FHA Loan Expert Blog

The FHASecure initiative is aimed squarely at solving the subprime adjustable rate mortgage problem that continues to plague millions of homeowners in today’s housing market.  The next phase of the adjustable rate mortgage mess will be felt by the Alt-A mortgagors.  The problems are essentially the same.  Housing values have come down and borrowers no longer have the equity to refinance.  FHA once again, is the solution.

FHA refinancing solutions for Florida and throughout the USA.

Primarily the problem with the FHASecure program is twofold: (1) The program served a very narrow segment of the market in that the borrower must be delinquent as a result of the interest rate reset.  (2) The second problem had to do with the LTV issues with second mortgages subordinating.  Or shall I say unwilling and uncooperative second mortgages refusing to subordinate.
 
The first problem may have been cured with a recent change in the FHASecure program.  Specifically, the program allows the following:
 
>>Borrowers with adjustable rate mortgages who were late on two consecutive monthly mortgage payments or at two different times over the previous twelve months. FHA will require a 97 percent loan-to-value (LTV) ratio for these borrowers to refinance, the same LTV as FHA’s current standard.
 
>>Borrowers with adjustable rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past 12 months. FHA will require a 90 percent LTV ratio for these borrowers to refinance.
 
Now, regarding the second mortgage subordination issue, I have this to say.  Better yet, let’s take a quote from Chairman Ben S. Bernanke on Marh 4, 2008 at the Independent Community Bankers of America Annual Convention in Orlando, Florida
 
“In my view, we could also reduce preventable foreclosures if investors acting in their own self interests were to permit servicers to write down the mortgage liabilities of borrowers by accepting a short payoff in appropriate circumstances.  For example, servicers could accept a principal writedown by an amount at least sufficient to allow the borrower to refinance into a new loan from another source.  A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default.”
 
I smell principal writedowns to accommodate FHASecure refinances.  Can you?  Let’s hope it’s not another one of Aesop’s Fables.

FHASecure Lenders in Florida and throughout the entire U.S.A.

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$100 Down Payment on HUD Homes! 

HUD has announced several new sales incentives on HUD homes that will make these homes more affordable for homebuyers.

The incentives vary from State to State but may include one or all of the following:

- $100 down payments on HUD Homes financed with FHA-insured financing.
- Sizable sales allowances that can be used to pay closing costs, make repairs, or pay down the mortgage amount.
- Broker bonuses for real estate brokers that close owner-occupant sales.

Now is a good time to consider the purchase of a HUD home. Visit the following HUD website for more information about buying a HUD home and to determine the sales incentives that HUD may be offering in your area: hud.gov/salesincentives

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Mortgage Industry:  The U.S. Department of Housing and Urban Development, Oklahoma City Field Office, invites you to attend a free FHASecure training in Oklahoma City, OK on December 12, 2007 from 1:30 pm to 3:30 pm conducted by the FHA Denver Homeownership Center.  Please register online at:hud.gov/apps/calendar/event.cfm?state=ok&record=7844&scheduleID=7607&calendarID=40

As a special treat, we would like to invite you to attend the HUD Oklahoma City Field Office “Holiday Come and Go Open House”, also on December 12, 2007.  Please join us prior to the training - the celebration starts at 10:00 am.  If you are unable to attend the training, we hope you still attend our Open House.  All you need to do is show up, enjoy light refreshments, and celebrate the season with us!  Our address is 301 N.W. 6th Street, OKC, OK  73102.  Metered and open parking are available in the surrounding area.

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FHA’s National Servicing Center (NSC) has awarded a new mortgage servicing contract.  Effective, December 10, 2007, all correspondence, calls, and servicing will transfer to the following:

C&L Service Corporation –Contractor
Morris-Griffin Corporation-Sub-contractor

Office Address:  2488 E. 81st Street, Suite 700, Tulsa, OK 74137

Main Phone number: 918-551-5300
Main fax number: 918-551-5399
Toll Free Phone: 877-377-8667 
Toll Free Fax:  877-249-0626

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San Diego Housing Summit in San Diego will focus on FHA:

On December 5, 2007, the Housing Opportunities Collaborative will present a San Diego Regional Housing Summit that will discuss housing market updates, FHA Programs and FHASecure.  The event is open to housing counselors, realtors, lenders, and other real estate professionals.  Contact: Myrna Pascual at: (619) 557-5310, or Pamela Beard, Housing Opportunities Collaborative: (619) 282-6647, ext. 373 to register.

