If you were listening to the housing news last week, you probably heard a number of reports about lending changes that were announced by the Federal Housing Administration (FHA).  While many f the news reports were confusing, the truth is pretty clear, and isn’t as bad as some people may have heard.

Overall the measures are intended to help the FHA better manage its risks and strengthen its capital reserves, while still providing home loans to the nation.  The good news, as FHA Commissioner David Stevens stated recently, is that “by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery” and “remain the largest source of home purchase financing for underserved communities.”

What’s Changing?

If you or someone you know is considering an FHA loan, some of these changes may affect you.   Here’s a clear, concise rundown of the major changes and what they mean:

1.  Increased mortgage insurance.  The mortgage insurance premium (refered to as private mortgage insurance by many people) will be increased from 1.75% to 2.25%.  This change will add some cost to purchasing a home, but will not overburden consumers since the mortgage incsurance is paid over the lfe of the loan, rather than upfront at closing.

2. new down paument and credit score requirements.  According to the new policy, homebuyers who have a credit score of at least 580 may still be able to purchase a home with 3.5% down, but those with credit scores of less than 580 will be required to put down at leat 10%.  This change is designed to help the FHA balance its risk while still providing affordable downpayments for consumers with a history of good credit and responsibility.

3.  Reduced seller concession.  Basicly, this change means that the person selling the home will now only be able to offer the homebuyer 3% to help defray closing costs, as opposed to 6% under the previous law.

In addition to these changes, the new policies  contain a series of new measures aimed at increasing lender enforcement.

These changes will become effective on April 5, 2010.  The bottom line is that the changes will impact some homebuyers more than others.  But in the end, the FHA is still committed to providing affordable home loans.

If you’re concerned about your credit score or are worried about what these changes may mean to your specific situation, please call or email to schedule an appointment.  There are many different programs available for homebuyers, so finding the right plan for you just requires a short discussion about your goals and financial picture.

Courtesy of Kristy Bryant, Bank of Missouri

Today most mortgages are US government backed loans, and the FHA is constantly revising its requirements.  Thus it is critical to have a lender like Waterstone Mortgage who monitors and implements the daily changes or a home purchase or sale is likely not to close.  Here are the latest requirements as summarized by Waterstone.

1. Mortgage insurance premium (MIP) increase and adjustments to upfront/annual MIP relationship
• Raise upfront MIP by 50bps to 2.25%
Policy change through Mortgagee Letter – effective in Spring
• Pursue legislative authority to increase the statutory cap on the annual MIP. Upon receiving legislative approval, the upfront/annual premium structure will be adjusted, with some of the upfront premium being shifted to the annual premium. This shift will allow for an increase to the capital reserve with less impact to the consumer.
2. New downpayment / credit score requirements
• Loans to borrowers with a FICO of 579 or lower will require a minimum 10% downpayment
• Loans to borrowers with a FICO of 580 or above will require current minimum 3.5% downpayment
• Policy change through Federal Register Notice with comment period
3. Reduce allowable seller concessions from 6% to 3%
• Conform with industry standards and reduce potential value inflation
• Policy change through Federal Register Notice with comment period
4. Increase enforcement on FHA lenders
• Publicly report lender performance rankings to complement
currently available Neighborhood Watch data
Operational change; does not require new regulatory action
• Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
Implement Credit Watch termination at lender underwriting ID in addition to originating ID
Mortgagee Letter – effective immediately
• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lender’s using delegated insuring process
Policy specifications through regulation with comment period
• Pursue 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
Previously Announced Policy Changes
Effective January 1, 2010
HUD announced a series of initial policy changes on September 18, 2009 as a first round of risk management.
Changes implemented via mortgagee letter, with an implementation date of January 1, 2010:
1. Modifications to streamline refinance documentation requirements
2. New appraisal standards – implementation date has been extended to February 15, 2010 to enable system changes
3. Submission of audited financial statements required for supervised lenders
30-day notice and comment period ended on December 30, 2009 (Comments currently under review to develop final rule.)
4. Increase net worth requirements for approved mortgagees from $250,000 to $1 million within one year and $2.5 million within three years
5. Eliminate independent FHA approval of mortgage brokers who originate but do not fund loans
FHA Policy Changes Announced January 20, 2010
Joe Long
Loan Officer
office: 608-662-9585
jlong@waterstonemortgage.com
www.refinancemadison.com
waterstone mortgage is a wholly owned subsidiary of waterstone
bank ssb (nasdaq: wsbf)

I’m pleased to introduce a guest blogger to my site, Laurie Ausmus of Peoples Bank to discuss current mortgage lending.  Welcome Laurie!

