FHA Announces Major Changes

February 5, 2013

From the Mortgage Bankers Association of America

HUD announced a new series of changes aimed at strengthening the troubled FHA Mutual Mortgage Insurance Fund.

The steps include:

• Consolidation of FHA’s Home Equity Conversion Mortgage options;

• An additional 10 basis-point increase in FHA mortgage insurance premiums;

• Requiring borrowers to pay annual mortgage insurance premiums for the life of the loan;

• Requiring lenders to manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income ratio greater than 43 percent;

• A proposed increased down payment requirement for mortgages with original principal balances above $625,500;

• Increased enforcement efforts for FHA-approved lenders regarding “aggressive” marketing to borrowers with previous foreclosures

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs,” said FHA Commissioner Carol Galante. “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American home buyers.”

The changes come in the wake of FHA’s most recent actuarial report on the MMIF. The December report said in fiscal 2012, the Fund’s capital reserve ratio fell below zero to negative 1.44 percent, well below its congressionally mandated 2 percent capital reserve ratio, while the Fund’s economic value fell to negative $16.3 billion.

The report cited continued losses stemming from FHA’s former practice of allowing down payment assistance programs, as well as losses from FHA’s Home Equity Mortgage Conversion program, also known as reverse mortgages and spurred concerns on Capitol Hill that FHA might have to ask the federal government for additional financial support. HUD Secretary Shaun Donovan in December said no such decision would take place until the Obama Administration submits its proposed fiscal 2014 budget in February.

A summary of FHA actions announced yesterday:

Home Equity Conversion Mortgage Consolidation. FHA said it will consolidate its Standard Fixed-Rate Home Equity Conversion Mortgage and Saver Fixed-Rate HECM pricing options, effective for FHA case numbers assigned on or after April 1. Galante noted the Fixed-Rate Standard HECM pricing option currently represents a “large majority” of the loans insured through FHA’s HECM program and is responsible for placing “significant stress” on the MMIF. 

“To help sustain the program as a viable financial resource for aging homeowners, the HECM Fixed-Rate Saver will be the only pricing option available to borrowers who seek a fixed interest rate mortgage,” FHA said. “Using the HECM Fixed-Rate Saver for fixed-rate mortgages will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the Mutual Mortgage Insurance Fund.” 

Additional details can be found in a new HECM Mortgagee Letter: http://portal.hud.gov/hudportal/documents/huddoc?id=13-01ml.pdf.

Changes to Mortgage Insurance Premiums. FHA said it will increase its annual mortgage insurance premium for most new mortgages by 10 basis points (0.10 percent) and will increase premiums on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05 percent. These premium increases exclude certain streamline refinance transactions. 

FHA will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan, reversing a 2001 change in which FHA cancelled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance. FHA acknowledged that it remained responsible for insuring 100 percent of the outstanding loan balance throughout the entire life of the loan, a term which often extends far beyond the cessation of these MIP payments. 

Galante said FHA’s Office of Risk Management and Regulatory Affairs estimated that the MMIF has foregone “billions of dollars” in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy.

“Therefore, FHA will once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled,” Galante said. “This will permit FHA to retain significant revenue that is currently being forfeited prematurely.”

Manual Underwriting Requirement on Loans with Decision Credit Scores below 620 & DTI Ratios Above 43 Percent. FHA will require lenders to manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income ratio greater than 43 percent. Lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded, using FHA manual underwriting and compensating factor guidelines.

Raising Down Payment on Loans above $625,500. Through a Federal Register notice to be published in the next several days, FHA will announce a proposed increased down payment requirement for mortgages with original principal balances above $625,500. The minimum down payment for these mortgages will increase from 3.5 to 5 percent. 

“This change, coupled with the statutory maximum premiums charged for these loans, will help protect FHA and further facilitate its efforts to encourage higher levels of private market participation in the housing finance market,” FHA said.

Access to FHA after Foreclosure. FHA also announced it will step up its enforcement efforts for FHA-approved lenders regarding aggressive marketing to borrowers with previous foreclosures and remind lenders of their duty to fully underwrite loan applications. FHA also said it will work with other federal agencies to address such false advertising by non-FHA-approved entities. 