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Other FHA Training around the nation:

December 4-6, 2007 - Irvine, CA. FHA Direct Endorsement Underwriting Training. Sponsored by The FHA Santa Ana Homeownership Center, & the National Association of Professional Mortgage Women. Registration required, fee. More info at: hud.gov/offices/hsg/sfh/events/sca120407.pdf

December 5, 2007 - Phoenix, AZ. FHA Loss Mitigation/FHASecure Class. 9:00a.m. - 5:00p.m. One N. Central, Suite 600, Phoenix, AZ 85004. Register at: 602-379-7132

December 6, 2007 - Rolling Meadows, IL. Originating FHA Loans Training. Sponsored by the Illinois Mortgage Bankers Association. Registration required, fee. More info at: imba.org/

December 11, 2007 - Phoenix, AZ. FHA Programs Update & HECM Training For FHA Mortgage Professionals. Sponsored by The FHA Santa Ana Homeownership Center, The HUD Phoenix Field Office, & the National Association of Professional Mortgage Women. Registration required, fee. More info at: hud.gov/offices/hsg/sfh/events/saz121107.pdf

January 8-9, 2008 - Chicago, IL. FHA Processing & Underwriting training. Sponsored by the Illinois Mortgage Bankers Association. Registration required, fee. More info at: imba.org/

January 16, 2008 – Denver, CO. Basic Direct Endorsement Underwriting. FREE, one-day class covers basic FHA underwriting procedures and updates. The class is geared toward all beginner underwriters, loan officers and processors and will provide a thorough understanding of underwriting FHA-insured loans. Registration required. More info at: hud.gov/event_registration/index_2.cfm?eventID=791

January 17, 2008 – Denver, CO. Advanced Direct Endorsement Underwriting. FREE, one-day class covers advanced FHA underwriting procedures and updates. The class is geared toward all experienced underwriters, loan officers and processors and will provide a thorough understanding of more complex situations regarding underwriting FHA-insured loans. Recommended for those with at least 1 year experience of DE underwriting. Registration required. More info at: hud.gov/event_registration/index_2.cfm?eventID=792

February 20-21, 2008 - Oklahoma City, OK. Early delinquency servicing activities and HUD’s Loss Mitigation program training for HUD-approved mortgagees, HUD-approved Housing Counselors, and Nonprofit Housing Counselors. Registration required, no fee. More info at: hud.gov/offices/hsg/sfh/nsc/training.cfm

May 14-15, 2008 - Oklahoma City, OK. Early delinquency servicing activities and HUD’s Loss Mitigation program training for HUD-approved mortgagees, HUD-approved Housing Counselors, and Nonprofit Housing Counselors. Registration required, no fee. More info at: hud.gov/offices/hsg/sfh/nsc/training.cfm

August 20-21, 2008 - Oklahoma City, OK. Early delinquency servicing activities and HUD’s Loss Mitigation program training for HUD-approved mortgagees, HUD-approved Housing Counselors, and Nonprofit Housing Counselors. Registration required, no fee. More info at: hud.gov/offices/hsg/sfh/nsc/training.cfm

Online FHA Processing Training Class for Mortgage Processors, Underwriters & Originators. Sponsored by the IRC. Live, instructor led online FHA training classes to students nationwide. Registration required, fee. More info at: fha-training.org/

For more information on, and to register for these training opportunities please visit: hud.gov/offices/hsg/sfh/events/events.cfm

BrokerUniverse.com reports:

The Federal Housing Administration is reaching out to nearly “1.2 million at-risk American homebuyers” to inform them about the new FHA Secure refinancing program.  FHA commissioner Brian Montgomery told a congressional panel that his agency is using a direct-mail database to contact subprime borrowers with 2/28 and 3/27 ARMs that are due to reset by 0ctober 2008. Over 1,500 delinquent borrowers have already filed applications to refinance into a FHA Secure mortgage since the agency launched the new program Sept. 5. “Though still a very new program, 575 FHA-approved lenders are already using FHA Secure to rescue delinquent borrowers from the potential loss of their homes,” Mr. Montgomery testified. Meanwhile, FHA has received 74,000 applications by current conventional borrowers who want to refinance into a FHA loan since Sept. 5. FHA received 37,500 of these applications in September and another 36,500 in October.

