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

Monthly Archives: November 2014

Fair Housing Act Violations: A Case in Puerto Rico

FHA DISCRIMINATION SETTLEMENTA press release on the FHA/HUD official site reveals that a Puerto Rico condo association discriminated against a person with disabilities in violation of federal fair housing laws.

According to HUDNo.14-142, “The U.S. Department of Housing and Urban Development (HUD) announced today it has ordered Castillo Condominium Association, in San Juan, Puerto Rico, to pay $20,000 in damages plus a $16,000 civil penalty after finding that the association violated the Fair Housing Act when it refused to allow a resident with disabilities to keep his emotional support animal.”

Support animals and/or service animals have a different status than what might be considered an “ordinary pet”. According to the FHA/HUD official site, “The Fair Housing Act makes it unlawful to refuse to make reasonable accommodations in policies or practices when such an accommodation may be necessary to afford a person with a disability equal opportunity to use and enjoy his or her home. This includes refusing to grant waivers to ‘no-pet’ policies for persons who use assistance or support animals.”

HUD officials reinterated this in the press relase. “Assistance animals are not pets. Persons with disabilities often depend on them in order carry out life’s daily functions,” said Gustavo Velasquez, HUD Assistant Secretary for Fair Housing and Equal Opportunity. “This Order reaffirms HUD’s commitment to taking appropriate action when federal fair housing law has been violated.”

This discrimination case came to the attention of the government when, according to the press release, “a resident of Castillo Condominiums filed a complaint alleging that the condominium’s homeowner association discriminated against him when it denied his request to keep an emotional support animal in his unit, even though he presented documentation from his healthcare provider identifying his disability and his need for the animal. Pets were allowed when the resident initially bought his unit in 1995, but the condominium association had adopted a ‘no-pets’ policy before the resident adopted his emotional support animal. As a result of being denied the right to have a support animal, the man experienced depression and anxiety and he was forced to sell the home he had lived in for almost 20 years.”

The HUD finding wound up altering a previous HUD Administrative Law Judge decision that ordered Castillo Condominium Association to pay only $3,000 in emotional distress damages and a $2,000 civil penalty. The HUD order ruled that, “a higher damages award and civil penalty are necessary in light of the seriousness of the violation and complainant’s injuries.”

We bring stories like these to light here because borrowers can and sometimes do experience illegal practices in violation of Fair Housing Act laws. The only way to stop these practices from continuing to victimize people is to report them to HUD. Consider the instructions found on the FHA/HUD official site:

“Persons who believe they have experienced discrimination may contact HUD’s Office of Fair Housing and Equal Opportunity at (800) 669-9777 (voice) or (800) 927-9275 (TTY). Housing discrimination complaints may also be filed at or by downloading HUD’s free housing discrimination mobile application, which can be accessed through Apple devices, such as the iPhone, iPad, and iPod Touch.”

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

Happy Thanksgiving!

100Happy Thanksgiving 2014! We pause today from our usual routine of answering reader questions and giving advice about FHA home loans to celebrate the holiday. Have a happy and safe Turkey Day! Our regularly scheduled posts return tomorrow.


FHA Mortgage Loan Interest Rate Trends

FHA home loan interest rate trends this week include a fairly steady drop in mortgage rates, pushing conventional loans into sub-four percent territory in some cases and FHA mortgage rates down into a previously held comfort zone.

Last week, 30-year fixed rate conventional mortgage loan rates were at a best execution average of 4.0 or higher, but the downward movement this week sent those best execution numbers to an at-or-sub-four percent range. There’s greater variation among conventional lenders this week and not all the improvements are offered by all financial institutions.

What’s more, when it comes to FHA mortgage loan rates, at times we don’t see those rates changing as quickly as their conventional counterparts. But this week, FHA rates managed to react in the borrower’s favor.

We are now seeing best execution FHA mortgage loan interest rates move back to a long-held 3.5%–that was the comfort zone for FHA rates before upward pressure forced a range of numbers with 3.5% at the bottom end of the spread, best execution (FHA and conventional interest rate numbers we mention here are best execution rates and may not be available to all borrowers or from all lenders. Your FICO scores, loan repayment history and other factors may affect your access to them.)

It’s not certain whether the current rate trends will survive the holiday break. Thursday is a holiday and Friday is only a half day for markets, which means we may have to wait until Monday to see if we’re in a persistent downward trend on the short term.

