Archive for October, 2008

The History of FHA

Sunday, October 5th, 2008

Congress created the Federal Housing Administration in 1934. At this time, nearly two million construction workers were laid off. Only four out of ten people owned their own home. In addition, mortgage loan terms were outrageous. Borrowers had to put 50 percent down, and the note ballooned in 3 to 5 years. So the mission of the FHA was to encourage home ownership.

The FHA became a part of HUD, which is the Department of Housing and Urban Development, in the year 1965. In the mid-1980’s, the FHA transitioned to what we call direct endorsement and began approving lenders to underwrite and close their own loans. Prior to this time, the FHA did have a hand in the process of the loan.

It’s amazing to me that after 20 years of this direct endorsement program being in effect, nearly eight out of ten real estate agents I speak with still think that the FHA has a hand in the process of the loan. This is something that’s very important for you to know. When you’re working with real estate agents, you need to make it clear to them that the loan will be processed like any other loan.

It’s also very important to know what the FHA actually does and does not do. First, let’s start with what the FHA doesn’t do. The FHA does not buy loans, they do not originate loans, and they do not service loans. What the FHA does do is provide insurance on loans made by FHA-approved lenders. It is actually the pioneer in mortgage insurance. As you know, mortgage insurance protects the lender in case of default on that loan.

Here are a couple of additional FHA facts:

- The FHA is the only government agency that operates entirely from its own income, and costs the taxpayers nothing.

-It is also the largest insurer of mortgages in the world, insuring nearly 30 million properties since its inception in 1934.

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What the FHA Needs To Get the Job Done

Friday, October 3rd, 2008

In the current credit squeeze, if you have less than a 20 percent down payment, there’s pretty much only one major source of mortgage financing available: the Federal Housing Administration, the Depression-era home loan insurance agency that still offers 3 percent down, 30-year, fixed-rate mortgages with consumer-friendly credit standards, even on jumbo loans in high-cost areas of California and the East Coast.

But there is a potentially troublesome problem looming for the FHA: New loan volume is exploding — tripling in the past 12 months alone — and Congress has handed the agency the responsibility for almost all the government’s efforts to keep economically distressed homeowners out of foreclosure by refinancing their unaffordable loans.

The FHA says it needs to hire more staff and upgrade its technology to be able to handle the crush of new business, but it complains that Congress hasn’t appropriated the necessary funds — $65 million — to do the job fast enough. Capitol Hill appropriations committee staff dispute some of that, but the specifics of the arguments over dollar amounts aren’t the issue.

The real question is this: Can a government agency whose market share dropped below 3 percent during the heyday of the subprime boom now properly handle explosive volume rocketing it to an estimated market share of 30 percent this year? Are both the agency and Congress — which controls the purse strings — up to the task?

Mortgage industry, home building and real estate experts worry about the possible consequences of shifting too heavy a share of the mortgage market too quickly to an agency that may be inadequately staffed or funded. Howard Glaser, who served during the Clinton administration as acting general counsel for HUD, the parent department for the FHA, worries that loading on too much business without properly funding staff and technology upgrades raises the odds of breakdowns.

“FHA is assuming the risks of a mortgage market abandoned by private investors — without the risk management tools,” he said. “My fear is that next year at this time, we will be debating an FHA bailout.”

Steve O’Connor, senior vice president of the Mortgage Bankers Association, agreed there’s danger lurking in the massive increases in business going to the FHA. “You just can’t expect to fit that amount down the same size pipe — you’ve got to expand the size of the pipe” by funding additional staff and technology, he said. “It’s a very serious concern.”

Other industry groups, including the National Association of Home Builders and the National Association of Realtors voice similar worries. Dick Gaylord, president of the Realtors, said “if [the FHA] is truly going to serve its growing constituency,” it will need more money and people.

The FHA — for years the forgotten federally controlled stepchild of an industry dominated by Fannie Mae, Freddie Mac and the Wall Street mortgage bond machines — is now insuring more than 140,000 new loans a month, according to agency statistics. It has $400 billion in outstanding loans in its insurance portfolio and runs its home mortgage business with 937 employees in offices spread around the country. The agency wants authorization to add 160 employees immediately.

Though historically a resource for first-time buyers, minorities and people with imperfect credit, the FHA increasingly is the go-to place for people who have above-average credit backgrounds but lack — or choose not to use — large amounts of down-payment cash. In August, according to agency data, approximately 23 percent of new FHA home purchasers had FICO credit scores above 720 — far beyond the proportion of prior years. In the same month, just 12 percent had FICO scores below 600.

