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guidelines

NEW FHA collection, charge-off, and judgement rules to make loans harder

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updateIn a recent announcement (FHA Mortgagee Letter 2013-25) ,  HUD said that while they will continue with their basic rule that most  unpaid collection accounts DO NOT need to be paid off in order to obtain an FHA loan,  they now WILL require that lenders consider how a creditor’s efforts to collect the account can impact the borrower’s ability to repay the loan.

When ANY ONE, OR COMBINATION of unpaid collection accounts equal $2,000 or more, the lender now needs to factor in monthly payments of 5 percent (5%) of the outstanding balance for the account into the debt-to-income ratio. If payment arrangements were made with the creditor, then that payment must be used. This is going to be a major deal breaker for many applicants.

Collection accounts for non-purchasing spouses need to also be considered in community property states (like Wisconsin).  Nothing needs to be done if the aggregate balance is under $2,000.

This additional debt-to-income requirement is sure to hurt many applicants.

Any medical accounts many be  excluded from the requirement.

Impacted loans are those that have case numbers assigned on or after Oct. 15, 2013.

On disputed accounts, manual underwriting is required when the  total is at least $1,000.  Lenders must analyze whether collection accounts or judgments were a result of disregard for financial obligations, an inability to manage debt or extenuating circumstances.

In any event, the borrower needs to write an explanation and provide supporting documentation for each account.

All of this is just more reason to make sure you are working with an experience LICENSED Loan Officer, not an unlicensed bank application clerk.

FHA new Foreclosure forgiveness policy – Not what you think. Read why

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FHA foreclosure guidelinesHow long after foreclosure for a new FHA loan?

Recently FHA announced in mortgage letter 2013-26 the ability to FOREGO the current three year waiting period for previous Foreclosures and Short Sales before you can qualify for an FHA Loan if the borrower had an ECONOMIC EVENT that created a hardship.

It has been brought to my attention that many real estate agents are now advertising this, WITHOUT GIVING THE FULL STORY.

Borrowers MUST MEET VERY STRINGENT guidelines in order to qualify for this EXTENUATING CIRCUMSTANCE.

Here is the link to the actual Mortgagee letter for your reference.  Please read the FHA foreclosure guidelines so you understand what is required.

But there is more…  Just because FHA indicates they may insure a loan meeting these guidelines, you need to understand that FHA DOES NOT DO LOANS.  Lenders do loans, and you will still need to find a lender willing to offer loans under these new guidelines.

My experience tells me that very few lenders will jump on board to offer this product, so be sure to cross your T’s and dot your I’s before you get too excited about suddenly being about to get an FHA Home Loan with a recent foreclosure or short-sale.

Mortgages for Self-employed about to be even harder to obtain

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If you’re self-employed or own a small business, getting a mortgage will become a whole lot harder soon.

Beginning in January, new lending rules go into effect that might make it more difficult for a small-business owner or self-employed individual to buy a house or refinance an existing mortgage.

READ THE FULL STORY at Deleware Online

 

What clients and Real Estate Agents Don’t Understand about Appraiser Independence

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What clients and Real Estate Agents Don’t Understand About Appraiser Independence

Minneapolis, MN:  Real Estate Agents constantly call our mortgage office to ask if an Appraisal was ordered, or if it is completed yet.

appThe first question is pretty silly…  Of course it was.  The second question is tougher to answer until the completed appraisal physically shows up on the lenders desk.

Recent lender rules require what is known as “Appraiser Independence”.  This is a double down on the old rules that no one is allowed to influence or pressure the appraiser to obtain any pre-determined value on the home. The rules also means that no one who will be compensated on the file can have anything to do with picking the appraiser.  It has to be totally blind and randomly assigned.  This is very different from years past where the client or the Loan Officer could pick any appraiser they wanted.

Once the appraisal has been ordered, there are varying degrees of what the Loan Officer may or may not know about the status of the appraisal.  Most mortgage companies use a middle company, known as an AMC, or Appraisal Management Company, to handle all aspects of the appraisal. This easily means the lender will meet the “independence” guidelines. Some AMC’s are better than others in letting the lender know the status, giving them the expected date the appraiser will visit the property, and the expected appraisal completion date. With many others, the lender is completely in the blind. In the vast majority of cases, I don’t even know who the appraiser is until the appraisal is completed.

To further complicate the issue, while it is technically possible for a Loan Officer to speak to an appraiser on a very limited number of questions, the vast majority of lenders completely forbid this contact to avoid even the remote likelihood of influence complicity.  It is much easier to respond to regulators that “our loan officers are forbidden”, then to claim they didn’t do anything wrong.

As a mortgage lender, it is very frustrating when real estate agents constantly bombard me with appraisal question.  If I know, I will tell you.  Do not yell at the Loan Officer if they don’t know the answer or say they can not talk to the appraiser.

New FHA Streamline Refinance Guidelines

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New FHA Streamline Refinance Rules

St Paul, MN:  Home owners with an existing FHA mortgage loan – rejoice. Washington has announced new guidelines to make it cheaper and easier for homeowners to refinance FHA mortgages. The reason is pretty simple – since FHA already backs your mortgage, they’re the ones who are on the hook if you default. So if refinancing will help make your mortgage more affordable for you, it makes sense for them to help.