“It has come to FHA’s attention that a few lenders are inappropriately advertising and soliciting borrowers with the false pretense that they can somehow ‘automatically’ qualify for an FHA-insured mortgage three years after their foreclosure,” FHA said. “This is simply not true and such misleading advertising will not be tolerated.”



Fannie Mae Lowers LTVs For ARMs and Raises Min Credit Scores

August 25, 2012

Loan-to-value ratios on loans with adjustable rates are being reduced by Fannie Mae, while the ratios are being increased on some fixed-rate transactions. Fannie is also making changes to some of its credit score requirements. The maximum LTVs on adjustable-rate mortgages used for purchase or limited cashout transactions on one-unit primary residences have been lowered to 90 percent for both manually underwritten and Desktop Underwriter loans. The current maximum LTV is 97 percent through DU and 95 percent with manual underwriting. On the majority of other ARM transactions, LTVs are being cut by 10 percent, though the lowest LTV will be 60 percent.

The updates were outlined in Selling Guide Announcement SEL-2012-07 and are part of Fannie’s process of reviewing eligibility policies to determine that they are appropriate based on new data and loan performance. ARMs originated in conjunction with community seconds are no longer eligible for a 105 percent combined LTV ratio. But on fixed-rate mortgages used for purchase or limited cashout on two-unit primary residences, the Washington, D.C.-based company is increasing the LTV ratio from 80 percent to 85 percent. Fannie is also eliminating the lower LTV requirements for certain co-op share loans. The same goes for HomeStyle Renovations loans, though they will be capped at 95 percent. Four counties in Hawaii will see LTV ratios rise from 80 percent to 90 percent on fixed-rate loans in excess of $625,500.

The minimum credit score for manually underwritten ARM borrowers is being raised to 640 from 620, though some transactions will require even higher scores. Specific credit score requirements on high-balance loans are being eliminated from DU, and the standard DU minimum credit score will now apply. If at least one borrower on a loan is qualified solely on the basis of nontraditional credit, then the property must be a one-unit primary residence. The loan purpose in such cases is restricted to limited cashout or home purchase. Loans underwritten through DU 9.0 on or after Oct. 20 are subject to the new requirements, while manually underwritten loans with applications dates on or after Oct. 20 will need to be underwritten based on the new requirements. Source: Mortgage Daily

Credit Study Shows American’s Still Don’t Get It

May 15, 2012

From Consumer Federation of America

Updated CreditScoreQuiz.org Provides Important Information Consumers Need to Know About Credit Scoring

Washington, D.C. (May 14, 2012)– Over the past year, consumer knowledge about credit scores improved significantly, including awareness of who collects information on which most scores are based, the importance of checking this information, what good scores are, how to raise them, and what service providers use these scores.

But most consumers still do not know how costly low scores can be, when multiple inquiries hurt their scores, and the risks of purchasing credit repair services, according to findings of the second annual consumer knowledge about credit scores released today by the Consumer Federation of America (CFA) and VantageScore Solutions.  To better inform consumers, CFA and VantageScore will continue to inform consumers and financial educators about the updated credit score quiz — http://CreditScoreQuiz.org/ and www.CreditScoreQuiz.org/Espanol (http://www.cuestionarioparaelpuntajedecredito.org/) and its related brochure http://creditscorequiz.org/images/creditscorequiz.pdf.

“In the numerous consumer knowledge surveys we have undertaken over the past several decades, I have never seen such improvement from one year to the next,” said Stephen Brobeck, CFA’s Executive Director.  “However, credit reports and scores are so important to consumers that they should try to improve knowledge that remains deficient in several key areas,” he added.

“While we are obviously delighted at the improvement of consumer knowledge about credit scoring, we remain committed to ensuring our educational resources will keep pace with the surging demand for credit-related education by consumers, including and especially underserved groups,” said Barrett Burns, President and CEO of VantageScore Solutions.  “The information in both the English and Spanish versions of CreditScoreQuiz.org is fresh and we will respond quickly to industry changes.”

