Monthly Archives: April 2015
A reader asks, “I am in the process of selling my home. There was an appraisal done and it came in low. We negotiated with the buyers on that appraisal. Now I am learning they got another appraisal that was higher so they could get a higher loan amount for closing costs but will not provide the appraisal to us.”
“By the way, this is FHA and apparently the lender never filed the first appraisal with the FHA. Additionally, the lender has now changed their story stating they paid for the first appraisal and that the buyer paid for the 2nd appraisal and therefore they dont have to give it to us for re-negotiations. This cant be legal? And surely I have recourse? We are set to close tomorrow, and this just happened two days ago. I told them I am not signing tomorrow.”
While it is not for us to say what’s actually happened here–we don’t have all the facts and cannot speculate on them regardless–we can look up FHA loan rules that cover appraisals to see what is and is not permitted. Those who suspect a violation of these rules should call the FHA directly at their toll free number listed at the end of this article.
HUD 4155.2 Chapter Four covers the appraisal rules (“property valuation”) for FHA single-family home loans. To begin with, it states:
“The purpose of the property valuation process is to
–determine eligibility for mortgage insurance based on the condition and location of a property, and
–estimate the value of the property for mortgage insurance purposes.
The appraisal is the lenders tool for making this determination.”
Furthermore, Chapter Four provides some “teeth” for the rules listed in this chapter:
“Lenders, including sponsoring lenders, are equally responsible, along with appraisers, for the quality, integrity, accuracy and thoroughness of appraisals. The lender will be held accountable if it knew, or should have known, that there were problems with the integrity, accuracy and thoroughness of an appraisal submitted to FHA for mortgage insurance purposes. Lenders that submit appraisals to HUD that do not meet FHA requirements are subject to the imposition of sanctions by the HUD Mortgagee Review Board (MRB).”
With that in mind, Chapter Four states:
“Lenders, and third parties working on behalf of lenders, are prohibited from
–withholding or threatening to withhold timely payment or partial payment for an appraisal report
–withholding or threatening to withhold future business from an appraiser
–demoting or terminating, or threatening to demote or terminate, an appraiser
–expressly or impliedly promising future business, promotions or increased compensation for an appraiser
–conditioning the ordering of an appraisal report or the payment of an appraisal fee, salary or bonus on the opinion, conclusion or valuation to be reached, or on a preliminary value estimate requested from an appraiser
–requesting that an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to the completion of that report
–requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraisers completion of an appraisal report.
–providing to the appraiser an anticipated, estimated, encouraged or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase must be provided”.
But the most important part of the FHA loan appraisal rules found in Chapter Four of HUD 4155.2 in reference to the reader question is this–the lender is not permitted to be involved in any of the following practices:
“ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless
–there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such appraisal is clearly and appropriately noted in the loan
–such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and
–the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value, or
–any other act or practice that impairs or attempts to impair an appraisers independence, objectivity or impartiality, or violates law or regulation, including, but not limited to the Truth in Lending Act (TILA) and Regulation Z and USPAP.”
Borrowers or sellers who suspect that there has been a violation of the rules mentioned above should contact the FHA as soon as possible by calling them at 1-800 CALL FHA.
Do you have questions about FHA home loans, refinance loans, or the FHA loan appraisal rules? Ask us in the comments section. All questions and comments are held for moderation before appearing on the website. Sorry, personal replies are not possible. We will reply in the comments section.
Recently the FHA and HUD announced further changes to the FHA Home Equity Conversion Mortgage or HECM loan program. There have been a number of alterations and adjustments to the FHA HECM loan program in the last year or so, and the new changes further clarify the rules for certain aspects of the HECM program. In this case many of the rule changes have to do with the procedures for declaring a HECM loan due and payable.
According to FHA Mortgagee Letter 2015-10, “For HECMs that are due and payable, the Due Date is the date when:
–the mortgagee notifies the Secretary that the mortgage became due and payable without HUDs approval; or
–the Secretary approves the mortgagees request to call the mortgage due and payable.