Hi there!  My name is Laurie Ausmus and I am a Real Estate Loan Officer at Peoples Bank.   I am working with Terri Hermes of Windermere to keep you all informed of  our ever changing industry.   Last year, we received over 280 memo’s changing our rules and guidelines.  The good news is there is still money to lend if you can meet these requirements.  FHA (Federal Housing Administration) has announced the following guideline changes as of April 1^st:

The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent.   But not to worry, you can finance this amount it does not have to be paid upfront.

Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.

FHA would like to increase the annual premium currently capped at .55 percent.  For example on a loan amount of $100,000.00 currently you would pay monthly mortgage insurance of $45.83 per month.  I really hope they don’t succeed in raising this!

Seller paid closing costs will be reduced to 3 percent from 6 percent.   Please note that closing costs rarely exceed 3% anyway so this shouldn’t affect anyone too much!

Terri and I will do our best to keep apprised of the significant changes that come up in our industry.  In the meantime, we offer free qualification for new home loans, with a free credit report and credit score evaluation.

ALSO, the tax incentives run out on April 30^th so please hurry if you would like to take advantage of these awesome savings!

We welcome your phone calls and questions.  Please do not hesitate to call if you need anything!

In a sweeping move, the Federal Housing Authority (FHA) has changed its policies, specifically the up-front costs, for obtaining an FHA-guaranteed loan. The changes include:

Mortgage insurance premium (MIP) increase from 1.75% of the loan amount to 2.25.%

Mortgage insurance premium, or MIP, is an insurance policy taken out by the lender, in this case, the government, to protect it against loan default. So if a borrower defaults it is the MIP investment pool that is intended to cover the lender’s loss. On the purchase of a $150,000 home with 96.5% financed/3.5% down, the policy change means the MIP will increase from $2,533.13 to $3,256.88, a $723.75 change. Often times the MIP is financed back into the loan and is not paid out-of-pocket.

Borrowers with credit scores below 580 will need a 10% down payment, compared to 3.5% for borrowers with credit scores above 580.

While this change looks incredibly challenging, very few lenders will originate a loan with a borrower’s FICO score below 580, so very few prospective borrowers will be affected by this change. On a $150,000 home, the down payment would increase from $5,250 to $15,000 for borrowers with a FICO score below 580.

Allowable seller contributions will decrease from 6% to 3%.

The policy change regarding contributions appears to be significant on the surface, but in practice it will have only a small impact on the consumer market. Most offers we write where the buyer is requesting closing cost assistance are for a 3% contribution anyway. Our experience is that 3% is sufficient to cover all or nearly all of the buyer’s normal closing costs and pre-paid expenses.

Additional amounts above the normal 3% may be used to pay down buyer’s debts in order to correct their debt ratios or to buy down interest rates. One of the reasons we typically don’t see this option used is out of concern that the subject property will not appraise for an amount that it 6% over the contract price.

FHA is implementing these changes as a matter of risk reduction. Their hopes are that by making these changes, which should begin sometime this spring—FHA wasn’t specific on their timeline–they will stem the tide of defaulting loans with minimal impact on consumers.

Alex Casteel
Realtor, MBA, CDPE

alex@azreg.com
www.AZREG.com
480.373.9695

By Dean Tucker, Waterstone Mortgage – Prime Equity Group in Boise idaho

This morning the FHA announced a series of changes designed to protect the federal agency that has emerged as the cornerstone of the mortgage market as the housing sector wobbles toward recovery. 

Consumers, Lenders and Realtors may find some of these new rules painful — but necessary.  With FHA hovering around 40% of all new loan originations, even these small changes have a major impact on the continued health of the housing market.

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 from 1.75% to 2.25% and request legislative authority to increase the maximum annual (paid monthly) 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 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.

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.

Reduce allowable seller concessions from 6% to 3%

• 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.

Waterstone Mortgage Corporation is a true Mortgage Bankers, we underwrite and fund loans for over 30 of the top mortgage lenders in the country, the “Who’s Who” in mortgage lending. Our parent company, Waterstone  Bank, is $1.9 Billion strong.

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