FHA Program Guidance for Increased Loan Limits

Written By: Bonnie Wilt-Hild
Senior DE Underwriter & NAMP Instructor

Hello all. Well, we knew it was just a matter of time before some type of controls were place on the increase loan limits recently implemented by FHA and sooner than later they have been implemented.

Yesterday FHA issued Mortgagee letter 08-09 which provides further guidance to new applications, which will be originated, processed and underwritten under the increased mortgage limits, more specifically for any loan which will exceed the FHLMC conforming loan limits issued January 1, 2008, and these changes become effective for any loans originated as of the date of the mortgage letter which was April 1, 2008.

Before we discuss the changes, my first bit of advice is to check your pipelines because this will directly affect any loans originated under the higher statutory loan limits with loan amounts exceeding $417000.00. The short term affect may be loans that are now dead deals if your loan to value limits exceed those placed on cash out refinances and next getting loans closed that are located in declining market areas which now require a second appraisal. For the loan brokers out there, if you have a case in underwriting with your sponsoring DE Lender, this means a hold up before closing because it is very possible that second appraisals will now be needed and based on the number of loans that particular investor has from a wholesale standpoint this could take some time. For DE Lenders, well good luck. Now for the changes.

Mortgagee Letter 2008-09 issued on April 1, 2008 has issued the following changes for all “high-balance” loans originated on or after the dated of the mortgagee letter. The changes directly affect all mortgages that exceed January 1, 2008 conforming loan limit of $417000.00 and implement a second appraisal requirement for all properties located in lender and HUD determined declining markets as well as limiting the LTV for cash out refinances.

The second appraisal requirement comes into effect on loan amounts greater the $417000 in which the property is located in a declining market and the LTV is equal to or greater then 95%. The declining market will be determined by the appraiser and or the lender who may use other sources to determine the market conditions for the area in which the property is located.

The lender may use the available sources to determine the market situation for the subject property by using the sources as set forth in mortgage letter 08-09. The second appraisal must be performed by an FHA approved roster appraiser is and is the DE Lenders responsibility to obtain however a second case number is NOT required. An exterior only report may be completed for 1 unit detached dwellings on FNMA/FHLMC 2055 however any other property type including condominium units require full interior and exterior inspections. Any repairs noted by the review appraiser must be completed prior to loan closing. LTV must be based on the lesser of the two values if value deviates by more then 5%.

Lastly, the mortgagee also provides new rules for cash out refinances where the loan amount will exceed $417,000 and in short, your loan to value is limited to 85% of the appraised value. This is the big one and could have quite an affect on loans already originated under the increased loan amounts as cash out refinances. Keep in mind that guidelines as set forth under FHA Secure remain in place. For further information Mortgagee Letter 2008-09 can be found in FHA connection and will provide further guidance such as case binder submission and the like. You can also access the letter using the link listed below.

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

About the Writer. As an NAMP staff writer, Bonnie serves as a senior instructor for FHA Online University as well maintains a full-time job as Senior DE Underwriter for a major banking institution. If you would like to become a writer for NAMP, please email us at: blog@mortgageprocessor.org.