Articles and news about FHA loans and HUD requirements. FHA loans are great for first-time homebuyers.

Monthly Archives: November 2012

FHA Foreclosure Protection, Home Loans and Refinancing For West Virginia Storm Victims

The FHA and HUD have issued yet another Hurricane Sandy press release, this time announcing assistance for home owners in West Virginia affected by Hurricane Sandy.

According to HUDNo.12-181, U.S. Housing and Urban Development Secretary Shaun Donovan has announced that FHA/HUD will “speed federal disaster assistance to the State of West Virginia in addition to resources being provided by FEMA and other federal partners. HUD will provide support to homeowners and low-income renters forced from their homes due to Hurricane Sandy.”

On Wednesday November 28, 2012,  President Obama issued a disaster declaration for the following West Virginia counties:

Barbour, Boone, Braxton, Clay, Fayette, Kanawha, Lewis, Nicholas, Pendleton, Pocahontas, Preston, Raleigh, Randolph, Taylor, Tucker, Upshur, Webster, and Wyoming. This federal disaster zone declaration allows HUD to offer foreclosure relief and other assistance.

“Families who may have been forced from their homes need to know that help is available to begin the rebuilding process,” said  HUD Secretary Shaun Donovan. “Whether it’s foreclosure relief for families with FHA-insured loans or helping these counties to recover, HUD stands ready to help in any way we can.”

The relief to counties affected by the declaration include immediate foreclosure relief. According to the FHA press release, “HUD granted a 90-day moratorium on foreclosures and forbearance on foreclosures of Federal Housing Administration (FHA)-insured home mortgages”

There is also mortgage insurance available for disaster victims in the affected counties. The FHA/HUD official site states the Section 203(h) program “provides FHA insurance to disaster victims who have lost their homes and are facing the daunting task of rebuilding or buying another home. Borrowers from participating FHA-approved lenders are eligible for 100 percent financing, including closing costs”.

There is also assistance in the form of FHA loans for mortgages and home rehab. The Section 203(k) loan program “enables those who have lost their homes to finance the purchase or refinance of a house along with its repair through a single mortgage. It also allows homeowners who have damaged houses to finance the rehabilitation of their existing single-family home”.

For more information on these programs, visit the FHA official site at FHA.gov.

Do you have questions about FHA home loans? Ask us in the comments section.

FHA Home Loan Foreclosure Avoidance Policy Changes

Recently, the FHA issued a press release announcing changes to its loss mitigation and foreclosure avoidance policies. We’ve reported on some of those changes in previous blog posts; we haven’t yet covered the FHA’s revised loss mitigation options and changes to those policies.

According to HUDNo.12-22, in the section titled “Updated Loss Mitigation Priority Order Requirements” you’ll find the following new policy information on how the FHA handles its loss mitigation options–described in order of priority. According to the FHA, “After evaluating a delinquent mortgagor for Informal and Formal Forbearance Plans, FHA’s Loss Mitigation options must be considered in the following order: (1) Special Forbearances; (2) Loan Modifications; and (3) FHA-HAMP.”

How does this evaluation process work? The FHA explains, “Before four full monthly installments due on the mortgage have become unpaid, and monthly thereafter, the mortgagee must evaluate a mortgagor’s financial situation to determine the appropriate Loss Mitigation option when the mortgage is in default or imminent default.”

“The mortgagee’s servicing records should include monthly notations, explaining the mortgagee’s analysis used to determine the appropriate loss mitigation option. If there has been no change in the mortgagor’s circumstances, the mortgagee may simply notate this in its records.”

Unlike loan forbearance, which may be offered as a verbal or written agreement between the borrower and lender to avoid foreclosure, the loss mitigation plans can involve major adjustments to the loan to include incentive payments, changes to the amount of the loan or other alterations. For more information on these changes, contact the FHA directly at 1-800 CALL FHA and your lender. We’ll discuss the specifics of the FHA’s loss mitigation options in another blog post.

Do you have questions about the FHA loan process? Ask us in the comments section.

FHA Loans For Older Homes: A Reader Question

A reader asks, “Can a borrower use an FHA loan for homes built in 1957?”

