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.”

 

Advertisements

House Passes FHA Bill To Shore Up Finances

September 12, 2012
From Mortgage Daily–This may portend further FHA mortgage insurance increases….

A near-unanimous vote was reached in favor of a bill that would increase liability for mortgagees that commit fraud or knowingly violated policies on government-insured mortgages. The legislation also addresses the solvency of the government’s home loan insurance fund.

H.R. 4264, the FHA Emergency Fiscal Solvency Act of 2012, was passed Tuesday by the House of Representatives by a vote of 402 to seven.

The bill would establish minimum annual mortgage insurance premiums of at least 0.55 percent of the remaining insured principal balance. In addition, it would give the Department of Housing and Urban Development the discretion to charge premiums up of up to 2.0/2.5 percent. The higher premiums would take effect six months after the bill is enacted.

The legislation also requires lenders that commit fraud to reimburse the Federal Housing Administration for related losses.

“If fraud or misrepresentation was involved in the origination or underwriting of the FHA mortgage, HUD could require the mortgagee to indemnify HUD regardless of when an insurance claim is paid,” an executive summary of the bill says.

Mortgagees would be required to indemnify FHA if HUD determines that lenders knew, or should have known, about a serious or material violation of FHA underwriting standards.

Government-insured mortgages that become 90 days delinquent during the first two years could trigger indemnification from lenders.

HUD will be required to set up an indemnification appeals process, issue regulations and report the number of fraudulent or improperly underwritten loans. The housing agency would also be required to report about how indemnification is impacting the FHA Mutual Mortgage Insurance Fund.

FHA lenders would have to report to HUD within 15 days of discovering that another lender is committing fraud or material misrepresentations.

The bill additionally expands HUD’s ability to terminate the authority of poorly performing mortgagees and requires performance tracking by servicer.

One section of the bill provides for the establishment of a chief risk officer for the Government National Mortgage Association, or Ginnie Mae.

Another section directs the HUD secretary to provide Congress an emergency capital plan for the restoration of the FHA’s fiscal solvency within 30 days of the bill’s enactment.

“The plan would provide a detailed explanation of how the FHA’s capital assets are monitored and tracked; how to ensure the FHA’s financial safety without borrowing funds from the U.S. Department of Treasury; and describe how, if necessary, the FHA would draw down funds from the Treasury,” the summary states.

Monthly reports to Congress are required as long as FHA’s capital reserve ratio is less than 2 percent.

Between 2013 and 2017, implementation of the bill is expected to cost $11 million.

“We are pleased that the bill passed by the House includes provisions that will allow FHA to continue its efforts to strengthen its enforcement capabilities in order to protect its insurance fund and American taxpayers,” Acting FHA Commissioner Carol Galante said in a statement. “We look forward to continuing to work with both chambers to enact final legislation to provide FHA with the tools it needs to build on the vital reforms implemented by this administration.”

 

FHA Addresses Issue Regarding Streamline Refinances

June 30, 2012

FHA has released a notice regarding Streamline Refinances and previous case numbers.

“Mortgagee Letter 2012-4 announced lower Up-Front and Annual MIP for the streamline refinancing of FHA loans which FHA endorsed on or before May 31, 2009. This policy went into effect on June 11, 2012. FHA recognizes that there is a pipeline of streamline refinance loans that received FHA case numbers before June 11, 2012 that may be eligible for the lower Up-Front and Annual MIP, but have not yet closed. 

On March 30, 2012 FHA announced the process for canceling individual case assignments for loans that meet the requirements for the reduced MIP. On April 10, 2012 FHA announced to the process for bulk cancellation requests. There is no deadline for canceling FHA case numbers on these loans and issuing a new case number on or after June 11, 2012 as long as the loan has not yet closed.