For HECMs with a Case Number issued on or after August 4, 2014, where there is a deferral of Due and Payable status for an Eligible Non-Borrowing Spouse, the Due Date is the date when the Deferral Period ends.”
But it’s not quite as simple as just determining that the HECM loan is due. There are several reasons why a HECM loan could become due. One is the death of the borrower. In these cases, the new rules say:
“When a mortgage is due and payable as a result of a mortgagors death or a Deferral Period ends as a result of an Eligible Non-Borrowing Spouses death, the mortgagee may accept verbal notification of the death from the heirs or estate for Due and Payable purposes. Mortgagees must still obtain documentation of the death of the mortgagor or Eligible Non-Borrowing Spouse for foreclosure and claim purposes.”
But what about cases where the death of the borrower is not the reason for the HECM loan becoming due–or becoming at risk of same?
“When HUDs approval is required, the mortgagee must provide the mortgagor(s) with a Due and Payable Notice stating that the mortgagor has 30 days to notify the mortgagee of their intention to either:
–satisfy the HECM;
–sell the property for at least 95% of the appraised value;
–provide the mortgagee with a Deed in Lieu of foreclosure; or
–correct the matter which resulted in the mortgage becoming due and payable.”
FHA loan rule changes include a requirement that the Due and Payable Notice must be sent to the mortgagor within 30 days of receiving HUDs approval to call the HECM due and payable. “Mortgagees may vary the actual structure of this Notice, but it must:
1. state that an obligation of the mortgagor has not been met;
2. state that failure of the mortgagor to comply with the terms of the HECM has resulted in the loan becoming due and payable;
3. provide notice of the availability of Housing Counseling; and
4. provide notice of any available loss mitigation options the mortgagee may offer.”
There are also new rules for HECM loans with non-borrowing spouses that may be eligible for a “deferral period” following the death of the borrower.
“Within 30 days of receiving notice of the last surviving mortgagors death, the mortgagee must provide to the Eligible Non-Borrowing Spouse a notice including information on:
–the eligibility requirements for a Deferral Period;
–the conditions and requirements for the continuation of a Deferral Period; and
–the ability to cure the default (due to failure to maintain the property or failure to pay property charges) in order to be in compliance with the requirements for the continuation of a Deferral Period.
When a Deferral Period ends because an Eligible Non-Borrowing Spouse has become an Ineligible Non-Borrowing Spouse, the mortgagee must notify the Non-Borrowing Spouse, within 30 days of the end of the Deferral Period, that:
–the Deferral Period has ended;
–the HECM is due and payable; and
–the mortgagors estate, heir, or other party with authority to dispose of the property may either satisfy the HECM, sell the property for at least the lesser of the outstanding principal balance or 95% of the appraised value, or provide the mortgagee with a Deed in Lieu of foreclosure.”
These are just some of the changes that affect the FHA Home Equity Conversion Mortgage loan process. We’ll cover more changes in future blog posts.
Do you have questions about FHA loans? Ask us in the comments section.
The FHA and HUD have announced more changes to the FHA Home Equity Conversion Mortgage (HECM) loan program. A recent FHA Mortgagee Letter, “Home Equity Conversion Mortgage (HECM) Due and Payable Policies”, and affects all FHA HECM loans that become due and payable on or after July 1, 2015.
The updates affect a variety of areas including:
–a requirement for mortgagees to provide HUD notice of a HECMs Due and Payable status;
–a requirement for mortgagees to provide HUD notice of the initiation of foreclosure;
–obtaining required appraisals;
–sales of properties securing defaulted or performing HECM loans;
–extensions available when marketing a HECM for sale and/or participating in Hardest Hit Funds programs;
–curtailment of debenture interest for missed deadlines
This mortgagee letter announces FHA’s position on when HECM loans (with case numbers issued before August 4, 2014) are considered due and payable without the approval of HUD. The mortgagee letter announces this is true when:
–a mortgagor died and the property is no longer the principal residence of at least one surviving mortgagor;
–a mortgagor conveyed all of their title in the mortgaged property and no other mortgagor retains title to the property.