The CFA-VantageScore survey was administered to a representative sample of over 1000 adult Americans by phone in late April 2012 by ORC International.  The margin of error is plus or minus three percentage points.  A CFA-VantageScore survey containing many of the same questions was administered by ORC International in January 2011.

More than two-fifths of respondents (42%) said they had obtained or received at least one of their credit scores in the past year.  Nearly half of this group said their source was a consumer or mortgage lender (45%) and/or a website using credit reports at the three main credit bureaus (49%).  On almost all questions, those who had recently obtained a score or scores were more likely, than those who had not, to know the correct answers.

Consumers Know More about Credit Scores Than They Did a Year Ago


Consumers know more about credit scores today than they did in January 2011.  On a wide range of questions, a higher percentage of respondents gave correct answers, for example:  which service providers use scores (up 8 percentage points), who collects information on which credit scores are based (up 7 points), the fact consumers have more than one score (up 7 points), what is a good score (up 4 points), ways to raise one’s score (up 5 points), and the importance of checking the accuracy of credit reports (up 9 points).

A large majority of consumers now know many of the most important facts about credit scores, for example:

Mortgage lenders and credit card issuers use credit scores (94% and 90% correct respectively).

  • Many other service providers also use these scores — landlords, home insurers, and cell phone companies (73%, 71%, and 66% correct respectively).
  • Missed payments, personal bankruptcy, and high credit card balances influence scores (94%, 90%, and 89% correct respectively).
  • The three main credit bureaus — Experian, Equifax, and TransUnion — collect the information on which credit scores are frequently based (75% correct).
  • Consumers have more than one generic score (78% correct).
  • Making all loan payments on time, keeping credit card balances under 25% of credit limits, and not opening several credit card accounts at the same time help raise a low score or maintain a high one (97%, 85%, and 83% correct respectively).
  • It is very important for consumers to check the accuracy of their credit reports at the three main credit bureaus (82% correct).

Somewhat surprising was the fact that most consumers understand new, and fairly complicated, consumer protections regarding credit score disclosures.  When asked when lenders who use generic credit scores are required to inform borrowers of these scores, large majorities correctly identified three key conditions — after a consumer applies for a mortgage (80% correct), whenever a consumer is turned down for a loan (79% correct), and on all consumer loans when a consumer does not receive the best terms including the lowest interest rate available (70% correct).

“Increases in consumer knowledge probably reflect in part the increased public attention given to credit scores because of the new protections,” noted CFA’s Brobeck.  “The improvements may also be related to increased efforts of financial educators, including our creditscorequiz.org, to inform consumers about credit reports and scores,” he added.


But Serious Consumer Misunderstandings Remain


Despite recent improvements in their knowledge about credit reports and scores, most consumers still lack important knowledge.

  • Few know how costly low scores can be.  Only 29 percent are aware that, on a $20,000, 60-month auto loan, a borrower with a low credit score is likely to pay at least $5000 more than a borrower with a high credit score.
  • Fewer than half (44%) understand that a credit score typically measures risk of not repaying loans rather than amount of debt (22%), financial resources (21%), or other factors.
  • Over half still think, incorrectly, that a person’s age (56%) and marital status (54%) are factors used to calculate credit scores, and 21 percent incorrectly believe that ethnic origin is a factor.
  • Very few understand when one’s credit score is potentially harmed by multiple inquiries while getting a loan.  Only 9 percent correctly know that multiple inquiries during a 1-2 week window will not lower FICO scores or VantageScore credit scores.  But 34 percent incorrectly believe that each inquiry lowers one’s scores.
  • Over half (51%) incorrectly believe that credit repair companies are “always” or “usually” helpful in correcting credit report errors and improving scores.  Experts agree that credit repair companies often overpromise, charge high prices, and perform services that consumers could do themselves.