The following is a link to the Mortagee Letter referenced in this notice:

http://portal.hud.gov/hudportal/documents/huddoc?id=12-04ml.pdf

The following is a link to  FHA’s Streamline Refinance Page:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/buying/streamli

 

 


FHA Amends MIP Increase Mortgagee Letter

March 9, 2012

Late Thursday evening, FHA released an amended version of 2012-04 which covers the mortgage insurance changes. The chart effective June 11, 2012 was changed, correcting 15-year mortgage insurance for jumbos.  Below is the corrected mortgagee lettter link…

http://portal.hud.gov/hudportal/documents/huddoc?id=12-04ml.pdf


New Details Emerge on FHA Mortgage Insurance

March 6, 2012

FHA has released Mortgagee Letter 2012-04 on the Morgage Insurance Changes.   Note the following changes to previously reported information…

a. The upfront increase to 1.75% and extra 10 bp monthly is now effective with case numbers issued on or after April 9.

b. The jumbo 25 bp increase is now effective wtih case numbers issued on or after June 11.

c. The reduced Streamline Program is also effective June 11.

For the full letter, go to:  http://portal.hud.gov/hudportal/documents/huddoc?id=12-04ml.pdf

We will go over in detail in our FHA update webinar tomorrow at 2:00 pm EST.  To register–you need to be a trial subscriber. Go to www.originationpro.com


Administration Slashes Costs For Some FHA Refinances

March 6, 2012

The White House on Tuesday said it was cutting the costs of some government-insured mortgages in a move that could open the door to cheaper loans for as many as three million borrowers.

The fresh round of changes from the administration affects loans the Federal Housing Administration insures and would reduce fees on those mortgages for borrowers previously unable to borrow at lower rates.

Those using the so-called “streamline” refinance program allows FHA borrowers to win new FHA-backed loans without going through some of the more stringent guidelines that make locking into new loan terms more challenging.

The Obama administration said it will lower the costs on up-front mortgage insurance premiums to 0.01 percent for streamlined refinancings of FHA loans. The White House also said it will cut the annual fee for these refinancings in half to 0.55 percent.

The eligible borrowers for the streamline refinance program must have taken out those FHA loans before June 1, 2009.

Many FHA borrowers have found refinancing prohibitive in recent years because of increased insurance premiums. The administration has been increasing fees for the FHA loans it insures over the last two years since the agency’s market share has ballooned.

The changes to the government’s streamlined refinancing program could help the typical FHA borrower find “significant monthly savings,” according to the administration.

Since mortgage rates are at historic lows and hover around 4 percent, the administration estimates a typical FHA borrower with $175,000 outstanding on their loan could reduce monthly payments to $915 a month and save $100 a month more than the borrower would have under current FHA fees.  Source: Reuters


More Changes “In The Wind” From FHA

March 1, 2012

With the increase in FHA insurance premiums, FHA is looking at further tightening of rules. However, they are also looking at what they have done to hurt the markets….for an update, we will be giving an FHA webinar next week

….Click Here  and select the free trial and you will registered automaticall.

Article from HousingWire…

The Federal Housing Administration may revise recent regulations some say are hurting purchases and refinances for condominiums. Last year, the FHA implemented several new restrictions on condo loans it would guarantee. At least half of the units must be owner-occupied for projects built longer than a year ago, and one investor can own no more than 10% of the units. The FHA also forbids refinancing for developments with more than 15% of the units more than 30 days past due. Rep. Robert Dold, R-Ill., questioned FHA Commissioner Carole Galante on the new restrictions at a House subcommittee hearing. Dold said those who cannot unload REO or rent space quickly are unnecessarily shut out of financing. “I will commit to you here that some of these I think we can make some adjustments. There are others where we have to walk an important line here to assure that FHA loans are stable and operating, because there is a concern about that for th FHA fund,” Galante said, referencing the fragile capital reserve accounts. The FHA endorsed more than $1.7 billion in condo loans from October to December, less than half of the $3.7 billion guaranteed in the same period the year before. Source: HousingWire