FHA Extends Flipping Waiver

December 3, 2012

An anti-flipping requirement on home loans insured by the Federal Housing Administration that was waived during the depths of the housing market meltdown and subsequently extended has been extended again. This time around, the term of the extension was doubled. On home purchase transactions, properties securing FHA loans cannot have been acquired during the prior 90 days. However, the Department of Housing and Urban Development waived the requirement in May 2010.

The waiver impacted sales contracts executed between Feb. 1, 2010, and Feb. 1, 2011.”During this period of high foreclosures, FHA seeks to encourage investors that specialize in acquiring and renovating properties to renovate foreclosed and abandoned homes,” HUD explained at the time. In a January 2011 statement proclaiming the waiver a success with more than 21,000 home loans insured for over $3.6 billion as a result of the exemption, then-federal housing commissioner David H. Stevens said that the exemption would be extended until Dec. 31, 2011.

A few days before the extension was set to expire, another extension was announced until the end of this year. HUD has, yet again, decided to extend the anti-flipping waiver, according to a Federal Register notice. This time around, however, HUD is taking a longer-term approach — extending the waiver two years until Dec. 31, 2014.

Qualified transactions must be arms-length with no identity of interest between the buyer and seller or other parties. Price increases in excess of 20 percent must be justified by a second FHA appraisal or supported by documented renovation costs. If there aren’t sufficient renovation expenditures, then the appraiser needs to provide an appropriate explanation for the increase in value. In addition, property inspections are needed, and any needed repairs for “health and safety” issues that are identified need to be completed prior to closing.

“Through the regulatory waiver, FHA encourages investors that specialize in acquiring and renovating properties to renovate foreclosed and abandoned homes, with the objective of increasing the availability of affordable homes for first-time and other purchasers, helping to stabilize real estate prices as well as neighborhoods and communities where foreclosure activity has been high,” the filing stated. Source: Mortgage Daily


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 Using Social Security Income to Qualify For a Mortgage

August 23, 2012

Documentation requirements have been released for Social Security income used to qualify borrowers for loans insured by the Federal Housing Administration. In addition, the minimum term that the income must continue has been addressed.

Questions from lenders about using Social Security income to qualify borrowers for FHA mortgages prompted the Department of Housing and Urban Development to issue clarification about the requirements in such situations.

Lenders can consider all types of earnings from the Social Security Administration when qualifying a borrower for an FHA loan as long as the income has been verified and is likely to continue for at least three years from the date of the application. According to Mortgagee Letter 12-15, eligible Social Security earnings includes supplemental security income, Social Security disability insurance and Social Security income. Income must be verified from either a federal tax return, the most recent bank statement or a proof of income letter.  In addition, the applicant’s Social Security Benefit Statement SSA-1099/1042S is acceptable.

The term of the income needs to be documented through the last notice of award letter or an equivalent document that establishes award benefits to the borrower. If the start date is in the future, then the borrower needs to have other income until the start date such as worker’s compensation or private insurance to qualify for the loan. When no expiration date is indicated, then the lender can use the Social Security income in the loan qualification without limitation. Social Security income that won’t continue for three years can only be considered as s compensating factor. If re-evaluation is pending of medical eligibility, the lender should not take that as an indication that benefit payments will stop.

“The lender should not request additional documentation from the borrower to demonstrate continuance of Social Security Administration income,” HUD stated. “Under no circumstance may lenders inquire into or request documentation concerning the nature of the disability or the medical condition of the borrower.”

The requirements are immediately effective. Source: Mortgage Daily


New Study To Spark New FHA Requirement For Tax Forms?

July 6, 2012

A government study found that some consumers who received government-insured home loans were ineligible due to unpaid income taxes. Foreclosure rates are more than double on such borrowers. The report indicated that lenders already have the tools they need to identify ineligible borrowers and recommended changes to government lending policies. The Federal Housing Administration insured 6,327 loans for $1.44 billion to borrowers who benefited from the 2009 American Recovery and Reinvestment Act and had unpaid federal tax debt. First-Time Homebuyer Credits created through the act were claimed by 3,815 of the FHA borrowers for $27.4 million.

Those findings were reported by the Government Accountability Office, which studied FHA and Internal Revenue Service data to determine who benefited from the programs and what challenges FHA faces in preventing ineligible tax debtors from receiving FHA MI. While there was no outstanding tax-debt requirements for those taking advantage of the tax credit, FHA loans are prohibited for taxpayers who have delinquent taxes unless they repay the debt or are in a valid repayment agreement with the IRS. Based on a sampling of FHA borrowers for whom complete data was available, GAO found that five-out-eight of the borrowers were ineligible for FHA because they had unpaid tax debt and were not in valid repayment agreements at the time of their loans.

“In addition, GAO found that Recovery Act borrowers with unpaid taxes had foreclosure rates two to three times greater than borrowers without unpaid taxes, which potentially represents an increased risk to FHA,” the report said. FHA documentation shortcomings were partly responsible for the violations, as were policy misinterpretations by FHA lenders. Although lenders are authorized to obtain tax debt information through the IRS Form 4506, which is already a required document, such a process is not addressed in FHA policy. Requiring lenders to obtain reliable tax debt information from the IRS on FHA loans could help prevent ineligible tax debtors from obtaining FHA loans, according to the GAO.