We get many similar questions about FHA loan rules–does the FHA have any regulations that specify a home’s age as a factor in FHA loan approval? Not specifically.

Instead, the FHA has guidelines that must be followed for the condition of the property–it must meet FHA minimum property standards and be compliant with state and local building code as applicable.

There’s no single, centralized  standard that can be cited for the age of a property; the FHA requires the home be safe, habitable, and meet other general requirements.

One important factor to consider when viewing any property as a potential home is the property’s “remaining economic life”. A lender (or FHA rules) may preclude the purchase of a property with an FHA guaranteed mortgage if the property has little economic life remaining–a borrower should be able to sell the property at a reasonable rate as determined by current market conditions.

But if the home does not have much remaining economic life–and that phrase can be defined in different ways depending on the circumstances and the market–it may not be suitable for an FHA loan. These issues are circumstantial and vary from market to market.

“Old” does not automatically translate to “worthless” when it comes to property values and related factors. The home and the market play a big part in determining value. Don’t assume an older property isn’t a good investment for a home loan, but do be sure to have the property inspected before you close the deal.

Do you have questions about the FHA loan process? Ask us in the comments section.

FHA Foreclosure Avoidance Options

In a recent Mortgagee Letter (ML2012-22), the FHA and HUD describe a variety of changes to FHA Loss Mititgation options. “Loss Mitigation” basically refers to foreclosure avoidance programs for borrowers in trouble on their FHA mortgages.

The FHA Mortgagee Letter opens by stating, “No later than 90 days after issuance of this Mortgagee Letter, (November 16, 2012) mortgagees must begin to assess mortgagors in default under FHA’s loss mitigation priority order and policies referenced herein.

FHA updates on its loss mitigation/foreclossure avoidance policies includes the following new requirements, as described below. According to the FHA, “Before a mortgagee considers a delinquent mortgagor for one of FHA’s Loss Mitigation Home Retention Options, the mortgagee must first evaluate the mortgagor for both Informal and Formal Forbearance Plans.”

Additionally, “Informal and Formal Forbearance Plans are the only options available for delinquent mortgagors without verifiable losses of income or increases in living expenses.”

What does the FHA consider a ‘forbearance plan’? According to ML2012-22, “Forbearance Plans are arrangements between a mortgagee and mortgagor that may allow for a period of reduced or suspended payments and may provide specific terms for repayment, depending on the circumstances.”

The informal forbearance plan is described as an “oral agreements relating to a period of three months or less” while formal forbearance requires an agreement in writing that covers a period of time longer than three months but less than six months.

“If the mortgagee has concluded that 85 percent of the mortgagor’s surplus income is sufficient to bring the mortgage current within six months, the only available loss mitigation option is a Formal Forbearance plan that provides for repayment within the six months.” The new guidelines also state, “Informal and Formal Forbearances are ineligible for loss mitigation incentive payments.”

For more information on these programs, contact the FHA directly at 1-800 CALL FHA.

Do you have questions about how the FHA loan program works? Ask us in the comments section.

FHA and HUD Announce Extra Processing Time For Mortgages Affected By Hurricane Sandy

On the FHA/HUD official site, borrowers will find a notice regarding the closing time requirements for loans affected by Hurricane Sandy.

FHA loan rules have been temporarily modified to make exceptions for the normal closing time requirements for FHA borrowers in federally-declared disaster areas affected by Sandy.

According to the FHA, “ In cases where there is no expectation of a material change in the loan application documentation, lenders closing on loans for properties located in Presidentially-Declared Major Disaster Areas affected by Hurricane Sandy will be granted an additional sixty days for all documents in the mortgage loan application at closing beyond the 120 days for completed construction or 180 days for new construction set out at HUD Handbook 4155.1 1.B.1.h.”

Again, this announcement is only for what the FHA describes as “Presidentially-Declared Major Disaster Areas” affected by Hurricane sandy. The FHA waiver “applies to all case numbers assigned on or before October 29, 2012, with a settlement date on or after October 29, 2012”.