The mortgagee letter also states, “A HECM with a Case Number issued before August 4, 2014, is considered due and payable with HUDs approval, if one of the following conditions applies:
–no surviving mortgagor maintains the property as their principal residence;
–a mortgagor fails to occupy the property for a period of more than twelve consecutive months because of physical or mental illness, and the property is not the principal residence of at least one other mortgagor;
–an obligation of the mortgagor under the HECM is not fulfilled.
Notwithstanding the above, for a HECM with a Case Number issued before August 4, 2014, where the last surviving mortgagor is survived by a Surviving Non-Borrowing Spouse, mortgagees must follow the requirements of ML 2015-03 to determine eligibility for Due and Payable status.”
There are many parts of the HECM update–we will cover some of the most relevant ones in future blog posts. For more information on how these updates may affect your current or future HECM loan, ask your loan officer how recent changes to the FHA HECM program may affect your transaction.
Do you have questions about FHA refinance loans? Ask us in the comments section.
A reader asks, “If I need to refinance to remove my ex-husband from my mortgage loan, and he has already signed the quit-claim and put the mortgage in my name only. Do I have to meet the normal 5% payment reduction requirement for the Net Tangible Benefit?”
The borrower does not specify whether the refinance loan is an FHA Streamline Refinance loan or a cash out loan, but since this comment was on a post we did on FHA Streamline refinance loans, we’ll assume that’s the loan being asked about.
FHA Streamline loans do require a “net tangible benefit” to the borrower as described in HUD 4155.1. That benefit could be a lower monthly payment, lower interest rates, or the fact that the borrower is refinancing from an Adjustable Rate Mortgage to a fixed rate loan.
However, depending on the type of loan refinanced, the FHA’s opinion of what a net tangible benefit is may vary. the net tangible benefit for the borrower may be different depending on the kind of loan being refinanced. HUD 4155.1 Chapter Six features a table showing the net tangible benefit requirements for the different types of loans including fixed rate, graduated payment mortgage, adjustable rate mortgages, etc.
The table breaks down, per type of loan, what the benefit to the borrower must be in most cases for FHA loan approval for a Streamline Refinance Loan. Here is that table as found in HUD 4155.1 Chapter Six:
Borrowers should know that based on a reading of the Streamline Refinance Loan program rules, refinancing to take someone off the mortgage is not in itself considered a qualifying net tangible benefit. Nor is refinancing simply to get a reduction in the loan term. Speak to your loan officer about your needs for refinancing to see what type of loan might be best for you. In some cases a Streamline Loan may be the best option, in others a cash out or no-cash-out refinance loan might be more suitable.
Do you have questions about FHA home loans? Ask us in the comments section.
Mortgage loan rates shot up to highs we haven’t seen in around a month–Tuesday rates pushed higher ahead of two important economic data releases on Wednesday that have potential to push mortgage loan rates in one direction or the other depending on investor reaction to the contents of those releases.
Wednesday morning sees the release of numbers from the first quarter Gross Domestic Product report (in the morning) and an announcement from the Fed (in the afternoon). The Fed event will be watched carefully as markets will react to any news that indicates whether or not the Fed intends to raise interest rates. That would have an effect, depending on how investors respond to the information, of pressuring rates higher or giving them a chance to recover from today’s move upward.
30-year fixed rates pushed higher on Tuesday, putting the best execution rate of 3.75% as the predominant best execution rate. That move comes after a few days of waffling back and forth, sometimes slightly higher, sometimes a bit lower, sometimes sideways. FHA mortgage loan rates are still in a comfort zone between 3.375% and 3.5% best execution, though FHA mortgage loan rates do tend to vary more among lenders than their 30-year fixed rate conventional counterparts.
