What does this mean for homebuyers?  It means monthly payments will rise.  On a hypothetical purchase of  a home for $215,000 the total monthly “PITI+MI” payment would increase from $1,509 to $1,552; an increase of $43 per month.

To avoid this change homebuyers would have to be in contract to buy a home a couple days before April 17th so that the lender could register the loan with HUD prior to the change.  The upfront mortgage insurance premium that gets financed into the loan amount would remain unchanged at 1.00%.

Current MI arrangement for >95% loan-to-value per $100,000

Loan Amount: $100,000

Upfront Mortgage Insurance Premium (2.25%): $2,250

Total Loan Amount: $102,250

Monthly Mortgage Insurance Premium (.55%): $45.83

Monthly Principal & Interest + Mortgage Insurance @ 4.50%: $563.92 (does not include property taxes or homeowner’s insurance)

New MI arrangement for >95% loan-to-value per $100,000 as of September 7 October 4th, 2010

Loan Amount: $100,000

Upfront Mortgage Insurance Premium (1.00%): $1,000

Total Loan Amount: $101,000

Monthly Mortgage Insurance Premium (.90%): $75.00

Monthly Principal & Interest + Mortgage Insurance @ 4.50%: $586.75 (an increase of 4.05%-does not include property taxes or homeowner’s insurance)

See the spreadsheet HERE.

Currently, for a homebuyer that buys a home for $250,000 and puts the minimum 3.5% down that is required by FHA financing their monthly mortgage insurance premiums are $110.57.  Their total principal, interest,  property taxes, homeowner’s insurance, and mortgage insurance (PITI) is about $1,737.

With the proposed mortgage insurance the same homebuyer would have monthly mortgage insurance premiums of $311.61 (181% increase).  Their projected PITI payment would be $1,938 (11.6% increase).

The bill has yet to become law but I suspect that it will.  It’s unclear at this point how quickly the new provisions would be put in place.  I’m curious to know how happy the private mortgage insurers are about this.  The increase of mortgage insurance premiums should generate a lot more business for them.

If you’ll recall last September FHA announced that their capital reserves (used to insure FHA mortgages) fell below mandated levels.  These changes are designed to raise more money to boost those reserves and tighten their underwriting requirements so that the loans they are insuring are less risky.

These changes take effect for loan applications after April 5th, 2010.  I’ve underlined what I think are the most relevant changes for consumers and real estate professionals to be aware of:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
   • The first step will be to raise the up-front MIP by 50 bps to 2.25% (it is currently 1.75%) and request legislative authority to increase the maximum annual MIP that the FHA can charge.
   • If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP (this will increase monthly payments).
   • This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
   • The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.
2. Update the combination of FICO scores and down payments for new borrowers.
   • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
   • This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
   • This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3% (this will make it more difficult for first-time homebuyers to buy-down their rate and/ or require they have more cash to close)
   • The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
   • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
4. Increase enforcement on FHA lenders
   • Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.
     • This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
   • Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
     • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
     • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
   • Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
     • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
   • HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
     • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
     • Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

]]> http://evanswanson.com/general-mortgage-info/first-time-homebuyer-general-mortgage-info/low-down-payment/fha-low-down-payment-mortgage-programs-general-mortgage-info/hud-announces-important-changes-to-popular-fha-program/feed/ 0 http://evanswanson.com/general-mortgage-info/first-time-homebuyer-general-mortgage-info/low-down-payment/fha-low-down-payment-mortgage-programs-general-mortgage-info/summary-of-fha-203b-mortgage-features/ http://evanswanson.com/general-mortgage-info/first-time-homebuyer-general-mortgage-info/low-down-payment/fha-low-down-payment-mortgage-programs-general-mortgage-info/summary-of-fha-203b-mortgage-features/#comments Fri, 18 Dec 2009 20:20:44 +0000 Evan http://www.evanswanson.com/?p=2467 There are a few things to know about standard FHA loans.

*Minimum down payment requirement: Currently homebuyers who use FHA mortgage financing to buy a home can put as little as 3.5% down and borrow the remaining amount.

*Down payment may be gifted: FHA is one of the few programs that allows the entire down payment to be gifted from a family member even if the down payment is less than 20%.

*Seller may pay settlement charges: Currently the seller may pay up to 6% of the sales price towards a homebuyers settlement charges.

*Higher debt-to-income qualifying ratios: FHA is a little less restrictive than conventional financing when it comes to approving an application on the basis of an applicant’s debt-to-income ratio (DTI=sum of proposed housing payment + other monthly obligations/ gross qualifying income).

*Mortgage Insurance: The one major downside of FHA loans is that the associated mortgage insurance is expensive.  Currently purchasers who utilize a FHA loan to buy a home finance an upfront mortgage insurance premium (UFMIP) equal to 1.00 % of the base loan amount and still pay a monthly premium that is equal to .092-.096% of the base loan amount depending on the down payment.  For example, a FHA $200,000 purchase with a 3.5% down payment would carry an UFMIP of $2,000 and monthly premiums of $191.67.  A homeowner with a FHA loan must keep the mortgage insurance for at least 5 years.  After that time they may be eligible to have the mortgage insurance canceled if they can demonstrate a 22% equity position in the home.

