FHA News

FHA Begins Implementation of Housing Bill
Where Are We?Are you getting calls from borrowers asking for "the government loan that writes down their mortgage balance"? Recent press has certainly caused a flurry of activity and loan origination volumes have been strong for the past few weeks despite the chaos in the market. I haven't published an edition of this newsletter for a few weeks while waiting for the underwriting guidelines for the "Hope For Homeowners" program. Although the program is effective October 1st, we still don't know the details. While we continue to wait there have been several smaller announcements and some information about the phase-in of other provisions of the FHA Modernization bill.

Changes Already Implemented
Prohibition Against "Buy & Bail"Buyers may not use FHA financing to purchase a home if they intend to convert their prior residence to a rental property unless they can demonstrate one of the following:
Relocation required by job. In most cases the borrower must be moving at least 50 miles.
The retained property has at least 25% equity.
The borrower can qualify without any credit for rental income from the retained property.
More Information: ML 2008-25

Changes Effective October 1
Flat Rate FHA Mortgage Insurance The modernization put a 1-year moratorium on risk based MIP so FHA is rescinding ML2008-16 and returning to flat rate MIP.Up Front MIP Rates FHA Purchase = 1.75% FHA Standard Refinance = 1.75% FHA Streamline Refinance = 1.50% FHA Secure Delinquent = 3.00%
Hope For Homeowners = 3.00%Annual MIP Rates (30 Year Term) Less Than or Equal To 95% = 0.50% Greater Than 95% = 0.55%
Hope For Homeowners = 1.50%
More Information: ML 2008-22

Prohibition Against Reverse Mortgage HECM Advisors
Due to the new law, FHA is rescinding ML2008-14 and prohibiting all origination activities and payment of compensation to reverse mortgage "Advisors" or "Consultants". (Prior rules allowed payment of 25% of origination fees to Advisors.) All participants must be W-2 employees of FHA lenders as defined in Handbook 4060.1-2-9.
More Information: ML 2008-24

New FHA Documents, Elimination of MCAW I
f you've ever tried to understand or explain the Mortgage Credit Analysis Worksheet (MCAW) then you will be happy to learn that the MCAW is gone effective 10/1. The updated FHA documents are much simpler.
More Information: ML 2008-15

Hope"less" For Homeowners
It's supposed to go into effect on 10/1 but the details still haven't been announced. Due to the poor structure of this program it will probably be a complete failure. The only "hope" in this program seems to be that the feds will buy loans with the bailout at such a large discount that they will be willing to write down large numbers of loans to allow borrowers to use this program to refinance.

Changes Effective January 1
Down Payment Requirements & Maximum LTV
Buyers will be required to put down 3.5%. Approved gifts and government down payment programs may still be used for buyer down payment. Seller-paid DPA will not be allowed. Legislation has been proposed (HR 6694) to allow seller-paid DPA with controls to reduce foreclosure costs.

It appears that refinance LTVs will increase to 98.25% for standard rate & term or cash-out transactions.
More Information: ML 2008-23

Other Changes In Progress
Higher HECM Reverse Mortgage Limits
HECM Purchase Loans
HECM limits will be increased to at least $417K and HECM purchases will be allowed but the effective date for these changes has not been announced.

National Mortgage Licensing System
The Conference of State Banking Supervisors (CSBS) has created the State Regulatory Registry LLC (SRR) to manage the National Mortgage Licensing System (NMLS). Under the new federal law, NMLS was tasked with licensing and registration of not only mortgage companies and brokers but also all loan originators. Regulatory working groups have drafted model legislation for implementation of the new system and new federal requirements. One positive indication is that broker education will be standardized across the states.