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FHA Policy Updates

Recent FHA guideline updates and lobbying efforts

Oct. 20, 2009

By SAM GARCIA


In addition to several updates to guidelines for making residential loans insured by the Federal Housing Administration, several trade groups are lobbying Congress for more changes -- including the extension of temporary higher loan limits.

In Mortgagee Letter 2009-43, the U.S. Department of Housing and Urban Development unveiled changes to the HOPE for Homeowners Program -- including making borrowers with a net worth above $1 million ineligible. Borrowers who have intentionally defaulted on any substantial debt during the past five years are also ineligible.

The letter indicated that loan-to-values and debt-to-income ratios have been revised, while the special lender and underwriter certification has been eliminated. Up-front mortgage insurance premiums have been excluded from the maximum LTV on H4H loans, and two years' tax returns are no longer required. HUD also noted that appraisal age under the H4H program now follows standard FHA guidance and mortgage insurance premiums have been.

The H4H shared appreciation feature has been eliminated, and an exit premium replaces shared equity. A new note replaces the prior share-equity and -appreciation notes. HUD said lenders must submit five test cases. (read Mortgagee Letter 2009-43)

Mortgagee Letter 2209-42 issued Monday reminded servicers that FHA sub-servicers must be approved by the agency as a mortgagee. Mortgagees are liable for the actions of the sub-servicers.

Quicken Loans issued a news release Wednesday urging prospective borrowers to act now on FHA streamline refinance applications before stiffer FHA requirements take effect on Nov. 17. Among the changes are the requirement for a new appraisal if any portion of the closing costs or prepaid fees are rolled into the new loan. Under the new guidelines, borrowers are required to pay all points in cash.

Quicken, which claims to be the fifth-biggest retail lender and the biggest online lender, also noted that a minimum of six payments must have been made on the current loan before an FHA streamline refinance can occur.

Making high-cost FHA loan limits permanent is "crucial" to the U.S. housing recovery, the National Association of Realtors reportedly told Congress earlier this month. NAR spokesman Boyd Campbell said in a statement that the House Subcommittee on Housing and Community Opportunity should quickly consider H.R. 2483, which would make the $729,750 limit in high-cost areas permanent.

The Realtors claim that FHA's capital reserve ratio dropped below the federally mandated 2 percent not because of FHA's business activity -- but "simply" because of falling home prices.

The hearing -- The Future of the Federal Housing Administration's Capital Reserves: Assumptions, Predictions and Implications for Homebuyers -- was also attended by Mortgage Bankers Association Chairman David G. Kittle, who told the legislators that rapidly rising unemployment and falling home values are to blame.

Kittle called on Congress to appropriate the $72 million in annual FHA funding authorized by H.R. 3146, the 21st Century FHA Housing Act. He also recommended that the agency improve originator quality by requiring rigorous licensing and registration requirements and increasing net worth requirements.

In addition, Kittle backed making the higher FHA loan limits permanent.

MBA was among nine trade groups that also included the American Financial Services Association, the Consumer Mortgage Coalition and the National Association of Homebuilders to sign a letter to four representatives asking that higher FHA and conventional loan limits be extended beyond Dec. 31. The expiration would "jeopardize the fragile recovery in major housing markets."


Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com in 2000.

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Affordable Refinance Program, H A R P 2.0 and other Making Home Affordable coverage.



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