(Remember, best-execution means a highly qualified borrower is assumed–your FICO scores and other financial qualifications will play a major role in determining your access to these rates. Your experience will vary.)
Tomorrow, Wednesday April 29 2015, is going to be a potentially big day for mortgage loan rates. Having two big economic events in the same day (and spaced apart for morning and afternoon) means we could potentially see some volatility–many industry professionals have advised locking rather than floating into tomorrow and that advice makes a lot of sense given the strong potential for market-moving announcements tomorrow.
Do you have questions about FHA home loans or refinance loans? Ask us in the comments section.
On Friday, April 24 2015, the FHA and HUD issued a press release detailing “significant changes” to the Distressed Asset Stabilization Program or DASP. According to HUDNo 15-048, “In an effort to better serve homeowners looking to avoid foreclosure, loan servicers will now be required to delay foreclosure for a year and to evaluate all borrowers for the Home Affordable Modification Program (HAMP) or a similar loss mitigation program.”
“HUD is making additional improvements to the Neighborhood Stabilization Outcome (NSO) sales portion of DASP which are aimed at increasing non-profit participation. Updates include giving non-profits a first look at vacant properties, allowing purchasers to re-sell notes to non-profits, and offering a non-profit only pool.”
That is a major alteration from the old standard, which permitted lenders to foreclose on a home, “6 months after they received the loan”.
The press release adds that lenders were encouraged, “to assess a borrowers qualifications for loss mitigation programs.” Lenders were not required to do so under the old program. The previously mentioned requirement that a lender assess delinquent borrowers for suitability for a home loan modification program did not include a start date for that requirement, but it’s likely FHA/HUD will publish more information on this new program that includes start dates.
“These changes reflect our desire to make improvements that encourage investors to work with delinquent borrowers to find the right solutions for dealing with the potential loss of their home and encourage greater non-profit participation in our sales,” says Genger Charles, Acting General Deputy Assistant Secretary, Office of Housing. He adds, “The improvements not only strengthen the program but help to ensure it continues to serve its intended purposes of supporting the MMI Fund and offering borrowers a second chance at avoiding foreclosure.”
The FHA and HUD press release adds that the new changes, “will be subject to stronger reporting requirements including tougher penalties for not complying with quarterly reporting responsibilities and a new requirement to report on borrower outcomes, even when a note is sold after the original purchase.”
Do you have questions about FHA home loans? Ask us in the comments section. All questions and comments are held for review prior to being posted.
A reader asks, “I applied for a fha loan my contract on the house I am to purchase expires Thursday. I found out Wednesday night that I have to apply for an exception for the 2 fha loan rule and the house I am currently in and have on the market is a fha. I did not know this.”
“I qualify for both loans but have no clue how to apply for an exception. I am sure I should be able to get it as I travel 1 hr 10 mins to 1 hr 40 mins each way to work due to traffic increase over the years and the new home is only 10 mins from work. Help! My lender is now help and has dragged this on for several days. I am in danger of losing all my earnest money and the cost I have paid for inspection and appraisal.”
FHA loan rules state:
“To prevent circumvention of the restrictions on FHA insured mortgages to investors, FHA generally will not insure more than one mortgage for any borrower (transactions in which an existing FHA mortgage is paid off and another FHA mortgage is acquired are acceptable).”
“Any person individually or jointly owning a home covered by a mortgage insured by FHA in which ownership is maintained may not purchase another principal residence with FHA mortgage insurance except under the situations described below.”
That information is found in HUD 4155.1 Chapter Four Section B. The exceptions mentioned in the quote above include the following:
“A. Relocations. If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance from the current principal residence, the borrower may obtain another mortgage using FHA insured financing and is not required to sell the existing property covered by an FHA insured mortgage.”
“The relocation need not be employer mandated to qualify for this exception. Further, if the borrower returns to an area where he or she owns a property with an FHA insured mortgage, it is not required that the borrower re-establish primary residency in that property in order to be eligible for another FHA insured mortgage.” Other reasons an exception may be approved include increases in family size, or a borrower who is vacating a jointly owned property.
