FHA Loan Expert Blog

(e) Requirements of Insured Mortgages- To be eligible for insurance under this section, a refinanced eligible mortgage shall comply with all of the following requirements:‘

 (1) LACK OF CAPACITY TO PAY EXISTING MORTGAGE-‘

  (A) BORROWER CERTIFICATION-‘

   (i) IN GENERAL- The mortgagor shall provide certification to the Secretary that the mortgagor has not intentionally defaulted on the mortgage or any other debt, and has not knowingly, or willfully and with actual knowledge, furnished material information known to be false for the purpose of obtaining any eligible mortgage.‘
   
   (ii) PENALTIES-‘
   
    (I) FALSE STATEMENT- Any certification filed pursuant to clause (i) shall contain an acknowledgment that any willful false statement made in such certification is punishable under section 1001, of title 18, United States Code, by fine or imprisonment of not more than 5 years, or both.‘
    
    (II) LIABILITY FOR REPAYMENT- The mortgagor shall agree in writing that the mortgagor shall be liable to repay to the Federal Housing Administration any direct financial benefit achieved from the reduction of indebtedness on the existing mortgage or mortgages on the residence refinanced under this section derived from misrepresentations made in the certifications and documentation required under this subparagraph, subject to the discretion of the Secretary.‘
    
  (B) CURRENT BORROWER DEBT-TO-INCOME RATIO- As of March 1, 2008, the mortgagor shall have had a ratio of mortgage debt to income, taking into consideration all existing mortgages of that mortgagor at such time, greater than 31 percent (or such higher amount as the Board determines appropriate).‘
  
 (2) DETERMINATION OF PRINCIPAL OBLIGATION AMOUNT- The principal obligation amount of the refinanced eligible mortgage to be insured shall–‘
 
  (A) be determined by the reasonable ability of the mortgagor to make his or her mortgage payments, as such ability is determined by the Secretary pursuant to section 203(b)(4) or by any other underwriting standards established by the Board; and‘
  
  (B) not exceed 90 percent of the appraised value of the property to which such mortgage relates.‘
  
 (3) REQUIRED WAIVER OF PREPAYMENT PENALTIES AND FEES- All penalties for prepayment or refinancing of the eligible mortgage, and all fees and penalties related to default or delinquency on the eligible mortgage, shall be waived or forgiven.‘
 
 (4) EXTINGUISHMENT OF SUBORDINATE LIENS-‘
 
  (A) REQUIRED AGREEMENT- All holders of outstanding mortgage liens on the property to which the eligible mortgage relates shall agree to accept the proceeds of the insured loan as payment in full of all indebtedness under the eligible mortgage, and all encumbrances related to such eligible mortgage shall be removed. The Secretary may take such actions, subject to standards established by the Board under subparagraph (B), as may be necessary and appropriate to facilitate coordination and agreement between the holders of the existing senior mortgage and any existing subordinate mortgages, taking into consideration the subordinate lien status of such subordinate mortgages.‘
  
  (B) SHARED APPRECIATION-‘
  
   (i) IN GENERAL- The Board shall establish standards and policies that will allow for the payment to the holder of any existing subordinate mortgage of a portion of any future appreciation in the property secured by such eligible mortgage that is owed to the Secretary pursuant to subsection (k).‘
   
   (ii) FACTORS- In establishing the standards and policies required under clause (i), the Board shall take into consideration–‘
   
    (I) the status of any subordinate mortgage;‘
    
    (II) the outstanding principal balance of and accrued interest on the existing senior mortgage and any outstanding subordinate mortgages;‘
    
    (III) the extent to which the current appraised value of the property securing a subordinate mortgage is less than the outstanding principal balance and accrued interest on any other liens that are senior to such subordinate mortgage; and‘
    
    (IV) such other factors as the Board determines to be appropriate.‘
    
  (C) VOLUNTARY PROGRAM- This paragraph may not be construed to require any holder of any existing mortgage to participate in the program under this section generally, or with respect to any particular loan.‘
  
 (5) TERM OF MORTGAGE- The refinanced eligible mortgage to be insured shall–‘
  
  (A) bear interest at a single rate that is fixed for the entire term of the mortgage; and‘
  