Some industry pros are advising borrowers to float over the weekend and try making an interest rate commitment on Monday, but this is a choice that only the borrower can make–lock or float, make the most informed choice you can and ask a lot of questions along the way.

Holiday Spending and FHA Loans: What To Consider

091This week, shoppers brace themselves–and their credit cards–for Black Friday and the official start of the holiday shopping season. If you are in the planning stages for an FHA home loan or a refinance loan, there may be some considerations to make when it comes to your holiday spending. At least where your credit cards are concerned.

The holiday shopping season is probably the time of year when it’s most tempting to apply for a new credit card account or even multiple accounts. But opening new lines of credit when you’re just about to apply for a new home loan or refinance loan is a bad idea.

Your debt-to-income ratio can suffer when new lines of credit are opened, and a lender may need to consider both the used and unused portion of your credit limit. What’s your potential debt with a new credit card? How could THAT affect your debt to income ratio?

Holiday spending inflates the debt factors for many people, but that’s only one part of the picture–some feel tempted to skip payments on some bills this time of year in order to free up cash for the holidays. This can definitely hurt a borrower as the lender will be looking for a 12-month (or better) pattern of on-time payments when it’s time to process your credit application for the loan.

Preparing for an FHA home loan isn’t always easy–you have to pull your FICO scores, watch your payments carefully, and save up for the fees associated with the loan. But in the end, it’s definitely worth the extra effort. Keep a sharp eye on both your credit and your payments this holiday season and when it’s time to apply for the new loan you will see the benefits.

Do you have questions about FHA loans? Ask us in the comments section. All questions and comments are held for moderation.


“Mandatory Obligations” For FHA HECM Loans

109The FHA made a great many changes to the Home Equity Conversion Mortgage loan (HECM) program in 2014. There have been alterations to the way funds are paid, the rules covering fixed-rate HECMs versus adjustable rate HECM loans and much more.

One thing the FHA has also done is to make a list of what it calls “Mandatory Obligations” for HECM loans–basically a list of required fees and expenses that could affect the amount of money that comes to a HECM borrower from the initial disbursement.

This list is rather lengthy, but knowing these expenses is very important–borrowers should know that the items on this list are required to be factored in when the lender is trying to determine how much money comes to the borrower on that initial payout of the HECM loan.

Here’s the list, as printed in FHA Mortgagee Letter 2014-21:

–Initial Mortgage Insurance Premium;
–Loan origination fee;
–HECM counseling fee;
–Reasonable and customary amounts, but not more than the amount actually paid by the mortgagee for any of the following items:

–Recording fees and recording taxes, or other charges incident to the recordation of the insured mortgage;
–Credit report;
–Survey, if required by the mortgagee or the mortgagor;
–Title examination;
–Mortgagee’s title insurance;
–Fees paid to an appraiser for the initial appraisal of the property

–Delinquent Federal debt;

–Fees and charges for real estate purchase contracts, warranties, inspections, surveys, engineer certifications;
–The total amount of property tax and flood and hazard insurance charges scheduled for payment during the First 12-Month Disbursement Period from a Fully-Funded Life Expectancy Set-Aside. Mortgagees must use the actual insurance premium and actual tax amount;
–Property tax, flood and hazard insurance payments required by the Mortgagee to be paid at loan closing;
–The amount of the principal that is advanced towards the purchase price of the subject property;
–Other charges as authorized by the Secretary; and

–For adjustable interest rate HECMs:
–The total amount of property charge payments scheduled for payment for the mortgagor authorized option as set forth in §206.205 during the First 12-Month Disbursement Period; and
–The total amount of semi-annual disbursements scheduled to be made during the First 12-Month Disbursement Period to the mortgagor from a Partially-Funded Life Expectancy Set-Aside.

Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.

FHA Condo Approval Rules: A Reader Question

110A reader got in touch recently with a lengthy question, asking:

Our HOA board is considering revising our declaration dated 4/06/84. Our building was built in 1960 as an 11 story apartment building and transformed into a condo building in 1984. There are 50 units in the building– approximately 27 percent are rental properties. Our building has FHA certification. As units are sold, investors buy them as rental units.”

“We would like to reverse this trend by revising our declaration to state that as units are sold, they are sold as owner occupied units. The revised declaration would provide that owners could obtain a temporary rental permit from the HOA board enabling the owner to rent two years within a five year period. Also new owners must occupy their unit for at least two years before applying for a temporary rental permit. Would we lose FHA certification if we moved to become over time (we estimate 20 to 30 years) an owner occupied building.”

