More details were released about the new FHASecure program.
The U.S. Department of Housing and Urban Development issued Mortgagee Letter 2007-11 outlining the parameters for the new program announced by President Bush last week. Some details were explained in an announcement from HUD last week.
The program allows for maximum loan-to-values of up to 98.75 percent on properties appraised at $50,000 or less, while the maximum is 97.15 percent on properties valued at more than $125,000, according to the letter signed by Federal Housing Commissioner Brian D. Montgomery. Mortgage insurance premiums are not considered in the LTV calculation.
Purchase money second liens, escrow arrearages, closing costs, prepaid expenses, discount points, prepayment penalties and late charges can be included in the refinance, the agency said. Late payments that arose after a payment reset can also be included.
New second liens may be used in high-cost areas as long as the combined LTV doesn't exceed the previously mentioned maximums, the letter indicated.
If the borrower does not qualify under the TOTAL Mortgage Scorecard, then underwriters need to insure a maximum debt ratio of 43 percent -- or provide compensating factors; verify the mortgage payment was not 30 days late during the six months prior to the rate reset; and provide an explanation that the borrower's inability to make timely payments was due to the reset.
HUD noted it could reject loans where it appears the borrower was convinced by a mortgage company to stop making payments after the reset and pocket the cash until the FHA refinance closes.
The letter said appraisers must analyze and explain whether the property is in a declining market.
"The mortgagee's responsibility is to properly review the appraisal and determine that the appraised value used to support the mortgage is accurate and adequately supported," according to HUD. "Lenders are reminded that if the appraiser they selected provides a poor or even fraudulent appraisal that leads the department to insure a mortgage at an inflated amount, the lender is held equally responsible with the appraiser for the violation if the lender knew or should have known."
FHA To The Rescue
The U.S. Department of Housing and Urban Development provided more details on President Bush's plan to help delinquent borrowers.