  (B) have a maturity of not less than 30 years from the date of the beginning of amortization of such refinanced eligible mortgage.‘
  
 (6) MAXIMUM LOAN AMOUNT- The principal obligation amount of the eligible mortgage to be insured shall not exceed 132 percent of the dollar amount limitation in effect for 2007 under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a property of the applicable size.‘
 
 (7) PROHIBITION ON SECOND LIENS- A mortgagor may not grant a new second lien on the mortgaged property during the first 5 years of the term of the mortgage insured under this section, except as the Board determines to be necessary to ensure the maintenance of property standards; and provided that such new outstanding liens (A) do not reduce the value of the Government’s equity in the borrower’s home; and (B) when combined with the mortgagor’s existing mortgage indebtedness, do not exceed 95 percent of the home’s appraised value at the time of the new second lien.‘
 
 (8) APPRAISALS- Any appraisal conducted in connection with a mortgage insured under this section shall–‘
 
  (A) be based on the current value of the property;‘
  
  (B) be conducted in accordance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq.);‘
  
  (C) be completed by an appraiser who meets the competency requirements of the Uniform Standards of Professional Appraisal Practice;‘
  
  (D) be wholly consistent with the appraisal standards, practices, and procedures under section 202(e) of this Act that apply to all loans insured under this Act; and‘
  
  (E) comply with the requirements of subsection (g) of this section (relating to appraisal independence).‘
  
 (9) DOCUMENTATION AND VERIFICATION OF INCOME- In complying with the FHA underwriting requirements under the HOPE for Homeowners Program under this section, the mortgagee shall document and verify the income of the mortgagor or non-filing status by procuring (A) an income tax return transcript of the income tax returns of the mortgagor, or(B) a copy of the income tax returns from the Internal Revenue Service, for the two most recent years for which the filing deadline for such years has passed and by any other method, in accordance with procedures and standards that the Board shall establish.‘
 
 (10) MORTGAGE FRAUD- The mortgagor shall not have been convicted under Federal or State law for fraud during the 10-year period ending upon the insurance of the mortgage under this section.‘
 
 (11) PRIMARY RESIDENCE- The mortgagor shall provide documentation satisfactory in the determination of the Secretary to prove that the residence covered by the mortgage to be insured under this section is occupied by the mortgagor as the primary residence of the mortgagor, and that such residence is the only residence in which the mortgagor has any present ownership interest.‘

Taking a look at the FHASecure mortgage loan again here from an insider’s perspective.  What we’re seeing is that FHA lenders are somewhat hesistant to offer the FHASecure mortgage loan for a couple of reasons.

One reason an FHA lender doesn’t want to rush out and offer an FHASecure mortgage loan is the potential problem for delinquency.  It is true that the program is sponsored by HUD, although in the event of future default, each FHA lender is evaluated based on the total percentage of FHA loans in default compared to the total FHA loans originated.  The addition of FHASecure will arguable increase the likelihood that FHA default rates for that FHA lender could increase somewhat.  This is a present problem for the FHASecure lenders - or for those FHA lenders who might otherwise offer the FHASecure refinance.

At least those are my thoughts on the FHASecure refinance at this point.  I’m sure we will see more FHASecure lenders entering into the FHA refinance market for FHASecure as time goes on.

Who wants to be the FHASecure frontrunner?  That remains to be seen.

Washington, DC - The U.S. House of Representatives today overwhelmingly passed H.R. 1852, the “Expanding American Homeownership Act of 2007,” which will revitalize the Federal Housing Administration (FHA), a federally insured loan program that for over 60 years has been a reliable source of affordable fixed rate mortgage loans, especially for first-time homebuyers.  The measure, originally introduced by Representative Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and Barney Frank, Chairman of the Financial Services Committee, will enable FHA to serve more subprime borrowers at affordable rates and terms, recapture borrowers that have turned to predatory loans in recent years, and offer refinancing loan opportunities to borrowers struggling to meet their mortgage payments in the midst of the current turbulent mortgage markets.

“There is an affordable housing crisis in America.  In recent months, that crisis has exploded beyond the poorest renters and homeowners, to threaten the domestic economy.  H.R. 1852 is a necessary step in walking us back from the brink and in the direction of meeting the housing needs of all Americans,” said Chairwoman Waters.

