FHA Mortgage Loans Update with New HUD Rules for Lenders

Check Mortgagee Letter 2009-12, a note from HUD explaining how FHA mortgage loans are to be originated and administered.  In most cases these FHA letters have little content, but this one is a gem. Clearly HUD is concerned about FHA loan defaults, foreclosures and bad mortgages on the public books.

HUD believes that many FHA mortgage lenders have not lived up to the ethic codes and high standards required with FHA underwriting guidelines. That has become a problem because FHA loans that do not meet FHA mortgage lending standards to the letter are likely to be the very loans which cause FHA losses.   In an effort to eliminate this growing concern, HUD says that it “continues to introduce proactive measures to appropriately manage its risk. Recently, FHA reactivated its Special Work Assessment Teams to conduct single-focus on-site reviews of lenders whose originations are exhibiting signs of distress.”

Many insiders, like FHA Mortgage Guide, believe that HUD will be auditing FHA mortgage lenders to make sure these finance companies are originating FHA loans effectively with HUD’s government standards. HUD also said that it “must hold mortgagees accountable for their lending practices in order to protect the public trust and the FHA Insurance Fund.

The Department expects each mortgagee to exercise the same level of care in originating, underwriting and servicing an FHA-insured mortgage as it would for a loan in which the mortgagee would be entirely dependent on the property as security to protect its investment.   When a mortgagee fails to comply with HUD’s policies and procedures, HUD will take the appropriate action. For example, lenders that materially violate FHA loan program statutes, regulations and handbook requirements may be referred to the Mortgagee Review Board for appropriate sanctions, which may include termination of mortgagee approval.”  

HUD has made it clear that compliance with their FHA loan programs is essential or they will remove you from their mortgage lending system. How would you define reasonable and allowable lending fees for FHA home loans? Previously HUD had allowed anywhere from 1-2 points per transaction. The way the mortgage crisis has played out, it has become imperative for most mortgage brokers and lending companies to be able to offer FHA mortgages for new home buying and refinance transactions.  FHA mortgage rates remains at or below 5% for thirty year fixed rate mortgages, so being FHA-approved is at the top of most marketing lists for mortgage companies because the product remains the cornerstone of lending in 2009 and beyond.

HUD’ Checklist for Originating FHA Mortgage Loans-The lenders must at a minimum meet the following criteria listed below:

ü  Reviews all FHA loans with early payment defaults to try and stave off foreclosure.

ü  Has a comprehensive quality control plan.

ü  Does not engage in fraudulent or false or misrepresentative advertising.

ü  Full documentation demonstrating the stability each borrower employment income

ü  No “excessive charges and unallowable fees to the borrower”.

FHA Mortgage Refinance Loans Improve Rates

FHA refinance loans are a popular government mortgage that streamlines the home refinancing process for consumers. A refinance loan can be considered a useful finance tool that replaces an existing mortgage using the property as collateral to pay off the old mortgage. In most cases borrowers utilize FHA refinance loans for improving interest rates. Cash out refinancing is another popular type of loan that many homeowners use to obtain capital for home repairs, remodeling and debt consolidation.

FHA home loans are a cost-effective options for homeowners who are suffering with an adjustable rate mortgage that increased monthly payments often making owning a home too costly. FHA refinancing may be the most efficient method to avoid a foreclosure or escape a short sale.

Consumers also like FHA mortgages because they do not have FICO score requirements if your debt to income ratio and employment history meets government loan standards set forth by HUD. Many homeowners go through a period in their life when they make their loan payments late.  FHA mortgage lenders may overlook the delinquencies if the borrower indicates that they have recovered and that the proposed loan offers benefits to the borrower. Because FHA mortgage loans do not require much equity, in most cases they are the best option for consolidating first and second mortgages into a one monthly payment.  Continue article >

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