Credit reports and credit scores tend to be most influential in the lives of 18-35 year-olds because they usually have fewer financial resources and are more likely to use credit.  So it is encouraging that, in general, these young adults know more than older ones about credit reports and scores.  That was the case on questions ranging from the cost of a low score to how to raise one’s score to the importance of checking the accuracy of credit reports.

Still, on many questions — such as the cost of a low score answered correctly by only 36 percent — young adults still have much to learn.  On a question about how student loans influence one’s credit scores, only 58 percent correctly identified three factors that affect these scores.

What Consumers Can Do to Raise Their Credit Scores

Consumers can raise their credit scores in many ways, especially by:

Consistently paying their bills on time every month.

  • Not maxing out, or even coming close to maxing out, their credit cards or other revolving credit accounts.
  • Paying down debt rather than just moving it around, as well as not opening many new accounts rapidly.
  • Regularly checking their credit reports, which can be obtained for free, to make sure they are error-free.  You can access your reports for free through the website — http://www.annualcreditreport.com — or by calling 877-322-8228.

The Impact of Foreclosures on Credit Scores

March 5, 2012

From Core Logic-Credco…

The Impact of Foreclosures on

The current trend in the marketplace is focused on the impact of foreclosures across the country. This trend has resulted in various opinions on the types of foreclosures (Short Sale, Deed in Lieu and Foreclosure) and its impact on a borrower’s FICO score.

This topic, which is raised in news articles and other industry collateral, has generated many questions among members of our various sales channels; mainly, how score models calculate each type of foreclosure. After soliciting assistance from various individuals and resources – including each of the three major credit bureaus and CreditXpert – we have compiled the following information for your review.

While many people have associated a target point impact anywhere from 100 points on a Short Sale to 280 points on a foreclosure, Fair Isaac has told us that FICO risk scores do not distinguish between the three types of foreclosures. There are so many variables in a consumer’s credit report (do they have collections or other public records?) in addition to the foreclosure account that a point impact is almost impossible to gauge. Furthecomplicating the score prediction is how the foreclosure account is reported, and if a public record accompanies it.

Each article we’ve seen suggests that a Short Sale has less of an impact on an applicant’s FICO score than a Foreclosure, but downplays the fact that there could be legal action taken by the lender on the defi ciency balance from a Short Sale. If this is the case, therewould then be both a derogatory trade line and a Public Record reporting. This is the same result as a Foreclosure; a derogatory tradeline plus the Foreclosure Public Record. Even without the Public Record filing there would still be the reporting of an MOP 8 on the Short Sale tradeline. This would have a negative impact on the applicant’s score equivalent to a foreclosure tradeline. Finally, Short Sales are typically facilitated to those applicants who have encountered credit issues.

These issues would be reflected in the derogatory reporting of other credit items within the consumer’s credit profile.

CoreLogic Credco does not provide legal advice; therefore, this information is not intended, or should be perceived, as offering legal counsel to our customers. However, there seems to be a considerable amount of incomplete or inaccurate information on this topic in the marketplace. That said, we hope this information will be helpful in addressing any questions you may field on this issue. 

The Keys To Qualifying For A Mortgage

August 26, 2011

The purchase of a home is the goal of the vast majority of Americans.  That is why home ownership is often referred to as “The American Dream of Home Ownership.”   Two-thirds of Americans have taken advantage of the tax benefits, government programs and the economic benefits of owning to become home owners.  Even in the past few years when the real estate markets have not been as “hot,” millions have taken advantage of the buying opportunities to become a home owner for the first time. With lower home prices and low mortgage rates,  homes have become more affordable than they have been during the past generation.

One area that keeps many Americans from reaching this goal is the difficulty of  qualifying for a mortgage.  The same weak real estate market that has caused homes to be a bargain has caused lenders to scrutinize loan applications as they have never done before.  Tighter credit standards are certainly an obstacle today but the good news is that potential homeowners can take positive steps to make sure they have a better chance of qualifying for a mortgage.  