“Further, FHA’s policies requiring lenders to investigate whether tax liens indicate unresolved tax debt are unclear and may be misinterpreted,” the report said. “The lenders GAO spoke with believed they were in compliance with FHA’s policies when they provided FHA-insured loans to applicants with tax liens and no repayment agreements, but FHA officials indicated otherwise.”

The GAO recommends that the Secretary of the Department of Housing and Urban Development should direct the Federal Housing Commissioner to consult with the IRS and develop written policies that require mortgagees to collect and evaluate IRS documentation that would enable them to identify ineligible applicants with unpaid federal taxes. Source: Mortgage Daily


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 Addresses Use of Rental Income

June 23, 2012

Recent Article Released by FHA:

How is rental income considered for qualifying?

Rent received for properties owned by the borrower is acceptable if the lender can document that the rental income is stable through a a current lease, an agreement to lease, or a rental history over the previous 24 months that is free of unexplained gaps greater than three months. (Student, seasonal, or military renters, or property rehabilitation would provide such an explanation).

A separate schedule of real estate is not required for rental properties, provided all properties are shown on the URLA.

If the borrower resides in one or more units of a multiple-unit property and charges rent to tenants of other units, that rent may be used for qualifying purposes.

However, projected rent of additional units only and not the owner-occupied unit(s) may be considered gross income only after deducting the HOC’s vacancy and maintenance factor.

They may not be used as a direct offset to the mortgage payments.

Income from roommates in a single-family property to be occupied as the borrower’s primary residence is not acceptable.

Rental income from boarders is acceptable if the boarders are related by blood, marriage, or law. The rental income may be considered effective income if shown on the borrower’s tax returns. Otherwise, the income only may be considered a compensating factor and must be documented adequately by the lender.

The following is required to verify all rental income:

1. Schedule E of IRS Form 1040. Depreciation may be added back to the net income or loss shown on Schedule E. Positive rental income is considered gross income for qualifying purposes; negative rental income must be treated as a recurring liability. The lender must be certain that the borrower still owns each property listed, by comparing the Schedule E with the real estate owned section of the residential loan application. (If the borrower in the same general area owns six or more units, a map disclosing the locations must be submitted evidencing compliance with FHA’s seven-unit limitation. )

2. Current Leases. If a property was acquired since the last income tax filing and is not shown on Schedule E, a current signed lease or other rental agreement must be provided. The gross rental amount must be reduced for vacancies and maintenance, before subtracting PITI and any homeowners’ association dues, etc., and applying the remainder to income (or recurring debts, if negative).

Vacancy factors have been developed by HOC jurisdiction:

Santa HOC – 15% vacancy rate

Philadelphia HOC – 15% vacancy rate

Atlanta HOC – 15% vacancy rate

Denver HOC – 25% vacancy rate

Handbook 4155.1: 4.E.4.a-f, 4.D.5.b

REFERENCE

Handbook 4155.1: 4.E.4.a-f

DISCLAIMER

DISCLAIMER: All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.


FHA Rescinds Pending Collections Rule

June 19, 2012

From Housing Wire:

The Federal Housing Administration rescinded a rule that would have forced potential homebuyers to settle ongoing credit disputes of more than $1,000 before getting financing, according to an alert sent to lenders Friday.

The FHA quietly drafted the rule in March to mitigate risks to its emergency fund. The rule went into effect April 1. Borrowers had to either pay off the outstanding balance on collections accounts or document an arrangement to pay before the mortgage was approved.

Industry experts pushed back, particularly homebuilders and lenders with much of their business tied to first-time homebuyers.

Combined with the increasing insurance premiums to bolster an FHA emergency fund on the brink of a bailout, many claimed more business would be pushed to Fannie Mae and Freddie Mac, two mortgage giants the government wants to wind down.

On April 3, the FHA clarified a borrower can be exempted from the rule if the disputed collections account stems from a “life event,” such as a medical bill, death, divorce or loss of employment.

Lisa Marquis Jackson, vice president of John Burns Real Estate Consulting, said roughly 25% of the builders they surveyed the week FHA announced the revised rule anticipated either a delay or losing up to 60% of their sales.

“The ripple effects of the FHA credit dispute rule would have had a notable impact on the housing market,” Marquis Jackson said.

The FHA delayed the rule a week after it went into effect and said it would take comments from the industry until July.

According to the letter sent Friday, the FHA completely revoked the rule. Any loans written to fit the guidelines in the week between April 1 and April 8 will not be deemed in violation of HUD requirements.

An FHA spokesperson said they are still taking comments on the original proposal.

“We’ll issue new guidance very soon,” the spokesperson said.

Edward Mills, senior vice president at FBR Capital Markets, said the FHA has to strike a tough balance between helping potential homeowners who cannot get credit elsewhere and protecting the insurance fund.

“FHA killing off the rule is not a surprise when you take into account the resounding objection from the housing finance community and their concern that this would overly constrain credit,” Mills said. “This action shows how it can be incredibly difficult to make choices that move towards protecting the insurance fund over keeping mortgage credit available.”