Hurricane Sandy has left several states in its wake that now have counties declared as federal major disaster areas. Those states inlcude Delaware, Connecticut, New Jersey, and New York. For more information, contact the FHA directly at 1-800 CALL FHA.

Do you have questions about the FHA home loan process? Ask us in the comments section.

FHA/HUD Announce Foreclosure Protection For Delaware Storm Victims

A recent press release issued by the FHA and HUD announces foreclosure protection and other relief for victims of storms in Delaware. According to HUDNo.12-173A, victims of Hurricane Sandy have more options now that three affected counties have been designated federal disaster areas.

According to the press release, “President Obama issued a disaster declaration for Kent, New Castle and Sussex Counties. The President’s declaration allows HUD to offer foreclosure relief and other assistance to certain families living in these counties.”

According to U.S. Housing and Urban Development Secretary Shaun Donovan, “Families who may have been forced from their homes need to know that help is available to begin the rebuilding process,” said Donovan. “Whether it’s foreclosure relief for families with FHA-insured loans or helping these counties to recover, HUD stands ready to help in any way we can.”

Thanks to the disaster declaration, the FHA and HUD are offering the following disaster relief according to the press release:

Immediate foreclosure relief – HUD granted a 90-day moratorium on foreclosures and forbearance on foreclosures of Federal Housing Administration (FHA)-insured home mortgages;

Making mortgage insurance available – HUD’s Section 203(h) program provides FHA insurance to disaster victims who have lost their homes and are facing the daunting task of rebuilding or buying another home. Borrowers from participating FHA-approved lenders are eligible for 100 percent financing, including closing costs;

Making insurance available for both mortgages and home rehabilitation – HUD’s Section 203(k) loan program enables those who have lost their homes to finance the purchase or refinance of a house along with its repair through a single mortgage. It also allows homeowners who have damaged houses to finance the rehabilitation of their existing single-family home”.

Homeowners in the affected areas should also register with FEMA (more information is at FEMA.gov) and contact their lenders and insurance agents as soon as possible.

For more information on these or other options, contact the FHA directly at 1-800 CALL FHA.

Do you have questions about the FHA home loan process? Ask us in the comments section.

FHA Loans and Credit Scores Below 620: A Reader Question

A reader asks, “My husband and I have a credit score of 536.  We have 41,000 to put down on a house.  Can I get an FHA loan.  I applied with a bank but could not.”

This reader question doesn’t specifically ask, but it does imply that the reader might be under one of the most common misconceptions about the FHA loan program–that the FHA itself is responsible for making loans, lending money or otherwise distributing funds.

The FHA does not loan money or disburse funds. Instead, it guarantees the home loans which are issued by a participating lender. The lender is responsible for processing, approving or denying the FHA loan applications it receives.

FHA loan applicants should know that while FHA minimum credit scores at listed at 500 and above, banks and financial institutions are free to require higher FICO scores and often do. In fact, the most standard minimum for many banks is a FICO score of 620 or better.

Borrowers who come to the FHA loan application process knowing they have FICO scores lower than 620 should contact the FHA directly for a referral to a pre-purchase housing counselor who can give advice on how to improve credit scores and the overall chances of loan approval. Don’t waste time or money on third-party agencies offering to “repair your credit” for a fee–instead ask advice of an FHA approved housing counselor on how you can accomplish the same results yourself.

Potential FHA borrowers can contact the FHA directly at 1-800 CALL FHA for more information.

Do you have questions on the FHA home loan process? Ask us in the comments section.

 

Happy Thanksgiving!

From all of us at FHANewsBlog.com, have a safe and fun holiday.

We return on Friday with our regularly scheduled posts about FHA home loans, answering reader questions and related topics. Thank you for reading and we’ll see you after turkey day!

FHA Amends Loss Mitigation Policies

The FHA has announced important changes to its Loss Mitigation Home Retention options, intended as stated in FHA Mortgagee Letter 2012-22, to “reduce the number of full claims against the FHA Mutual Mortgage Insurance Fund by assisting a greater number of qualified, distressed mortgagors in retaining their homes.”

