and it shows just how much FHA has become a part of the mainstream when it comes to mortgage lending.
The FHA Loan Pros suggested that former Treasury Secretary Hank Paulson was in favor of limiting FHA mortgage lending to lower income Americans that were seeking with reduced home loan amounts. They believe he wants to keep the price of the insurance commensurate with the risk being taken on the FHA loans. In other words, take FHA back to where it was only a few years ago, when private lending was as attractive or more attractive to most borrowers and FHA had a relatively small part of the market. Today, most FHA lenders are willing to take on the kind of risk FHA does would have to pay its investors a lot more to make those loans than FHA currently pays its investors. The playing field must be leveled and our infatuation as a society with home ownership must end.
HUD continues to make significant effort to clean up FHA mortgage lending. With FHA rates reporting all-time lows and flexible FHA guidelines, now is not a good time for a mortgage company to lose their ability to origination FHA mortgage loans. Recently, the FHA Mortgage Review Board pulled its approval stamp from 905 national FHA mortgage lenders for 12 months. That means those FHA lenders cannot sell low-interest, FHA-approved mortgages to home buyers over the next 12 months or until their FHA certification has been restored. “Lenders should know by now that FHA will not tolerate fraudulent or predatory lending practices,” said David Stevens, FHA commissioner. “Any approved FHA lender that does business with us must follow our standards. If we determine that our partners are not playing by the rules, we will take action – it’s that simple.”
According to DSNews.com, So far this year the MRB has taken action against nearly1,500 approved FHA mortgage loan companies who failed to meet FHA loan requirements. A notice was published in the Federal Register with cited actions that included reprimands, probations, suspensions, withdrawals of approval, and civil money penalties. The board said it voted to immediately withdraw its approval because the 905 lenders were not in compliance with the department’s annual recertification requirements.
An additional 147 FHA lenders were said to have failed to timely meet requirements for annual recertification of HUD/FHA approval, but are now in compliance. The board voted to give these FHA lenders an opportunity to settle the matter by paying a $3,500 civil money penalty without admitting fault or liability.
The HUD Reform Act of 1989 established the MRB. The board’s primary purpose is to monitor approved FHA mortgage lenders for violations of the agency’s program requirements. The question is — Will the lenders survive for a year without the ability to originate FHA home mortgage loans?
Filed under FHA Mortgage Articles, FHA news, Published Articles · Tagged: 1st time homebuyers, FHA loan programs, FHA mortgage financing
The Federal Housing Administration has been insuring home loans for 1st time homebuyers since 1934. The government created the FHA loan programs to promote homeownership and to ensure fair lending for all Americans.
FHA mortgage interest rates are fixed and there is never a pre-payment penalty with a FHA home loan. Buying a home can be a costly experience, so first time home-buyers have the ability to preserve capital with FHA loans because borrowers can finance up to 96.5% loan to value. That means that a new home buyer can get into a home with only a $3,500 down-payment.
There is a lot to consider with FHA mortgage financing, but an experienced FHA lender or licensed loan officer should be able to shed some light on the pros and cons of a FHA mortgage. The $8000 first time home-buyer tax credit expired April 30th, but the record low rates should be enough of an incentive to become a homeowner. Read the original FHA mortgage advice article online > FHA Home Loan Options for 1st Time Homebuyers.