“A revitalized FHA program will help future homeowners realize the dream of home ownership, and will prevent many first time and inexperienced home buyers from being pushed into loans that are unaffordable or difficult to understand,” said Chairman Frank.  “The bill we passed today will help people all across America because we have enacted provisions to allow the FHA to insure loans in high cost areas.”

Specifically, the bill includes the following important provisions:

Lower Down Payments.  Authorizes zero and lower down payment loans for borrowers that can afford mortgage payments, but lack the cash for a required down payment.

Housing Counseling.  Authorizes more than double the current funding level for housing counseling, to help subprime homebuyers and borrowers late on mortgage loan payments.

Subprime borrowers.  Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers, without authorizing unnecessary fee hikes on such borrowers.

Reverse Mortgages.  Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses, by removing the loan cap to avoid program shutdowns, raising loan limits, and by reducing the maximum fee lenders can charge for these loans.

Multifamily Loans. Raises FHA multifamily loan limits, so these loans can fully fund construction costs in high cost areas, and enhances sale of foreclosed FHA rental housing loans to localities, so that affordable housing can be maintained in local communities.

Affordable Housing Fund.  Authorizes up to $300 million a year from the bill’s excess profits for affordable housing, instead of returning such funds to the General Treasury.

Higher Loan Limits.  Adopts the Frank/Miller/Cardoza amendment that would raise FHA single family loan limits, which now bar loans above 95% of the median home price in each local area and shut FHA out of higher cost home markets.  The amendment raises the FHA loan limit in each area to the lower of (a) 125% of the local area median home price or (b) 175% of the national GSE conforming loan limit.  The amendment also retains the bill’s provision for a nationwide FHA loan floor of 65% of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”
 
In addition, the House adopted an amendment to the bill to direct FHA to make available refinancing loans to existing qualified homeowners who are in default or at risk of default due to rate resets or mortgage market conditions, and to authorize lower down payments for such purpose.  The amendment also includes provisions to address problems arising from inflated appraisals.

(source=house.gov/apps/list/press/ financialsvcs_dem/press0918072.shtml)

There was a one hour and seven minute FHA Secure conference call last Wednesday September 12, 2007.  Since there were only 400 lines available, I’m guessing a lot of you missed the FHASecure training call.  Thankfully, the FHA Loan Expert Blog has a copy of the call to share with you.  Enjoy!

FHASecure Training Call

All –

Conference call briefing and question/answer session on FHASecure:

Based on the volume of inquiries our FHA Call Center is receiving on FHASecure, we believe that all of you in the industry may have more questions that have surfaced since we published the mortgagee letter.  Therefore, we’d like to invite you and your members and/or affiliates to participate in a briefing and question/answer session on FHASecure.  

The call is scheduled for Wednesday, September 12, 2007 at 1.00 pm (Eastern Time).  There will be 400 lines available, and they will be offered on a first-come, first-serve basis. 

The call-in number is: (866) 207-0378 

The code is: 16526926

Thanks and we look forward to having you participate in the call!

AND

MBA bimonthly conference call with senior FHA staff for MBA members:

MBA is pleased to announce a bimonthly conference call with senior Federal Housing Administration staff for MBA members.  These meetings provide an excellent opportunity for members to learn first hand about changes and developments to the FHA’s single-family program from key decision makers in the Administration. 

The first meeting — September 18 at 2:00 p.m. E.T. — provides members with important information regarding the recently-announced “FHA Secure” initiative, which seeks to enhance FHA’s refinancing program in order to assist homeowners at risk of foreclosure.  FHA will also discuss the recently announced transition to risk-based pricing for mortgage insurance.

Each 90-minute meeting includes a general question-and-answer time set aside to allow members the opportunity to address specific issues they are facing in the day-to-day business of FHA lending.

Members Who Should Participate

• Wholesale and retail originators
• Brokers and loan correspondents
• Residential underwriting professionals
• Credit policy professionals
• Quality assurance professionals
• Individuals interested in learning about current government housing programs

The first conference call is scheduled for Tuesday, September 18 at 2:00 p.m.  Subsequent calls take place on the third Tuesday of every other month thereafter. 

