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

admin — Tue, 23 Jun 2009 14:46:10 +0000

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 1^st 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 1^st 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 1^st -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

admin — Wed, 03 Jun 2009 19:58:47 +0000

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.

FHA Mortgage Protects Fee Compliance

admin — Wed, 18 Mar 2009 17:53:10 +0000

California based mortgage mitigation company called Interthinx recently extended their regulatory compliance services in an effort to provide added value services to help underwrite and balance FHA mortgage originations. They have introduced their automated solutions for the mortgage industry with a product to help FHA lenders comply with the HUD’s fee limitations on FHA loan programs.

www.youtube.com/watch?v=xqRJ4HwZt3k

See FHA Mortgage Video

The Department of Housing and Urban Development maintains a strict enforcement of fair lending practices that encourage full disclosures to borrowers considering a FHA home loan with a mortgage broker or lender providing a refinance or purchase loan transaction. PredProtect, an 8-year old home financing compliance product, now has an automated analysis designed to aid lending companies with risk management.

HECM Loan Limits Not Helping Enough?

admin — Wed, 03 Dec 2008 16:20:52 +0000

While the 4.3% growth in home equity conversion loan volume isn’t close to what the industry has seen previously, with loan limits raised and fees capped at $6,000 people are expecting a surge of FHA loan applications. “One reason for the lower reverse mortgage volume was the uncertainty over the FHA loan limits,” said Peter Bell, president of NRMLA, the nonprofit trade group based in Washington, D.C. “There were so many people waiting on the sidelines to see what would happen. Why would you want to close a loan a few weeks ago when you could borrow less and get a higher mortgage rate?”

Watch Reverse Mortgage Video

www.youtube.com/watch?v=9UYf_oWE13o

FHA offers home equity conversion mortgages to qualified seniors who are at least 62 years old.
Reverse mortgages are SAFE and at a 2.9% Jan. 2009 interest rate. Why not?

While the industry has seen the HECM loan limits increase to $417,000, Kelly suggests that mortgage lenders vow to push vigorously to lift the ceiling to $625,500 as soon as possible, especially given the exit of all jumbo reverse mortgage products. Raising the FHA loan limits to $417K helps people in certain areas of the country, but in places like California the new mortgage loan limits don’t provide much more benefit.

An interesting part of the from the story is about FHA Commissioner Brian Montgomery’s mother and reverse mortgages, which Kelly describes below: Commissioner Brian Montgomery, who will leave his post when the current administration exits in January, said there is a bright future ahead for reverse mortgage loans, despite the current credit crunch. He has tried to convince his mother to take out a reverse, but she, like many seniors, has been suspicious of the concept. “I told her that I was her son and would always be looking out for her best interests,” Montgomery said. “I also told her that I administered the program for the United States of America and thought it was a pretty good idea.” FHA mortgage lending continues to evolve rapidly, so check back for the latest news and updates.

Hope for Homeowners FHA Loans Not Working

admin — Tue, 11 Nov 2008 22:38:14 +0000

FHA launched the Hope for Homeowners loan plan launched Oct. 1 and initially HUD had projected that this program would help as many as 400,000 struggling borrowers avoid foreclosure over the next few years. But fewer than 100 homeowners applied to the program in October, and the Federal Housing Administration now projects that just 13,300 will be helped in its first year. An FHA official told a mortgage industry conference recently that one large mortgage lender had reported that in a group of 23,000 troubled borrowers only 1,200 would actually be eligible for this new FHA loan program. Hope for Homeowners is designed to allow borrowers who are behind on their payments to refinance into more affordable loans that are insured by the FHA. The idea is to reduce the mortgage balance and, if necessary, the interest rate to cut the monthly payment by 30 percent and to restore the borrower’s equity in the home. When the property is sold, half of any increase in its value goes to the government. But lenders, mortgage investors and borrowers all see drawbacks in the FHA home loan plan and have been slow to embrace it, industry and government sources say. In some cases, the interested parties are waiting, hoping that other potential foreclosure-prevention options, among them a proposal promoted by FDIC. Chairman Sheila Bair, will be more attractive. The initial reaction suggests that the FHA Hope for Homeowners Loan Program could be just the latest in a series of government and industry efforts that have failed to stem the rising tide of foreclosures.

“None of them have worked very well, and we’re all pretty disappointed,” said fair-housing advocate John Taylor, president of the National Community Reinvestment Coalition. The experience has implications for foreclosure-prevention proposals said to be under discussion by the Treasury Department and the White House, including the Bair plan, which would use $50 billion from the $700 billion financial bailout to provide government backing for modified mortgages. The Bush administration is also reportedly considering a proposal by the mortgage industry to split home loan losses with the government, costing taxpayers about $50 billion. White House and Treasury officials didn’t respond to requests for comment. For FHA mortgage lenders who originated the troubled loans, and the investors in mortgage securities who now own most of them, a major downside to the Hope for Homeowners program is that they must record a big loss on each mortgage loan refinanced through the program. For a borrower to participate, the owner of the existing loan – usually investors in mortgage-backed securities – must agree to accept as repayment the proceeds of the borrower’s replacement loan, which isn’t to exceed 90 percent of the value of the home. > Read the Complete Loan Article (Written By E. Scott Reckard)

FHA Mortgage Loans Enable Compensating Factors to Overide Automated Underwriting

admin — Mon, 03 Nov 2008 23:28:58 +0000

During the mortgage refinance process, many borrowers fight to get beyond the application stage for several reasons. Especially during this credit crisis that we are experiencing, getting a mortgage approval can be quite tough to say the least. When an applicant gets rejected by the mortgage lender it may become personal. The common reaction would be to reaccess your mortgage loan application and simply ask “Why wasn’t I approved?”

Fortunately, one of the beauties of FHA mortgages is that the process of manual underwriting and compensating factors. For potential borrowers and those interested in FHA home loans, understanding how compensating factors work will give you the edge you need if your loan is on the borderline of an approval or denial.

Automated and Manual FHA Underwriting Explained
In the mortgage industry, lenders will typically advertise to originators that they use manual underwriting, use “common sense” underwriting, or accept files that “just make sense”. While a number of these are nothing more than just marketing gimmicks, potential borrowers need to understand the advantages of manual underwriting.

Because of technology, when a FHA home loan is submitted electronically, the approval/denial response can be instantaneous. This immediate automated underwriting saves time and reduces processing loads, but it can also be a disadvantage to applicants. With manual underwriting, people actually underwrite the loan rather than a computer program. As a result, if a loan isn’t approved under the DU or LP automated underwriting systems, a manual underwriter can make certain exceptions because of certain compensating factors.