With mortgage limits extending into the jumbo category, the agency is attracting large numbers of customers from high-cost areas of the country, especially California and the mid-Atlantic states. One of 10 new borrowers in August was from California.

To some mortgage lenders and loan officers, the FHA is now the main game in town. “Nothing competes with them,” said Paul Skeens, chief executive of Colonial Mortgage Group in Waldorf.

Fannie Mae and Freddie Mac, both now in federal conservatorship, have steadily added fees to the point where “they just aren’t competing with FHA on down payments or costs,” Skeens said. In 2001 and 2002, Skeens’ firm did just one-quarter of 1 percent of its volume in the FHA. Now it’s 60 percent.

“The last thing we need right now, with the shape the housing market is in,” he said, “is for FHA not to function well.”

By Kenneth R. Harney

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Oh Boy! More FHA Guideline Changes

Thursday, October 2nd, 2008

This is the main reason you NEED to have an FHA EXPERT (such as us of course) working with you.

Can you imagine being 2 weeks into the process and your part-time Loan Officer calling and saying, “Hi Bob… um, we have a little issue?”

In our information age, you need what you want, and you need it NOW- but not so fast, Charlie.

What we see (and later save), day in and day out, is inexperienced Loan Officers wanting to get the “deal” in faster than they can ask your name, only to realize that they forgot to ask you that one “deal-killer” of a question at the beginning, and now everyone is out of time, and money- but has plenty of frustration.

So to ease everyone’s minds, we are here to help and want you to know that we have our fingers on the markets, the economy, rates, and guidelines; but most importantly, we are here to GIVE YOU CORRECT AND INFORMED ADVICE ON ALL FHA LOANS.

So with that being said, here’s the scoop on the new change in FHA guidelines:

As of October 1, 2008, all Up Front Mortgage Insurance Premiums (UFMIP) for purchases and full-credit qualifying refinances will be 1.75%.

For streamline refinances, UFMIP will be 1.50%.

For all FHASecure, you are looking at 3%.

As for the MONTHLY mortgage insurance premiums, as they have had some slight changes as well, but nothing too major.

Here is the link directly to HUD Memo detailing these changes:

FHA GUIDELINE CHANGES

As always, we’re here to help and welcome any questions you may have!

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Turning Point: Senate Passes $700B Rescue Bill

Thursday, October 2nd, 2008

After the Bush Administration’s $700 billion financial rescue proposal went down in flames during a House vote on Sept. 29, a slightly revamped version has risen from the ashes and went to the Senate Floor for an evening vote on Oct. 1.

The measure passed easily, with 74 in favor and 25 against.

Key among the changes is an amendment that would lift the cap on FDIC-insured bank deposits from $100,000 to $250,000. The limit would revert to $100,000 at the end of 2009 unless extended by Congress.

Other amendments include a tax relief package that would provide business tax breaks for the use of renewable fuels such as wind and solar power; shield approximately 26 million Americans from the alternative minimum tax (AMT); grant tax relief to victims of natural disasters; and grant a series of extensions for various state and local tax programs.

Versions of the tax relief package have previously been approved by both the House and Senate, and some have speculated that attaching it to the rescue plan will sweeten the bitter pill the House may have to swallow when the bill comes back around for a second vote.

“Adding tax relief that creates jobs, supports families and secures a new energy future for the country make this bill a lot fairer and a lot better for hardworking, taxpaying Americans,” said Sen. Max Baucus, chairman of the Senate Finance Committee.

In a press briefing Wednesday, White House Spokesman Tony Fratto suggested that sentiment on the Hill regarding the bill might have changed in recent days as the failure of the House vote brought into sharp relief the ways in which the credit squeeze is affecting everyday Americans.

Fratto indicated that members of Congress are “starting to hear other public officials and business groups to express more clearly just the strains that they are dealing with in this current environment and the urgency for addressing it.”

Indeed, 50 business trade groups wrote a joint letter to Congress urging them to pass the bill in order to “to prevent a meltdown” of the country’s capital markets.

Remarking on the partisanship that divided the House earlier this week, Fratto added, “I don’t think it’s a conservative thing or a liberal thing. We’re talking about the U.S. economy. This isn’t about free markets or socialism. This is a debate about frozen markets. And you can’t have a free market when you have a frozen market.”

Going into the vote, Senate Majority Leader Harry Reid indicated that the legislation had broad support from Senators on both sides of aisle and suggested that with the improvements made to the Administration’s proposal, the Senate would pass the legislation and the House of Representatives would follow suit soon after.