The new rules, posted on November 16, have specific requirements for the lender. “No later than 90 days after issuance of this Mortgagee Letter, mortgagees must begin to assess mortgagors in default under FHA’s loss mitigation priority order and policies referenced herein.”

The new FHA loan rules alter FHA’s Home Affordable Modification Program’s (FHA-HAMP) guidelines, as well as “the definition of “Special Forbearance” in Mortgagee Letter 2002-17; and Loss Mitigation priority order guidelines in Mortgagee Letter 2000-05.”

What are these changes? We will cover them in detail in other blog posts, but in general, the FHA changes include the following as described in Mortgagee Letter 2012-22:

“Eliminating the FHA-HAMP maximum Back End Debt-to-Income Ratio requirement of 55 percent;

Eliminating the 12-month restriction on the amount of principal, interest, taxes and insurance (PITI) that may be included in an FHA-HAMP Partial Claim;

Eliminating the FHA-HAMP eligibility requirement that the FHA-insured mortgage be no more than 12 full payments past due;

Streamlining FHA’s Loss Mitigation Home Retention Option priority order by replacing its current 4-tier incentive structure with a 3-tier incentive

Updated Loss Mitigation Informal and Formal Forbearance Options structure, consisting of Special Forbearances, Loan Modifications, and FHA-HAMP;

Redefining “Special Forbearance” to apply only in cases where the mortgagors are unemployed;

Permitting mortgagors to receive a Loan Modification or FHA-HAMP only once in a 24-month period;

Expanding FHA-HAMP so that it now consists of a stand-alone Modification, stand-alone Partial Claim, or a combination of a Loan Modification and Partial Claim;

Permitting those mortgagors who were initially unsuccessful in completing Trial Payment Plans to re-apply for standard loan modifications or FHA- HAMP if their financial circumstances have changed since their initial application for assistance; and

Defining “surplus income percentage” as surplus income divided by net income (i.e., net take-home income).”

Do you have questions about FHA home loans? Ask us in the comments section.

FHA Issues Mortgagee Letter, Sets Policy For Federal Disaster Areas

Whenever a natural disaster strikes and a federal disaster area is declared in the affected zone, the FHA and HUD have issued guidance about foreclosure moratoriums, assistance for those trying to recover from the disaster and other details. These announcements are usually issued as Mortgagee Letters and come out on an as-needed basis.

But now the FHA has codified its position on federally declared disaster areas in general, thanks to the new FHA/HUD Mortgagee Letter, 12-23, “Guidance for FHA-Approved Mortgagees Originating and Servicing Mortgages in Presidentially-Declared Major Disaster Areas”.

According to the announcement, “This Mortgagee Letter (“ML”) provides general guidance to FHA-approved mortgagees with loans in any Presidentially-Declared Major Disaster Areas (“Disaster Areas”). Further specific guidance for individual disasters may be communicated as necessary.” This general guidance includes, “A moratorium on foreclosures on properties located in Disaster Areas is in effect for a ninety (90) day period from the date of the Disaster Area declaration. The moratorium applies to the initiation of foreclosures AND foreclosures already in process. For additional guidance, see ML 05-33.”

The FHA adds extra consideration above and beyond the foreclosure moratorium, instructing lenders, “servicers should consider affected mortgagors for the full range of loss mitigation options such as special forbearance, mortgage modification, partial claim, FHA HAMP or other refinance options, and waiver of late charges to assist FHA homeowners affected by the disaster.”

“After the expiration of the foreclosure moratorium, lenders are encouraged to consider alternatives to foreclosure such as pre-foreclosure sales and deeds in lieu of foreclosure if the homeowner is not in a position to ‘cure’ the mortgage delinquency. Refer to ML 00-5 for FHA program requirements and incentive payments associated with the above referenced servicing approaches.”

The new Mortgagee Letter makes the as-needed guidance issued by the FHA and HUD a more permanent set of instructions borrowers and lenders may count on in times of a natural disaster. For more information on these changes or to request more information about FHA help following a natural disaster, contact the FHA directly at 1-800 CALL FHA.

Do you have questions about how FHA loans work? Ask us in the comments section.