What is the expected impact of FHASecure?

From 2007-2009, 2.3 million adjustable rate mortgages are expected to reset, nearly a quarter of which will be at risk of foreclosure. FHA believes that FHASecure will be able to assist approximately 80,000 borrowers who are delinquent due to their loan resetting, as well as 160,000 borrowers who are facing reset but are still current on their mortgage. By offering FHASecure and other refinancing programs, FHA could help 240,000 borrowers facing reset.

What is the value of the FHASecure program to lenders?

Only FHA-approved lenders can originate FHASecure loans. FHASecure could benefit lenders by helping them avoid foreclosure expenses. Even if a lender takes a short payoff in order to originate an FHASecure loan, it is still less expensive than foreclosure and disposition of the property.

What advice should loan servicers/lenders give borrowers who are facing difficulty prior to ARM reset? How can FHA help borrowers who are delinquent prior to reset?

Loan servicers and lenders can advise borrowers who are current on their non-FHA adjustable rate mortgage to consider refinancing to an FHA insured mortgage. For those borrowers who may owe more than their property is worth, lenders have the option of placing a second lien on the property that when combined with the first lien exceeds the property’s value as well as FHA’s geographical loan limits.

Although FHA cannot help borrowers who are delinquent prior to reset, there may be other options available. Many lenders have successfully provided loss mitigation assistance to borrowers, and a number of states are considering foreclosure avoidance programs. Lenders should provide information to borrowers on possible options, including contacting a HUD-approved housing counseling agency. To find a HUD-approved housing counseling agency, borrowers may call 1-800-569-4287 or visit hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm.

When can we start originating FHASecure loans?

Applications may be taken starting September 5, 2007 thru December 31, 2008.

Eligibility and Underwriting Issues
How does FHA define reset? Does the definition include ARMs that reset at different time intervals (six months, annually)?

FHA has purposely not defined reset because it understands that there are various reset periods associated with non-FHA adjustable rate mortgages.

Under the FHASecure, are there restrictions on secondary financing, seasoning requirements for existing liens and/or a limit on the combined loan to value (CLTV) ratio?

Except as noted in Mortgagee Letter 2007-11, FHASecure does not change FHA’s underwriting requirements. Therefore, existing FHA policies regarding secondary financing are applicable: repayment terms of the second must not have a prepayment penalty or provide for a balloon payment before 10 years; any periodic payments due on the second mortgage are due monthly and are essentially the same in dollar amount; and the first and second liens cannot exceed the borrower’s reasonable ability to pay (HUD Handbook 4155.1 REV-5, paragraph 1-13 C 2 and 3). However, second mortgages that are deferred for no less than 36 months need not be considered in the qualifying ratios. As a reminder, the FHA insured mortgage must be in the first lien position.

Under FHASecure, there is no CLTV limit or a seasoning requirement for purchase money seconds. However, lenders are again reminded of existing FHA policy: if any portion of the funds of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was used for purposes other than repairs and rehabilitation of the property, the line of credit is not eligible for inclusion in the new FHA mortgage (HUD Handbook 4155.1 REV-5, paragraph 1-11 A 2).

Will FHA adjust its Credit Watch termination policies for lenders who participate in FHASecure lending?

FHASecure does not change FHA’s underwriting guidelines, and FHA does not expect to see higher default and claim rates with these loans. As with all its programs, FHA will pull files in declining markets at a greater frequency as part of its normal risk management strategy.

Is there any leeway in FHA’s definition of “current” in the six months prior to reset? Must borrowers be current on all obligations in the six months prior to reset?

Borrowers must have paid their mortgage payment within the month due for the six months prior to reset, and must meet FHA’s standard underwriting criteria as it relates to all other aspects of the loan.

Are there special underwriting requirements for the FHASecure program? Is there model language, i.e. for the underwriter’s “remarks” regarding a borrower’s inability to pay after reset?