There are several areas for you to focus upon that can help you get in position to qualify for a mortgage, to purchase your first home or even move up if you are already a homeowner…

Your credit score.  Today, a low score can be a cause of rejection or, at the least, add to the cost of owning a home.  It is important to start by finding out your score and, if it is low, coming up with a plan of action to raise your score. With the right plan, the good news is that anyone can raise their score. Did you know a low score can cost you hundreds of dollars per month even if you are a renter? If you don’t know your score or don’t know what your score means with regard to obtaining a mortgage, contact us and we will help you find out as well as help you set up a plan of action to raise your score.

There are many reasons for low scores, including late payments, outstanding judgments, tax liens and more.  Sometimes the information contained on your report is riddled with inaccuracies and/or information that was reported is in non-compliance with laws meant to protect the consumer.

Your monthly debts.  Many can’t purchase because they have too many debts. This problem also exacerbates the process in other ways as too many debts can help to lower your credit score and make paying a mortgage or even rent more difficult. It is important to come up with a plan to lower your debts. Paying down debts is actually a science and undertaking the task without advice can cost you thousands of dollars. Again, we can help determine how your debt load may be affecting your qualification for a mortgage as well as setting up a program to help you get your debts paid down. 

This process starts by budgeting and minimizing excess spending.  Certainly, if you are thinking about purchasing a home, you should hold off on major expenditures such as purchasing a new car or furniture. Concentrate instead on paying off existing debts.

Cash reserves.  Most home purchases require a down payment as well as the payment of closing costs. There are  many programs that may help you minimize your need for cash. For example, there are programs for active military and veterans and programs for those with low-to-moderate income.

Regardless of these programs, having cash reserves after you purchase the home is important for qualification standards and it is prudent to have reserves for emergencies at all times whether you are a homeowner or renter. Of course, the first step in building reserves is minimizing your debts.  As you can see, all of these factors are related.

Income documentation. Many Americans do not keep good records, especially with regard to the money earned by those who are self-employed or have other sources of income that vary such as tips or commission. Keeping track is very important  because mortgage programs today require detailed documentation of income. This means keeping copies of checks, receipts, tax returns and more.

For many who don’t qualify, this process may seem daunting. Yet, if you are truly committed to improving your financial situation,  the rewards are well worth it. Contact us for an analysis of your situation and to determine how we can help you change factors affecting your qualification for the home of your dreams…Dave Hershman


Great Homebuyer Presentations–Part One

August 19, 2011

Interesteded in learning more about public speaking techniques and setting up a homebuyer presentation? ?  Register for our webinar in September… www.webinars.originationpro.com . If you are a loan officer–you will be able to invite your Realtors as well.

 Public Speaking. There are few tools that are more effective because you can reach more  prospects more quickly face-to-face than any other marketing vehicle. You not only reach them, but you can deliver value and establish yourself as an expert at the same time.

This article will  take the discussion of public speaking one step further by talking about setting up presentations. It does not make sense to hone your public speaking skills if you don’t have the proper message or audience. In this case, we will use one of the most common events—homebuyer presentations.  These are held in every city across our nation by real estate agents, loan officers, closing companies and more. 

First rule: Have goals. Do not even schedule a presentation unless you have define-tive goals for that presentation. Of course, increasing your income is most always a goal, but you need to be more specific. For example, exactly how many prospects do you want to attend the presentation? What is the quality of prospects you are looking for? What action would you like them to take? Are there are any secondary goals? For example, is there perhaps a particular listing you would like to get offers on?   

Make the presentation unique.  A first-time homebuyer seminar is quite common and that is the problem. If you are marketing such a seminar, it is likely that your targets have been invited to plenty of these before. The key to marketing is differentiating yourself from the competition. Homebuyer seminars are a marketing tool. How can you make them different? Here are a few alternative titles that will serve the same purpose but may attract more attendees because they will help advance the  perception of the seminars being different from the usual:

  • How to buy a home using someone else’s money;
  • Overcoming the four obstacles to home ownership;
  • Profitable real estate investing;
  • The secret to purchasing foreclosures.

You will find the agenda for some of these topics will not be very different than the agenda for the usual first-time buyer seminar, but now you are advertising something that sounds completely different. And this difference will result in more attendees, which is the name of the game!