The updated guidelines apply to FHA Streamlined refinancing, which is about as close to automatic loan approval as any refinance program can get. There are many variables to the program, but under the best circumstances, you don’t even need an appraisal, making it a great loan for underwater home owners.

Reduced FHA Fees

The changes announced dramatically reduce some of the fees usually charged for FHA mortgages and refinancing. FHA loans have two major mortgage insurance parts. The upfront fee, and the monthly mortgage insurance. For refinances starting June 11th 2012 and after, the current upfront fee of 1 percent of the loan amount is being reduced to a mere 0.01% – equal to $10 on a $100,000 mortgage – while the annual insurance premium is being cut by more than half, to 0.55 percent of the balance, down from 1.15 percent currently.

The administration estimates the reduced annual fee will save an additional $95 a month on a $175,000 mortgage, on top of the actual savings from refinancing to a lower mortgage rate.

Anyone can with an FHA mortgage can refinance at anytime, but to qualify for the reduce fees, you must have obtained your current FHA mortgage prior to June 1, 2009.

Home Lost Value?

The FHA streamline refinance option that does NOT require an appraisal is a great option for homes that have lost value. Homeowners can be underwater on their FHA mortgage (i.e., owing more than their home is worth) and still qualify for refinancing. In fact, there’s no limit on how far underwater a borrower can be and still get an FHA Streamline Refinance.

If you’re underwater, but have a second mortgage or HELOC (home equity line of credit)  – you’ll have additional challenges – so be sure to speak with a good licensed loan officer to determined your exact situation.

Bottom Line

FHA does not do loans. Lenders do loans that FHA insures. Although FHA has pretty generous guidelines for refinancing, it’s still the lender’s call on whether to refinance or not. Some lenders will have tighter guidelines, and some may even refuse to refinance a mortgage even if it appears to meet FHA requirements. The new guidelines remove some of the obstacles that sometimes make lenders reluctant to do an FHA streamline refinance, by taking such loans out of the formula used to assess their performance as FHA approved lenders. Since many of these mortgages are considered somewhat riskier than more recent home loans, some lenders have been reluctant to refinance them for fear of damaging their rating with FHA.

To see if you can obtain an FHA mortgage refinance, check with your local approved FHA mortgage lender.

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Stupid Appraisers?

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FHA guidelines state that a house has to meet MPR (minimum property standards) for existing houses, and MPS (minimum property requirements) for new construction. FHA is very concerned with the three S’s: Safety, Security, and Soundness.

When a Realtor was asked what the three FHA S’s were, he replied, “Stupid, more stupid, and seriously stupid FHA appraisers,” which I thought was pretty funny, however, a little off the mark. The three FHA S’s have to do with the following:

Click here to READ the FULL STORY

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FHA Extends Waiver of Anti-Flipping Regulations – Why it doesn’t matter in the real world

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FHA Extends Waiver of Anti-Flipping Guidelines Through 2012.

Minneapolis, MN: In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, the Federal Housing Administration (FHA) will extend FHA’s temporary waiver of the anti-flipping regulations.

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days.  In 2010, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011.  The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA.  All other terms of the existing Waiver will remain the same.  The waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.

Sounds great, BUT too bad it doesn’t really matter in the real world because of the difficulty in meeting the “strict guidelines” and lender overlays, MOST FHA lenders DO NOT offer this exception.

Remember, FHA does not lend money, lenders do. FHA only insures loans lender make. Regardless of what FHA says they will “allow”, it is still up to the individual FHA lenders to decide their ultimate underwriting guidelines. Most FHA lenders find this exception too difficult to meet the strict guidelines, and too risky, so they simply WILL NOT ALLOW any FHA transaction less than 90-days.

While we are talking FHA here, lender overlays also are common on Fannie Mae and Freddie Mac programs.

The Waiver continues to be limited to sales meeting the following conditions:

  • All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
  • In all cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value

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HARP II Guidelines Released

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HARP II – The Home Affordable Refinance Program has released the updated program guidelines.

St Paul, MN:  The HARP program, while not perfect, has been one of the few success stories in the governments attempt to help home owners.  HARP has helped close to 1,000,000 homeowners refinance, and a few tweaks to the program have just been announced. No one who closely follows the mortgage industry is expecting HARP 2.0 to generate much in the way of additional refinance opportunities in the real world over the existing HARP program – but HARP IS STILL AN AWESOME PROGRAM for those who qualify.

That view seemed to be reinforced after yesterday’s release of the specific program guidance from both Fannie Mae and Freddie Mac to lenders (see links to release below)

It appears the updated HARP programs latest program changes and enhancements aimed at allowing underwater borrowers with Fannie / Freddie mortgages to take advantage of low mortgage rates don’t appear to represent a major departure from the old requirements.

The updated basics are that the loan to value cap has been lifted, certain fees in certain situations have been removed and for borrowers who have loans owned by Fannie or Freddie and who have not been delinquent more than 1 x 30 days in the past twelve months (0 x 30 in the most recent six months) they may find refinancing available to them even if they are underwater on their mortgage to equity ratio.