“Would we lose FHA certification by limiting rentals? We feel very strongly that owner occupancy adds to the value of our shared building and our individual units and enhances community. Our board and manager spend a lot of time dealing with rental situations, plus renters don’t have the same investment or dedication to maintenance of the property as owners.”

FHA single-family home loans are intended for owner-occupied residences only and are not permitted for investment properties. The reader’s intent seems to be to make future purchases of condo units in the project to fall in line with the spirit of that notion.

However, FHA condo loan approval rules do require the HOA to refrain from rules that restrict a borrower’s ability to freely sell the property. FHA will not permit loans to condo projects, for example, that have a “right of first refusal” clause in the HOA paperwork.

What this reader proposes may or may not be acceptable in the eyes of the FHA, but state laws would also play a part in whether this is permitted or not. If a condo project has HOA rules that are found to be in violation of state law, could that put the project’s FHA approved status in jeopardy?

That’s for the FHA to determine, not us, and the reader’s best bet is to contact the FHA directly by calling 1-800 CALL FHA to get advice and guidance on this issue.

That the condo project is already FHA approved shows that the HOA bylaws and other areas scrutinized under the FHA program have met with approval. These proposed changes may or may not affect that approval and therefore its best to get information directly from the FHA on agency policy.

Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation.


FHA Loan Reader Questions: Non-Functioning Wells

017A reader asks, “I bought a home with FHA loan and a well system and septic. Later found the well was a spring box system and not on the property we were forced to buy the property seperate from the house .”

“The well has never worked and runs out all the time , i was told that FHA wouyld be inspecting the well system prior to closing , but now we have asked for the inspection and it was never done on the well or the septic systm . Any ideas on where to get help?”

It may simply be a case of the way this reader question was worded, but it’s worth pointing out that the FHA itself does not perform well inspections, or similar services. An FHA appraisal, which is not the same as a home inspection, may include a review of a well system or septic system, but this is done by a licensed appraiser and not by an agent of the FHA.

In this case, it’s difficult to know how to answer the reader’s question except to say that legal counsel may be needed to see what options or recourse might be available. The borrower is always encouraged to pay for a home inspection, which is not the same as an appraisal.

We aren’t saying this did not happen in this particular case, but some borrowers do seem content to rest on the results of the FHA appraisal, and this is definitely not recommended. Borrowers should always pay for a home inspection above and beyond the appraisal. That may or may not have happened in this particular case.

The FHA appraisal is never a stamp of approval on a home or a guarantee that it is free of defects. The optional, borrower-paid-for home inspection is a much closer look at the property and its condition. Again, the only recourse this reader might have is to seek legal counsel, but state or local laws may also have a say in how the matter could be remedied.

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


FHA Mortgage Rate Trends

099Since our last report on FHA mortgage rate trends, we’ve seen a general downward trend in mortgage interest rates, but with the range we’ve been reporting (best execution) remaining.

Borrowers have in some cases seen the gains reflected in lower closing costs rather than the actual interest rate changing itself, while other borrowers may indeed have experienced an adjusted interest rate based on improvements than sent best execution rates back into month-long lows.

30-year fixed rate conventional mortgages have, best execution-wise, remained in their range between 4.0 and 4.125%, though some very well qualified borrowers may have gotten access to sub-four percent rates depending on the lender and the timing of the rate lock. But that doesn’t mean that all borrowers had that option–the rates we report on here are listed as best execution rates, which assumes ideal conditions including a participating lender and a very well qualified borrower.

When it comes to FHA rates, since our last report we’ve seen FHA interest rates settle into a best execution comfort zone of between 3.5 and 3.75% depending on the lender. FHA rates tend to have more variation between lenders than conventional equivalents, so it definitely pays to shop around.

Tbe future of the recent downward trend is uncertain. Thursday saw some upward movement in the rates, but nothing that erased the current range of best execution rates. Next week will likely reveal much about whether the gains of last Friday and beyond will continue, but borrowers will hear much advice urging interest rate locks within 15 days of closing in the current rate environment.

That may or may not help you decide what to do, and in the end it’s the borrower’s decision to “lock” or “float” when it comes to mortgage rates. Ask your lender for advice and make the most informed choice you can.

Do you have questions about FHA mortgage loans or refinance loans? Ask us in the comments section. All comments are held for moderation.


FHA HECM Loan Rule Changes: Credit Standing and Financial Assessment

In 2014, the FHA changed many of the rules associated with Home Equity Conversion Mortgages or HECM loans.

