3/06/2008 FHA HAS INCREASED THEIR LOAN LIMITS-CLICK HERE TO SEE HOW IT AFFECTS YOUR STATE-
https://entp.hud.gov/idapp/html/hicostlook.cfm

FHA STREAMLINED REFINANCE-SIMPLE REFINANCE OPTION

FHA 203K-REHABILITATION LOANS

FHA SECURE (EVOLVING IN CONGRESS)

                                    Here is an overview of the proposal:

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.

Since its inception in 1934, FHA has helped almost 35 million people become homeowners, making it the largest insurer of mortgages in the world. The 109th Congress introduced the Expanding American Homeownership Act in June 2006 which would enable FHA to be a safe option for more underserved low- and moderate-income and minority families so they can achieve the American Dream of homeownership. Today, President Bush also urged Congress to quickly pass the Administration's FHA modernization proposal to help more families in need.

 The Federal Housing Administration is pleased to announce an initiative that will enable homeowners to refinance various types of adjustable rate mortgages (ARMs) that have recently “reset.”  This mortgagee letter describes how lenders and homeowners may refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent.  The mortgagee letter also reiterates guidance to lenders about making objective decisions regarding the underlying collateral in declining markets. The FHASecure initiative, which is a temporary program designed to provide refinancing opportunities to homeowners and to increase liquidity in the mortgage market, requires that the loan application be signed no later than December 31, 2008.

• The mortgage being refinanced must be a non-FHA ARM that has reset.

• The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments, i.e., the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

• If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.  

• Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits. 

• Mortgagees must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

• Maximum FHA loan-to-value ratios 

• Calculating the Maximum FHA Mortgage Amount

The amount of the FHASecure mortgage may not exceed either the geographical maximum mortgage limits or the loan-to-value ratios shown above.  FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges.  FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount provided the arrearages arose after the reset.

• Subordinate  Financing Under the FHASecure Initiative

If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate non-FHA insured lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Borrowers need not yet have missed any mortgage payments to be eligible for this type of subordinate financing.

• Underwriting the Mortgage/Qualifying the Borrower

FHA encourages all approved lenders to use FHA’s TOTAL Mortgage Scorecard to obtain risk classifications on each mortgage originated under the FHASecure initiative.  If TOTAL renders an “accept/approve,” the mortgagee’s underwriter need not perform a personal review of the borrower’s credit history and capacity to repay.  However, in the more likely event that the risk class is a “refer,” the underwriter must:

1.      Determine that the homeowner has the capacity to make future mortgage payments as well as pay all other obligations.  The payment-to-income ratio and debt-to-income ratios remain 31 percent and 43 percent, respectively.  Compensating factors are to be provided by the underwriter when the ratios are exceeded.

2.      Analyze the homeowner’s overall credit history, especially payments on the existing mortgage.  The underwriter must determine that the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due and that other recurring obligations were paid on time.  If the borrower was offered partial forbearance after interest rate reset, the underwriter must determine that he/she has made payments under the forbearance agreement in a timely manner. 

3.      Provide comments in the “remarks” section of the mortgage credit analysis worksheet that he or she has determined that the cause of the borrower’s inability to make payments was directly related to the increased payment attributable to the reset and not due to a disregard for obligations.

• Tax consequences for a borrower when the note holder writes off a portion of the amount to pay off the first mortgage 

FHA recognizes that there may be tax consequences resulting from debt relief.  However, since FHA does not provide tax guidance, it recommends borrowers—and mortgage lenders—in such situations seek competent tax advice. 

• Other considerations of which the mortgagee must be aware when refinancing these mortgages.

Historically, FHA has provided a counter-cyclical force in helping to stabilize declining housing markets and will continue to do so.  In fact, much of FHA’s business activity this year has been in those states (e.g., Ohio, Michigan, Indiana) that have suffered sustained depreciation of home prices due to job losses and increased foreclosures.  Nevertheless, recent property value declines in certain markets suggest the need to reiterate our 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.     

The purpose of the appraisal is to provide the lender/client with an accurate, and adequately supported, opinion of market value.   It is the appraiser’s responsibility to determine whether a property being appraised is located in a declining market.

The neighborhood section of each property specific appraisal form contains a housing trends section where the appraiser marks a box indicating property values are increasing, stable or declining.  Whichever box is selected, the appraiser is certifying that he/she has performed an objective analysis of quantifiable data supporting the observations made.

If a property is located in a declining market, the appraiser must provide an explanation in the “Market Conditions” section of the appraisal report that includes relevant information in support of the conclusions relating to trends in property values, demand/supply and marketing time.  The appraiser must also provide a description of the prevalence and impact of sales and financing concessions and/or down payment assistance in the subject’s market area.  Other areas of discussion may include days on market, list-to-sale price ratios, and/or financing availability.

The mortgagee’s responsibility is to properly review the appraisal and determine that the appraised value used to support the mortgage is accurate and adequately supported.

Lenders are reminded that if the appraiser they selected provides a poor or even fraudulent appraisal that leads the Department to insure a mortgage at an inflated amount, the lender is held equally responsible with the appraiser for the violation if the lender knew or should have known.  FHA will pursue appropriate enforcement actions against both or either party if necessary.  Lenders accept responsibility, equally with the appraisers for the integrity, accuracy and thoroughness of the appraisal submitted to FHA for mortgage insurance purposes.

If you should have any questions concerning this Mortgagee Letter, call 1-800-CALLFHA.

Sincerely,

Brian D. Montgomery

Assistant Secretary for Housing-

                Federal Housing Commissioner

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FHA bans 'gift' down payments-THIS STORY HAS RECENTLY CHANGED-CALL US 
		
		
		

			
Buyer ends up with costlier mortgage
		
		
		

			
By NANCY TREJOS 

			The Washington Post

			Monterey County Herald
		
		
		

			
Article Last Updated:10/01/2007 01:35:58 AM PDT
		
		

			

		
		

			
WASHINGTON — The Federal Housing Administration will prohibit borrowers from using seller-financed down payment assistance programs that have helped hundreds of thousands of people buy homes but have come under the scrutiny of federal authorities. 
			

			Such programs allow home sellers to give money to charities, which then give down payment assistance to buyers. The sellers pay the charities a service fee, then often recoup the money by charging a higher price for the homes, usually 2 percent or 3 percent more, or an amount equal to the down payment, according to a study by the Government Accountability Office. 
			
			

			In a conference call with reporters, Federal Housing Commissioner Brian Montgomery said that the FHA will publish its new rule in the Federal Register today. The rule, which is little changed from a preliminary version put out for comments in May, will go into effect 30 days after publication. 
			
			

			"These contributions often function as an incentive to purchase the home," Montgomery said. "But these gifts are ultimately paid for by the borrower through a higher mortgage amount. The home buyers are often unaware that the 'gift' is something they end up paying for and is not a gift at all." 
			
			

			Almost 200 charities nationwide have participated in such arrangements. But the IRS and other government entities have raised concerns, particularly after the 2005 GAO study found that borrowers receiving assistance from the charities were more than twice as likely to default or become delinquent than other FHA borrowers were. 
			
			

			In a ruling last year, the IRS went so far as to call the seller-financed programs "scams," accusing the charities of inflating home prices. 
			
			

			"Down payment assistance programs administered by charities have unfortunately been an area where my investigations and the IRS have found a great deal of ab