FHA Mortgage Lending Changes

In a recent article, FHA Loan Pro’s indicated there are a few key changes FHA borrowers can expect to see in this coming year. The first FHA mortgage lending guideline change is the down-payment requirement; a change that we’ve heavily covered and seen some borrowers face since late last year. For all new loan submissions after January 1^st, FHA home mortgage purchases now require a down-payment of at least 3.5 %, rather than 3% like they did prior to 2009.

The other changes have been a few note-worthy updates to the FHA appraisal requirements became effective on January 1st 2009. One new product guideline change for 2009 is that more FHA loans will now require two appraisals to be eligible for FHA.  As you may already know HUD now requires FHA lenders to use state certified appraisers for their FHA mortgages. If you missed the story, you can view our previous post here. Essentially, by limiting themselves to state certified appraisers, HUD limits its exposure to possibly exaggerated or over inflated appraisals.

FHA Now Requires 2 Full URAR Appraisals

Just last month, HUD announced a change in requirements for 2nd appraisals that would take effect January 1st of 2009. In the letter supplied by HUD, a 2^nd  appraisal will now be required for all cash out refinances where LTV exceeds 85 % of the appraised value. Before, a second appraisal was only required if the home was located in a declining market, the loan was above $417,000, and exceeded a 95 % loan to value ratio. If you still meet these three requirements, you’ll still need that second appraisal as well.

 

Goverment Mortgage Relief?

According to HousingWire, the short admission yields volumes about the battering Paulson and other outgoing Bush administration officials have taken at the hands of lawmakers and fellow regulators behind closed doors as of late for failing to “do more” to help a growing group of homeowners that cannot afford their mortgage loans.  FHA loans have been carrying too much of the mortgage load and it’s time that the conventional mortgage lenders offer more attractive home financing programs with refinance options and loan modifications.

On November 12, Paulson announced that the Treasury had ditched the asset-management portion of the TARP proposal, opting instead to focus on capital purchases where most needed to revitalized lending activity and to allow banking institutions the chance to earn their way out of the current financial crisis. “I will never apologize for changing an approach or strategy when the facts change,” Paulson told reporters in a question-and-answer session after the announcement at the time.  “The most important thing we can do to mitigate the housing correction and reduce the number of foreclosures is to increase access to lower cost mortgage lending,” he said. “The actions we have taken to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, together with our bank capital program, are powerful actions to promote FHA mortgage lending.” Read more at US Government Waffling on Mortgage Loan Relief?

Obama Claims He Will Protect Homeownership and Crack Down on Mortgage Loan Fraud

Obama and Biden will crack down on fraudulent brokers and lenders. They will also make sure homebuyers have honest and complete information about their mortgage options, and they will give a tax credit to all middle-class homeowners.

• Create a Universal Mortgage Credit: Obama and Biden will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
• Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage lending situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama’s STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
• Mandate Accurate Loan Disclosure: Obama and Biden will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
• Close Bankruptcy Loophole for Mortgage Companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual’s mortgage loan payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.  Obama seeks to eliminate predatory mortgage lending.

 

Mortgage Lending Guidelines Tightening

Richmond Federal Reserve Bank President Jeffrey Lacker said that slowing economic growth and weakening labor markets in the U.S. may prompt banks to further reduce their lending to consumer and firms, thus leading to further credit tightening.  FHA mortgage lending guidelines may implement further restrictions like lower loan to value minimums and higher credit scores. 

“The deterioration of economic conditions is playing a more prominent role in the tightening of credit terms right now than the direct effects of financial market turbulence,” Lacker said in a speech given in Jerusalem on Monday.  Lacker also said that it was “reasonable” to expect the U.S. economy to begin its recovery by 2009. However, the policy-maker added that it was still necessary to keep inflation expectations under control.

“As a recovery begins, the path of least resistance is often to hold the policy rate at a low level until it is completely clear that recuperation is complete,” he said. “It is crucial that we not allow expectations of future inflation to ratchet higher during this recession.”  On Oct. 29, the Federal Reserve decided to cut its interest rate by 50 basis points to 1%.  FHA mortgage rates actually rose after the Fed made the recent rate cuts. 

The move marks the second time in one month that the Fed had decided to cut rates, Earlier in the month, in a co-ordinated move with the European Central Bank, the Bank of England, the Bank of Canada, the Swiss National Bank and Sweden’s Riksbank, the Fed reduced its interest rate by half a percentage point to help counteract the effects of the intensifying financial crisis on the economy.  In his speech, Lacker said that the Fed’s monetary policy may have been too loose for too long in 2003 and 2004 and could have provided “some positive inducement” for mortgage lenders to take risks.

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