There is no model language for underwriters or special instructions for completing the Mortgage Credit Analysis Worksheet (MCAW) outside of what is already available regarding refinance transactions, which is located on page two of the MCAW. Furthermore, all borrowers being considered for FHASecure must meet FHA’s standard underwriting criteria.

With FHASecure lenders can include delinquent payments in the mortgage amount but the Mortgagee Letter does not address servicing costs accrued by homeowners, for example the cost of inspections. Can lenders include these types of costs as well or does the homeowner have to pay them out of pocket?

The items listed in the Mortgagee Letter are examples of what may be included in the new mortgage. Lenders may also include other reasonable and customary costs that are standard servicing practices and are included in all payoff statements.

Are there a maximum number of months of delinquent payments that a lender can roll into the new mortgage?

No. Homeowners with sufficient equity in their property may include the entire delinquency into the first mortgage as long as doing so does not result in exceeding the maximum FHA loan-to-value ratios and the loan limits for the area.

Will there be marketing brochures on the FHASecure program to provide to the public?

Yes. FHA is currently developing Fact Sheets and promotional brochures for both lenders and consumers.

Where can I find the additional guidance on FHASecure?

Guidance was published in Mortgagee Letter 2007-11, which can be found on FHA’s website fha.gov or hud.gov/offices/hsg/mltrmenu.cfm. The Mortgagee Letter permits consideration of delinquent borrowers and secondary financing by the lender. FHA has not changed its other underwriting policies and borrowers must still meet standard FHA underwriting criteria.

Are interest-only non-FHA insured loans eligible for FHASecure?

If the loan is a non-FHA adjustable rate mortgage, it is eligible for FHASecure. At this time, interest-only fixed rate non-FHA mortgages or such mortgages with buy down features incorporated into the interest rate or payment options are not eligible. For now, FHA is keeping the focus for FHASecure on adjustable rate mortgages but may consider other types of non-FHA insured mortgages in the future.

Can FHA assist borrowers who are current on their mortgage but facing an ARM reset?

Yes. Although FHASecure is limited to borrowers who are delinquent because of a non-FHA ARM reset, FHA’s standard refinancing programs can assist borrowers who are current. Lenders are permitted to offer a second mortgage to those borrowers who are current but owe more than what their property is worth. As with FHASecure, this authority for secondary financing is only applicable for non-FHA ARMs that will or have reset and applications must be taken between September 5, 2007 and December 31, 2008.

Appraisal Issues
Will there be an increased emphasis on FHA review of appraisals?

As noted in Mortgagee Letter 2007-11, FHA will be focusing more attention on reviewing appraisals in declining markets.

Will there be any changes to appraisal protocols since appraised values are declining?

Mortgagee Letter 2007-11 reiterates FHA’s existing guidance to mortgage lenders to ensure that appraisers are providing accurate property valuations. A declining market could be as small as a neighborhood or as large as an entire state, and no standard definition exists other than home prices are falling.

Initiative meeting in Chicago:

October 10-11, 2007 - Chicago, IL. Free FHASecure Initiative meeting. Metcalfe Federal Building, 77 W. Jackson Boulevard, Room #2205, Chicago, IL 60604. There will be two (2) sessions held each day, morning and afternoon.  9:00 AM to 12:00 PM. and 1:00 PM to 4:00 PM. Registration not required, no fee. The FHASecure Initiative which enables homeowners to refinance various types of adjustable rate mortgages (ARMs) that have recently “reset” and become delinquent. The FHASecure Initiative, a temporary program designed to provide refinancing opportunities to homeowners, preserve communities, and to increase liquidity in the mortgage market, requires that the loan application be signed no later than December 31, 2008.  Seating is limited & on a first-come first-served basis. All are welcome to walk in and learn about FHASecure.

FHA Connection Change for FHASecure Loans:

Beginning September 24, 2007, lenders can request a case number on the Case Number Assignment page in the FHA Connection for conventional refinance loans with delinquencies under the FHASecure Initiative, per Mortgagee Letter 2007-11.  Conventional refinance loans will be identified on the Case Query page in the Case Type field as either Conventional Refi - Delinquent or Conventional Refi - not Delinquent.

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.

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

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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!

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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. 

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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.