“I believe that this legislative package will ensure that the needs of Main Street are not forgotten,” Reid said.
Speaking from the Floor, Senate Republican Leader Mitch McConnell said that after “extensive consultation,” he and Reid “believe that we have crafted a way to go forward and to get us back on track. This is the only way to get the right kind of solution for the American people.”

McConnell acknowledged that “no one is happy with the situation that we’re in, but it’s a situation that we have. And the American people didn’t send us here just to do easy things. They expect us to rise to big challenges and to put aside differences and to work on their behalf.”

Noting that the “tendency to be the most partisan” is heightened during the period right before an election, McConnell said, “We’re in the process of setting that aside, rising to the challenge, both Democrats and Republicans, and doing what’s right for the American people.”

Speaking of the election, Sens. Barack Obama, John McCain and Joe Biden all flew back to Washington, D.C. from the presidential campaign trail to cast their votes in favor of the bailout package.

Following the vote, Senators were hopeful that revised bill could now be passed successfully in the House when it hits the Floor again on Friday.

“This vote tonight, I think, was the turning point,” Baucus said.

Broker Newswire
Issue Date: Mortgage Law Central – October 13, 2008

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HUD’s NEW Proposed Refinance Program

Thursday, October 2nd, 2008

WASHINGTON — The Department of Housing and Urban Development launched a program Wednesday to help underwater borrowers refinance their mortgages, but its details appeared to pose fresh challenges for servicers and lenders.

The agency said borrowers with payment- and debt-to-income ratios over a certain threshold must complete a three-month trial period in a new loan before the Federal Housing Administration would insure it. Some analysts said that stipulation could cause problems.

“Some folks thought the credit ratios would have been a little more liberal, particularly in light of the Federal Deposit Insurance Corp.’s experience with the IndyMac portfolio,” said Brian Chappelle, a partner at Potomac Partners LLC and former HUD official.

The Hope for Homeowners program allows borrowers to take out FHA-insured mortgages, relieving the owners of the old mortgage of a delinquent loan in exchange for writing its value down to 90% of the current home value and waiving any prepayment or late payment fees. The FHA in turn will pay off the old loan and give second lien holders a share in the possible future appreciation of the home’s value.
Though the program was created by a bill passed in July, it left most of the details to HUD and an oversight board of federal regulators.

Under those details, which were released Wednesday, the borrower’s payment-to-income ratio cannot exceed 31%, and the debt-to income ratio cannot exceed 43%, for the FHA to insure a new mortgage immediately. Borrowers with higher ratios — up to 38% for payments and 50% for debt — may still participate, but the FHA would require the three-month trial.

Rod Dubitsky, the head of Credit Suisse Group’s asset-backed securities research division, said the requirement that servicers try a payment plan before turning the borrower over to an FHA-insured loan left room for the original servicer and the new lender to clash over decision-making authority.

“There’s a ‘he said, she said’ potential from the borrower’s standpoint,” he said. The setup “requires the servicer and the FHA lender to work hand in glove.”

Observers said the FHA’s underwriting procedures for the program are also strict. New lenders must obtain two year’s worth of tax returns on the borrower from the Internal Revenue Service, among other things.
The eligibility requirements released Wednesday also dictated that loans be originated before this year. Borrowers must have made at least six payments and must not be able to make more. Borrowers are banned from participation if the mortgage is not on their primary residence or if they own a second home. The new loans cannot exceed $550,440.

At a press conference announcing the details, HUD Secretary Steve Preston said it was open to improvments. “We will continue to listen to the industry as they adopt the program and experience homeowner needs.”
HUD officials and observers said they were hoping that the passage of a bailout bill for the financial industry would make the program more efficient.

Under the existing program, lenders considering making new loans to struggling borrowers would not have any up-front financial incentive. They would only be able to share in the possible future appreciation of the borrower’s home. The bailout bill, which the Senate was expected to pass Wednesday, would authorize the FHA to pay the new lender up front instead. The bill also would encourage servicers to use the program for eligible loans purchased by Treasury as part of its proposed facility to buy $700 billion of troubled mortgage assets.

FHA Commissioner Brian Montgomery would not comment specifically on the fate of the two changes to the plan that are in the bailout bill, but he said HUD was still making improvements to the plan.

“We’re kind of flying the plane and fixing it at the same time,” he said. “Our work doesn’t end today. A good bit of it does, but this product is out there for the next three years, so as we go forward we’ll adjust as we need to.”

By Emily Flitter

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