Use synergy partners. Here is an important marketing rule—-if you are marketing by yourself, you are wasting synergy. There is no better example of the value of this practice than  presentations.  Having partners can help in several ways:

  • They can add substance. Especially if you are not a strong speaker—why not have others on the platform with you? These “others” are experts in their field and add credibility.
  • They should market their prospects as well. Four partners marketing their spheres will attract more attendees than one person. Make sure partners understand that they can’t participate unless they are marketing as well.
  • They can also share the cost of the presentation. While these seminars should not be expensive, sharing the cost the room and any food or drinks that you serve is going to be helpful. 

Consider the ultimate invitee.  The ultimate speaker would be a representative from an association, non-profit or even governmental agency. These entities add an unbelievable amount of credibility. If there is a speaker from a local housing agency, a non-profit credit counseling organization or perhaps habitat for humanity, this additional credibility will attract even more attendees. Invites from real estate agents are rejected because consumers think they are going to be sold. Invites from agencies give the impression that they are going to learn.

The substance is important. Speaking of learning, make sure the agenda is set for learning and not just selling. The hard-sell agenda is exactly why most do not do well with attendance after more than one seminar. There are no referrals because there is no perceived value. Make sure there are at least five to ten points of learning for each participant. What can they learn? Some examples:

  • Steps to improve their credit score;
  • Tax benefits of owning and how to adjust their deductions;
  • How to obtain money to purchase;
  • The secrets to purchasing foreclosures and negotiating tactics.

If you are not going to deliver value, your seminar will be a “one-shot deal.” The next seminar will have less attendance and soon you will be searching for the next marketing vehicle. That puts you on a treadmill instead of a foundation of success.

Goals, partners and substance. These are all very important.  However, we have  other points we would like to present before you launch a successful seminar. Next we will cover the timing, location and marketing of the event. They are all important—as well as delivery and follow-up.

Dave Hershman

Special Event Thursday: Bring In More Prospects Now

June 6, 2011

Rates Are Down: Are You Ready To Take Advantage?

Complimentary Webinar  —  Bring in More Prospects Using  FDI’s CreditTrax Solution

– Thursday, June 9: 2:00 PM EDT/11: 00 AM PDT
Register Here: https://www2.gotomeeting.com/register/633976026

Want to Earn More? The formula is simple:

– Bring in More Prospects
– Qualify More Prospects
– Convert More Prospects

Are you serious about bringing in more purchases?  There is only one tool which is the most affordable and effective alternative to accomplish all three goals.  In this Webinar we will focus on showing you how to reposition yourself in order to attract more prospects and also close them using FDI’s Complete Financial Solution for your prospects and clients. With so much talk about prospects not qualifying and FDI being the most effective and affordable tool to make that happen, we have received many requests from those who are not fully taking advantage of today’s low rates because they are not bringing in enough prospects.

Consumers Are Scared Because of the News That  Lenders Don’t Want Them — This is an Opportunity For You

 FDI’s CreditTrax and EquityTrax will help you bring in more prospects as well as converting more deals. How? It is all about positioning. You now will be able to position yourself to get more referrals from Realtors, Builders and even Banks and CPAs.

Don’t miss this webinar in which Dave Hershman describes the use of this tool to help you succeed. These low rates will not be with you forever. The time to act is now! All attendees will get a consumer based webinar, Fix Your Credit Now, which you can use as a one-on-one presentation or for larger venues.

Bring in More Prospects Using FDI’s CreditTrax Solution

 Thursday, June 9: 2:00 PM EDT/11: 00 AM PDT
– Register Here: https://www2.gotomeeting.com/register/633976026

About The Speaker
Dave Hershman heads OriginationPro.  Dave is a leading industry expert with seven books written in the industry, including two published by the Mortgage Bankers Association.  Dave has been a top producing originator and production executive during his 30 years in the industry. Dave has headlined at hundreds of industry events during the past three decades and has trained thousands of originators, managers, real estate agents and operations personnel.