FHA - Lots of News

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

There’s lots to write about this week as several FHA-related news pieces came to light over the past few weeks. Let’s review these pertinent changes and proposals that can and will affect FHA lending in the near or distant future.

On June 19th, HUD enacted on a second phase mail campaign by mailing out approximately 675,000 letters to U.S. homeowners who are at risk of losing their homes to foreclosure. The letters urge such homeowners to consider utilizing FHA financing programs in order to save their homes and get back on track with their financial futures. You may read the full news release, which contains an exact copy of the mailing at: Click Here>>.

On June 9th, Brian Montgomery, Assistant Secretary for Housing signed a waiver to enforce a temporary one-year waiver of Section 203.37a(b)(2) of FHA regulations 24 CFR 203.37a(b)(2). What does this mean? This waiver means that there is no longer a 90 day waiting period for mortgagees, their subsidiaries or vendors when selling REO properties. This waiver will make FHA financing possible for foreclosed properties to change hands without a 90 day seller ownership requirement which will allow foreclosure inventories to move out faster and will remove the delays that the buyers have been experiencing to date. Read more about this waiver in the HUD News Release issued Friday, 6/13 at http://www.hud.gov/news/release.cfm?content=pr08-082.cfm and for a copy of the actual property waiver signed by the Assistant Secretary, go to: Click Here>>.

On June 11th, HUD issued the anticipated Mortgagee Letter 2008-16 which announced the new risk based premium structure for FHA mortgages. The new structure takes effect for case assignments requested on and after July 14th.

The new premiums range from 1.25% to 2.25% for up-front MIP as determined by the qualifying fico score of the borrower and the loan-to-value of the transaction. Monthly MI ranges from .50 to .55. Borrowers without credit scores who require manual underwriting procedures will be subject to premiums ranging from 1.5 to 2.0 for up front MIP and .50 or .55 for monthly MI.

Determining credit scores will be defined as follows:

• For borrower with three fico scores, the middle score is to be used
• For borrowers with only two fico scores, the lowest fico is to be used
• The single fico score is to be used for borrower with only one fico score
• For loans with multiple borrowers, the lowest determining score available is to be used. Which means that for loans that include a borrower with fico scores and a borrower with no fico scores, the lowest determining fico score is to be used.

Credit repair will become more important with this new structure because the determining risk based premium rates are to be determined by the fico score presented at the time of loan approval. If a borrower disputes the accuracy of the credit report data, and thus potentially the accuracy of the fico score(s), the only option is to delay their transaction in order to follow standard credit repair channels needed to reflect the updated score or to simply be approved and closed on the premium rates that apply at the time of underwriting review.

First-time homebuyers will be eligible for a reduction in premium if they provide evidence of completion of HUD-approved homebuyer counseling. They may choose from the list of acceptable resources at http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm.

Be sure to read Mortgagee Letter 2008-16 in its entirety at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-16ml.doc.

FHA Single Family Mortgage Insurance Table: FHA%20Single%20Family%20Mortgage%20Insurance%20Table.doc

Another piece of news worth noting- HUD has also recently reopened the comment period on the proposal to ban seller-funded downpayment assistance options. You can read the request for additional public comment, which includes instructions on how to provide your personal comments at http://portal.hud.gov/fha/investment/5087-N-04_DPA_Pub_6-11-08.pdf.

As it’s been explained to me by a reputable source, when HUD presented their proposal to ban seller-funded DPA as a means of buyer funds for downpayment the first-time around, they lacked the crucial evidence the courts felt was needed to render a decision in their favor and thus, the suits were thrown out of court.

This time HUD is ready and prepared to present specific evidence that indeed the trends have shown a much higher level of default to loans that were granted to parties who utilized downpayment assistance as a source of downpayment. This will be interesting to watch and follow in the coming months as it is a political hot button as well. This time I personally don’t expect that HUD will lose.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.