AND

9th Annual Mortgagees Conference:

September 24-25, 2007 - Washington DC. 9th Annual Mortgagees Conference. Top program directors, including HUD’s Assistant Secretary for Housing - Federal Housing Commissioner Brian D. Montgomery, will lead the discussions on new FHA developments, like FHASecure, and Risk Based Premiums along with private lenders, and servicing experts. This year’s program also features a special “HECM 101″ add-on session for lenders and servicers interesting in FHA’s booming reverse mortgage program. For details and program brochure, call: 301-657-8220 or visit the website.

June 28, 1934 was quite a day.  That’s when the National Housing Act established the Federal Housing Administration (FHA) to insure loans for construction, renovation or repairs of homes.  Let’s take a look at some housing history around the web and particularly, what we find on the history of the Federal Housing Administration (FHA).

From Questia.com we read:

In the United States, housing problems—in particular the growth of slums—became acute during the 19th cent. in the cities of the eastern seaboard and in the larger Midwestern cities. A leading cause was the heavy immigration from Europe that began in the middle of the 19th cent. and reached a peak at the turn of the century. The first housing law (the 1867 New York City tenement house law) was revised in 1879 to prohibit windowless rooms. The findings of a tenement house commission resulted in a new law in 1901, requiring better provision for light and ventilation, fire protection, and sanitation. Most U.S. city and state housing laws in the following years were based on those of New York City.

Until World War I there was no government housing in the United States. Then temporary dwellings were put up for defense workers. The U.S. government lapsed into almost complete inaction with regard to building housing until the advent of the New Deal. The National Housing Act (1934) created the Federal Housing Administration (FHA) to undertake a nationwide system of home loan insurance. It also established, by means of mortgage insurance regulation, minimum standards for construction, for design, and for location.

Low-cost housing projects, including farm-family homes sponsored by the Resettlement Administration, were coordinated in 1937 under the U.S. Housing Authority, which financed urban low-rent and slum clearance developments by making loans at low interest rates. Such loans were later extended to rural housing. The Lanham Act (1940) authorized federal operation of a large-scale housing program for defense workers.

To unify the many federal housing agencies, President Roosevelt created (1942) the National Housing Agency, which included the Federal Public Housing Authority, the Federal Home Loan Bank Administration, and the FHA. But the total wartime construction of permanent homes was far below peacetime levels, while the demand for housing rose sharply with a high marriage rate, migration from farms to cities, greater buying power, and later the return of veterans. Complicated by building codes, union practices, and labor and material shortages, the housing deficiency remained serious after the war, and federal rent controls continued for some time.

A national housing policy began to emerge when Congress passed the Housing Acts of 1949 and 1954, aimed at easing the housing shortage and eliminating slums; their goal was a decent home for every family. The Housing and Urban Development Act of 1965 created a separate cabinet-level Dept. of Housing and Urban Development (HUD). In 1966 the Model Cities Act coordinated government assistance to selected low-income areas of cities.

Housing since then often has been caught up in debate over rent controls, homelessness, the failure of savings and loan associations, and the buying and selling of political influence by government administrators and building developers. From 1980 to 1987, 2.5 million low-cost housing units were lost, and the federal government reduced its subsidies for construction by 60%. In response, some private groups like Habitat for Humanity have tried to help individuals buy and renovate low-cost housing. Housing advocates have argued for public housing reform, including controls on speculation and on rent (about 36% of occupied U.S. housing units are rentals).

HUD.gov offers the following commentary on the History of FHA:

Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing in 1965.

When the FHA was created, the housing industry was flat on its back:

Two million construction workers had lost their jobs.

Terms were difficult to meet for homebuyers seeking mortgages.

Mortgage loan terms were limited to 50 percent of the property’s market value, with a repayment schedule spread over three to five years and ending with a balloon payment.

America was primarily a nation of renters. Only four in 10 households owned homes.

During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war.

In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA’s emergency financing kept cash-strapped properties afloat.

The FHA moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980s.

By 2001, the nation’s homeownership rate had soared to an all time high of 68.1 percent as of the third quarter that year.

The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since 1934. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio.

In the more than 60 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world. HUD has helped greatly with that success.