*Loan are assumable: One of the coolest features about a FHA loan is that it is assumable.  This means that when a FHA loan holder goes to sell their property they can sell the home with the mortgage on it so long as the buyer qualifies for the existing mortgage.  This is a very attractive feature given the current level of interest rates.  FHA borrowers are encouraged to read the small print closely because having another party assume your mortgage may not release them of personal liability.

It is likely that some of these features will change with time so please confirm this information with a mortgage originator when applying for a FHA mortgage.

Looking ahead I don’t expect this pattern to change as we head into 2010.  Although reliable data isn’t widely available it is assumed that banks are sitting on hundreds if not thousands of additional homes and foreclosure rates remain high.  This guarantees a steady supply of distressed property on market over the next couple years.

Buying distressed property can create substantial opportunity because with a few repairs and cosmetic touch ups homebuyers can realize immediate equity appreciation.

Unfortunately buying distressed property is problematic. Often times conventional lenders will not approve loans secured by property with “below average” condition and the banks and cash-strapped sellers who own the home are generally unwilling to invest in repairs.

However, the FHA’s 203K streamline program is a great solution.  This program enables borrowers to finance the purchase (or refinance) of a home and the cost of its rehabilitation through a single mortgage.

Here are a few bullet points about the FHA 203K streamline loan:

*Eligible properties: Existing homes that have been completed for at least one year (no new construction).

*Down Payment: Homebuyers must have at least 3.5% for their down payment.  The 3.5% is based on the initial purchase price.  This may come from a gift from a qualifying family member.

*Maximum Loan Amount: The maximum mortgage loan amount may not exceed 110% of the after-improved value of the home.

*Maximum Rehabilitation Amounts: The maximum amount for repairs and improvements is $35,000 (this must include a 10% contingency reserve).  The homebuyer may combine the $35,000 streamline maximum with an $8,000 energy efficiency provision for a maximum of $43,000.  There is no minimum amount.

*Eligible Improvements: This program is intended to facilitate uncomplicated & cosmetic rehabilitation and/ or improvements.  Therefore, structural repairs and changes, luxury items (i.e. hot tub), and additions are not allowed.  Examples of what are acceptable are roof repair/ replacement, window repair/ replacement, and weatherization.

*Eligible Expenses: Eligible expenses are material, labor, overhead, and construction profit, plus expenses related to the rehabiliation such as permits, fees, inspection fees, licenses, and lien protection fees.

*Contractor or Self-Improvement: In most circumstances self-improvement is not permitted.  Therefore, homebuyers must hire a qualifying contractor.

*Qualifying for the loan: In general, the qualifying factors for the streamline 203K is the same as the standard 203B loans.

*Transaction process: Homebuyer is pre-approved for 203K loan, finds home and reaches agreement with seller (be sure to have FHA Amendatory Clause and Real Estate Certification signed with purchase agreement), homebuyer must hire licensed/ bonded contractor to get estimates on repairs, loan application along with HUD form 92700 is submitted to lender, appraisal is completed, loan is approved and funded, rehabilitation amount is funded into escrow account, 50% initial disbursement is made to contractors, contractors complete work, final inspection may be required, and final payment is made to contractors.  Because of the additional paperwork and underwriting requirements associated with the rehabilitation work we recommend 60 day closing schedules.

*Interest rates and closing costs: Because of the limited supply of wholesale 203K loan offerings and because of the recommended extended close times the interest rate for a 203K loan will be about .125%-.375% higher than the standard FHA loan.  A homebuyer can also expect an additional $500 in closing costs because of more extensive appraisal and additional administration requirements.

This post is meant to provide a concise summary of the 203K loan program.  Please contact me directly for further information and necessary paperwork.

HUD say's "FLIP OFF!"

What is the anti-flipping rule?

It prevents homebuyers from obtaining FHA financing when they write an offer to buy a home within 90 days of the seller obtaining ownership.  In other words, if Bill buys a home today and immediately puts it back on the market tomorrow a homebuyer using FHA financing would not be able to write an offer to buy it until 90 days has gone by.  There are a few exceptions including when ownership has transferred via foreclosure or via the distribution of an estate.

Why does FHA have this rule?

FHA originally put this rule into place to prevent fraudulent property flippers, lenders, and appraisers from churning a property and cashing-out nonexistent equity.  These schemes actually took place during the boom years and ended up costing FHA millions.

What else does a homebuyer need to know?

The anti-flipping rule doesn’t totally prevent the usage of FHA financing to acquire a legitimately “flipped” home.  The homebuyer must wait until the 91st day of the seller’s ownership to write an offer to buy the home.  Furthermore,  if a sale takes place within the first year of a seller’s ownership a FHA underwriter is likely to require 2 appraisals no matter what the circumstance.  If the seller has improved the property and is selling the home at a premium from the price they paid then the FHA underwriter will also likely request seller-provided documentation to justify the increase in the homes value (i.e. receipts from contractors for services and materials).