One of those rule changes involves a new requirement that lenders perform a financial assessment of potential HECM borrowers to insure the applicants are not only qualified for the program on a financial basis, but also to insure they are able and willing to abide by HECM loan requirements.

According to the FHA Mortgagee Letter, “Revised Changes To The Home Equity Conversion Mortgages Requirement”, there were major reasons for the policy changes. “An increasing number of tax and hazard insurance defaults by mortgagors led FHA to establish in Mortgagee Letter 2013-27 a requirement for a Financial Assessment of a potential mortgagor’s financial capacity and willingness to comply with mortgage provisions.”

As a result, “Effective for case numbers assigned on or after March 2, 2015, mortgagees must complete a Financial Assessment of all prospective mortgagors prior to loan approval, and must fully comply with the requirements set forth in Mortgagee Letter 2014-22 and…the HECM Financial Assessment and
Property Charge Guide.”

The new requirements state the lender is responsible for:

“–performing the credit history/property charge payment history and cash flow/residual income analysis;

–documenting and verifying credit, income, assets and property charges;

–evaluating extenuating circumstances and compensating factors;

–evaluating the results of the Financial Assessment in determining eligibility for the HECM;

–determining whether a Life Expectancy Set-Aside will be required and whether the Set-Aside must be fully or partially funded; and

completing a HECM Financial Assessment Worksheet”


“Mortgagees must perform a credit history analysis, in accordance with FHA guidelines, for each prospective mortgagor to determine if the mortgagor has demonstrated the willingness to meet their financial obligations by analyzing each mortgagor’s credit and property charge history.”

Borrowers who are considering their HECM loan options should approach these credit checks and financial assessments seriously–it’s best to treat a HECM loan the same way you would a refinance or even a new purchase mortgage loan.

Come to the application process with at least 12 months of on-time payments on all financial obligations for best results. It’s also a very good idea to order copies of your credit reports to see what the lender will see when running your credit standing and financial assessment.

Do you have questions about FHA home loans? Ask us in the comments section. All comments and questions are held for moderation.

FHA HECM Loan Changes: Disbursements

Recently we wrote about FHA Home Equity Conversion Mortgage (HECM) loan rule changes that were announced in FHA Mortgagee Letter 2014-21. Those rule changes include alterations and clarification of policy related to a variety of HECM loan policies. One very important affected area of HECM loan regulation the borrower should know about is related to disbursement of HECM loan funds.

Mortgagee Letter 2014-21 announces separate policy for fixed-rate HECM loans and for Adjustable Rate HECM loans. Here is the FHA policy for disbursement limits according to ML 2014-21:

“Definitions only for Adjustable Interest Rate HECMs

 Initial Disbursement Limit: The maximum disbursement to the mortgagor allowed at loan closing and during the First 12-Month Disbursement Period is the greater of 60% of the Principal Limit; or the sum of Mandatory Obligations, plus an additional 10% percent of the Principal Limit. The Initial Disbursement Limit shall not exceed the Principal Limit amount established at loan closing.”

What is the policy for fixed rate HECM Loans? Here is what’s found in ML 2014-21:

“Definitions only for Fixed Interest Rate HECMs

 Borrower’s Advance: Borrower’s Advance means the funds advanced to Mortgagor at closing which may not exceed the greater of 60% of the Principal Limit; or Mandatory Obligations, plus an additional 10% of the Principal Limit. The sum of all advances permitted under the mortgage cannot exceed the Principal Limit. The mortgagor may bring other available funds to closing to bring the sum of all anticipated advances within the Principal Limit.”

The new rules also add a requirement for the lender to insure the HECM loan fund rules are being followed properly. “The mortgagee is responsible for determining the maximum Initial Disbursement Limit for Adjustable Interest Rate HECMs. Mortgagees must monitor and track all disbursements that occur at loan closing and during the First 12-Month Disbursement Period to ensure the total
amount of the disbursements does not exceed the maximum Initial Disbursement Limit or Principal Limit.”

These changes could, for borrowers who have explored HECM loan options in the past but are now revisiting the option, change the way the borrower decides to approach the loan. It’s not safe to assume that the same terms and conditions you may have been given prior to the FHA rule changes would apply now under the new FHA requirements.

If you need an FHA HECM loan, it’s best to discuss the situation with a loan officer to determine which FHA HECM option might be best for you under the new requirements and rules for how funds are to be paid to the borrower.

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