That’s quite a history of FHA and seems like today is a good time to look back and reflect on the history of FHA.  The real estate cycle is going full circle and it’s always wise to take a moment and examine where we started.  The FHA loan is back in full force and this Federal Housing Administration information has been brought to you by the FHA Loan Experts.

President Bush has announced the FHASecure plan to save 240,000 homeowners from foreclosure.  From HUD’s site, the following requirements are needed to qualify:

To qualify for FHASecure, eligible homeowners must meet the following five criteria:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2009;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

Here is what is being said about the FHA Secure plan across the country.  From Sfgate.com we read:

President Bush’s plan to help strapped homeowners avoid foreclosure could ease the mushrooming subprime mortgage problem, housing experts say. But they caution that the Bay Area stands to benefit significantly less than other sections of the nation because of the region’s off-the-charts home prices.

The key part of Bush’s initiative, unveiled Friday at the White House, is a new program to allow borrowers who can’t meet rising monthly mortgage payments to refinance into loans guaranteed by the Federal Housing Administration.

The program, called FHASecure, is limited to people with good credit records except for late payments after their adjustable mortgages switched from low teaser rates to higher permanent rates.

The issue for the Bay Area is that the FHA guarantees mortgages only up to $362,790. Bush is asking Congress to raise that limit to $417,000, equal to the largest loans accepted by Fannie Mae and Freddie Mac, the giant companies that buy mortgages from lenders.

In the Bay Area, where the median home price in June was $665,000, highest in the continental United States, fully 61.9 percent of mortgages taken out in the first half of 2007 were above the $417,000 level, making them ineligible for FHA guarantees even if the limit is raised, according to real estate information firm DataQuick.

From TheOlympian.com news:

Question: How many borrowers with subprime loans — those given to homeowners with the weakest credit histories — will the plan reach?

Answer: The Federal Housing Administration expects to have refinanced 100,000 subprime homeowners with adjustable-rate loans in the current fiscal year, which ends Sept. 30. It expects to refinance another 140,000 next year through its FHASecure, a new name for the refinancing it’s already doing.

Q: Does that cover most of the problem loans?

A: Not even close. The administration admits that it’ll be able to reach, in a best-case scenario, 480,000 qualified subprime borrowers by the end of 2009. But it thinks that 600,000 or 700,000 will qualify for help.

Some interesting insight from BusinessandMedia.org:

“[I] don’t know how big of a helping hand it was when you’re talking about two million homeowners who are facing adjustable rate mortgages resetting over the next couple of years,” said real estate reporter Diana Olick on the August 31 CNBC’s “The Call.” “Now the only thing he actually said in his speech that would have a real effect today is that FHA [Federal Housing Administration] change in the program. And remember, FHA can only back mortgages up to about $362,000, so there’s your limitation right there on those type of loans.”

Some insightful comments are noted from TracyPress.org here:

We are also concerned that 3 percent cash or equity must be in the home before the homeowner can qualify for the new FHASecure mortgage-insured loan. Although the average home value in Tracy has dropped from $535,000 to $489,000 in the past year, the down payment remains too high for families to qualify for low-risk loans. Qualifying criteria like enough income to make a mortgage payment, sustained history of employment and a history of on-time mortgage payments before a loan is reset to the higher rate should be sufficient.

What the Federal Housing Administration shouldn’t do is protect the housing speculators who rode the wave of the upward spiral of home prices but were caught short when home values and prices dropped. These risk-takers should not profit from the financial nightmare of families who grabbed the American Dream only later to discover they could not refinance their ballooning payments as planned.

Well, ladies and gentlemen, the FHASecure program has arrived.  It is certainly a solution for thousands upon thousands of homeowners who have exploding arms resetting to much higher payment amounts.  There’s no doubt about that.  Is the FHASecure program a good solution overall?  I suppose that depends on your perspective.  If you live in an area where home values are much higher than FHA loan limits then you’re not likely to see much benefit from the FHASecure program; however, if you have a loan amount within the FHA loan limit, then the FHASecure program might provide a solution for you. The FHASecure program and refinance will certainly be saving homeowners one at a time. Will that add up to a total of $240,000?  I don’t know.  But, if you are one of those that are saved then you will be thankful for the FHASecure program.