However, until March 2012 Fannie and Freddie will not even accept delivery of any loan with an LTV > 125%.  And, the new loan program continues to be available only to borrowers whose loans are owned by Fannie Mae or Freddie Mac on or before May 31, 2009.

Given the lifting of the Loan-to-Value cap as a major selling point, it appears that since nothing above 125% can be delivered before March this will hamper a program that already has performance characteristics that may make it unavailable to many who could really use the program.

While a handful of lenders who offer HARP already have started to promote HARP refi opportunities, it seems a bit premature as it remains to be seen who lenders will actually implement the new guidelines.  Remember, lender overlays play a huge rule in today’s mortgage world.  Just because Fannie Mae, Freddie Mac, FHA, VA, or any other program says lenders can, doesn’t mean they will.

View the actual HARP 2 release information in PDF format:

Time will tell over the next few months as lender roll out their actual guidelines.  Stay tuned.

 Click HERE to apply for a HARP Refinance on properties in MN or WI

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Government to step in with new refinance options?

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Minneapolis, MN: Many reports have surfaced recently that the government is seriously considering a wide range of ideas to assist consumers in refinancing their homes loans owned by Fannie Mae and Freddie Mac to take advantage of today’s amazing low interest rates. For a variety of reason, mostly to due to negative equity or current tighter credit underwriting guidelines, large numbers of these homeowners have been left to the sidelines.

As a Loan Officer, I have never fully understood some of the silliness in some underwriting guidelines, and have a few suggestions.

If Fannie Mae or Freddie Mac (you and I since the government took the over during the peek of the credit crunch) already “own your loan”, you are current with your payments, and your basic financial position is OK, what does it matter if your home is underwater? They already own the the loan, and have all the risk. Wouldn’t lowering their payment reduce the risk and simply make sense?

While allowing these people to refinance, I would add one rule…  That being that you couldn’t “go backwards”. In other words, if the homeowner currently has a 30-yr fixed mortgage with 26-year remaining, they would not be allowed to have a new loan longer than 26-years.

While it is little know, and even less used as most people select a very traditional 15-yr, 20-yr, or 30-year mortgage, many mortgage lenders (including us) allow you to select any number of years you wish. If you want a 17-yr fixed, or the aforementioned 26-yr fixed, no problem. We can do that.

For FHA loan holders, a quick, immediate fix is possible to help those people refinance by simply changing a mortgage insurance rule. Allow people with existing FHA loans to refinance with their current mortgage insurance rate.

Everyday I speak with homeowners with FHA loans, where I could easily lower their interest rate by 1% – 1.5%, but it makes no financial sense for them to do it.

FHA loans all have mortgage insurance. Up until recently, the cost of the insurance, which is included in their monthly payment, was just 0.55% of their loan amount. A simple way to understand the cost, is on a $200,000 mortgage loan, the insurance costs $110 per month.

Last year, FHA increased the insurance to 1.15%. So on the same $200,000 loan, the monthly cost is now $230! YIKES. The higher insurance cost eats up most, if not all of their potential monthly savings, leaving many FHA homeowners unable to take advantage of today’s low mortgage rates.

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Buying a Condo and need financing, beware of some extra steps

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Many buyers in the Minneapolis St Paul, along with Duluth, Rochester, and throughout all of MN qualify for FHA financing. FHA is the government backed loan program that allows for just 3.5% down payment. With the changes in the mortgage industry, if you are buying a CONDO, there are extra step and rules you need to be aware of.

When buying a home, lenders approve the buyer, and approve the home. When buying a town home or condo, lenders also have to approve the Association.

Without bothering you with the details, the purpose of this post is to simply make you aware of the extra approval process, and to let you know this additional step can potentially cause a loan denial, but usually just involves a much longer loan approval process.

Everyone using FHA financing to buy a condo should check to see if the condo project is on the FHA-approved (HUD-approved) list. This is an absolute must-read for you! If you want an FHA loan, you can only buy in condo projects that are approved by HUD (the Department of Housing and Urban Development).

HUD has recently made available online a list of the condo projects that are already approved. Before I show you how to access the list, know two things:

(1) If a condo project is on the list, it must still be checked by your lender to make sure it still meets HUD’s requirements (for owner/occupancy ratios, etc.)

(2) If a condo project is not on the list, your lender needs to go through a long process to get it approved. This potentially could delay your closing, or even result in a loan denial if the condo project isn’t ultimately approved. At the least, you should check to see if the project is approved before making any offer on a condo, then ask questions as to why it is not approved.

Condo’s in unapproved projects typically are offered at below market prices because of the inability to get financing. Many of these units are only able to be bought with cash.

Here’s how you check FHA approved Condo list:

(1) Go to HUD’s website at this link: https://entp.hud.gov/idapp/html/condlook.cfm.

(2) Fill in the blanks as they pertain to your condo search, and click the ‘send’ button at the bottom of the screen.

Finally, understand with the additional burden on FHA condo financing, you need to make sure you are working with an NMLS Licensed Loan Officer who understand the additional complexities to make your purchase smooth and stress free.