New FHA news and Help For Homeowners Info

FHA Announces Date For HECM Limit Increase to $417K
New Limit On November 1, 2008
FHA has finally set a target date for increasing the HECM limit nationwide as passed in the FHA Modernization bill. The new limit will be $417K nationwide, although there were some questions about whether the law would allow higher limits in some areas.

Reduced HECM Origination Fees
In conjunction with the increase in HECM loan limits, the new law also places new limits on HECM origination fees. The list below is stated differently than the law but provides the same result. Select the row for your subject property value to calculate the maximum origination fee:

Property Value Origination Fee
0$ to $100K = $2,000
$100K to $200K = 2%
$200K to $400K = $4,000 + 1%
Over $400K = $6,000

HECM Purchases Effective 1/1/2009
FHA has announced a 1/1 effective date for HECM purchases. Borrowers will simultaneously close and convert their loans to a HECM. This will be a great program for seniors that are downsizing or relocating to Florida.

Counseling Fees Must Be Paid By Borrower
Seniors must now pay for their own counseling. Brokers/lenders may not directly or indirectly pay for counseling. Most counselors are charging $125 unless the borrower can demonstrate serious hardship.

Effort to Revive FHA Seller-Funded Down Payments
Bill Introduced Into Congress
The FHA Modernization bill eliminated all seller-funded DPA (such as Nehemiah) effective 1/1/2009 and the lenders have already stopped accepting loans with seller DPA. A bill has been introduced into the House that would allow seller-funded DPA under more structured guidelines. I doubt that congress will move on this bill until the financial crisis begins to settle, so I'll spare you the details for now.More Information: House Resolution 6694

Hope For Homeowners Program (H4H)- Bailout Bill
Small Changes Could Have Big Impact
It seems that most of the impact of the Bailout Bill on the mortgage market could be slow and indirect. However, Section 124 of the bill is interesting. It modifies a few key sections of the H4H program by allowing the H4H board to:
Increase the Maximum LTV of H4H Loans
Allow payments to the prior lenders in lieu of participation in the Shared Appreciation Mortgage.
I doubt this will be enough to make the program viable but it's a step in the right direction. Although I still have serious concerns about the viability of the new program, at least it is causing a significant increase in borrower activity. Anything that helps us move past the current situation is welcome.

H4H Borrower Eligibility
Don't Forget the DNA SamplesBorrowers must meet the following criteria to be eligible:
Prove they have not intentionally defaulted on their loan or any other debt.
Have paid at least 6 payments on current loan.
Borrower cannot have been convicted of fraud within the past 10 years.
Certify that they did not provide any false information to get their original loan.
Prove they had a housing expense DTI > 31% as of March 1, 2008.

H4H Mortgage Eligibility
Any Loan Type, As Long As The Lender Will Take The HitExisting mortgage(s) must meet the following:
Existing loans originated before 1/1/2008.
All existing lien holders must accept the short payoff as payment in full.
Existing lien holders must waive all pre-payment and late penalties.
Existing loans may be of any type including Conventional or Government, Fixed or ARM.
Existing loans may have any payment type including Fully Amortizing, Interest Only, Payment Option or Negative Amortization.

H4H Property Eligibility
No InvestorsProperties must meet the following to be eligible:
Primary residence only.
Borrower(s) may not have any other properties (no rental or 2nd home).
Single unit only. Any FHA-allowable property type.

H4H Loan Terms
The Good, The Bad & The UglyThe terms of the new loan will include:
Maximum LTV of 90% of current value
Nationwide limit of $550,440
30-Year Fixed Only
Up-Front MIP of 3.00%
Annual MIP of 1.50% (Ouch!!)
The new loan will include 3 liens:
First Mortgage with 90% LTV
Shared Equity Mortgage (SEM) with 10% LTV
Shared Appreciation Mortgage (SAM)

H4H Shared Equity Mortgage (SEM)
Equity Sharing Between FHA & BorrowerThe 10% equity created by the H4H transaction must be shared with FHA in the event of a sale or refinance. The split between FHA and borrower changes over time as follows:
Year 1: 100% to FHA
Year 2: 90% to FHA
Year 3: 80% to FHA
Year 4: 70% to FHA
Year 5: 60% to FHA
After Year 5: 50% to FHA

H4H Shared Appreciation Mortgage (SAM)
The Only Chance For Prior Lender to Recover Write-OffAny future appreciation of the property must be shared with FHA and the prior lender. The formulas are complicated but in the end, the prior lenders could recover up to 12% of their write-off. The lender must wait until the home is sold no matter how long that may be.

H4H Borrower Qualification
What is a "Trial Modification"? Borrowers must meet the following to qualify for the new loan:
New payment must be less than a fully indexed and fully amortized payment for the prior loan(s).
Tax transcripts must be ordered for 2 years for ALL loans to verify income.
Borrower must have a DTI for new loan at or below 31/43.
Borrowers may have DTI up to 38/50 but only if a Trial Modification period has been completed.
Borrowers must make at least 3 consecutive "trial modification" payments to the existing mortgage prior to application.
Trial Modification payments must be at least the amount of the full PITI of the new H4H loan.
Other than the items above, underwriters are instructed to use Total Scorecard and other standard FHA guidelines for qualification. FICO requirements are not discussed.

H4H Documentation
More Docs, Because FHA Packages Aren't Long Enough H4H loans will include several additional disclosures, forms and closing documents. We'll save the details but you can review most of them with the following link.

More Information: H4H Supporting Documents