The reader question indicated that the borrower had trouble getting assistance from the lender for this exception. In cases like these it may be a good idea to contact the FHA directly at 1-800 CALL FHA and request assistance with your situation.
Do you need answers to FHA home loan questions? Ask us in the comments section.
A reader asks, “I have a client that is FHA approved, and has had their appraisal done but can not locate the well. Well and septic have been tested and municipality has signed off on both stating they were ok with the way they are.”
“My clients lender says no way, must meet the 50′ set back, other lenders say we can do it as long as you have the letter from the township My buyers dont want to start over as they are set to close on the house they are selling in 2 weeks. How can one bank say something different from another while following FHA guidelines?”
There are several unanswered questions to go along with this reader question–are the lenders interpreting local or state building code or other ordinances when they make these decisions?
Have state or local codes been updated recently and are the lenders making these decisions aware of those changes? Or is this a question of the FHA appraiser filling out an appraisal report in this case that requires the “50′ set back” as described in the reader question?
FHA loan rules–and FHA appraisal rules–are not the only requirements that must be met. If a property meets FHA minimum standards, but does not also live up to state or local code, this may be a sticking point at appraisal time.
Based on our reading of this question (and nothing else) it sounds as if some lenders are willing to make provisions for something that technically does not meet an on-paper state or local requirement, but only if the township with jurisdiction is willing to sign off on the exception.
That may or may not be acceptable at FHA appraisal time, so the borrower or seller should know that in situations like these such an issue may be handled on a case-by-case basis. It may be necessary in some transactions to contact the FHA directly for a waiver, in other cases that may not be possible. Contact the FHA directly for assistance in cases where a waiver may be required by calling 1-800 CALL FHA.
Do you have questions about FHA loans? Ask us in the comments section. All questions and comments are held for review before they appear on the site.
A reader asks, “In the case of two names on the deed (only one will be living in the home), are both incomes & debts considered for debt to income ratios?. Also is it reqired the mortgage co. listed on both of their Home owner Insurance?.”
There are many issues that can affect the answer to this question. Are the two people married? Related by blood, marriage, or a family-type relationship? These are important issues that can affect how much the FHA is willing to guarantee on the loan and how much down payment is required.
Also, state laws may affect how such a transaction is carried out, especially if the people buying the home are legally married. Community property states may have laws that govern how a lender is to proceed in such cases.
The FHA loan rules in HUD 4155.1 Chapter 2 Section B spells out some of the issues:
A non-occupying borrower transaction involves two or more borrowers where one or more of the borrower(s) will not occupy the property as his/her primary residence. When there are two or more borrowers, but one or more will not occupy the property as his/her principal residence, the maximum mortgage is limited to 75% loan-to-value (LTV).
Some exceptions to that 75% limit are based on family-type relationships as mentioned above. Who may qualify for the exemption? According to HUD 4155.1:
Add to that list unrelated individuals who have a longstanding, substantial family-type relationship not arising out of the loan transaction.
The short answer to the reader’s question about income, debts, etc. is that all borrowers who are to be financially obligated on the loan must go through a credit check process. Your FICO scores, debt-tom-income ratio, work history and other factors will all be taken into account.
The second part of the reader’s question isn’t quite clear–it seems that the reader is asking whether the name of the mortgage company must be listed on home owner insurance documents, which would be an issue possibly affected by state law.
Do you have questions about FHA home loans? Ask us in the comments section.
Unfortunately this question is quite open-ended and doesn’t provide enough detail for us to answer more definitively than to say “it depends”. For example, does the business bank account belong to the borrower because he or she is a freelancer or self employed? Is this an expense account that belongs to an employer? Each situation may have different issues that affect whether or not funds deposited to this account may be used as verifiable income.
Those who are self-employed are required to provide documentation including tax records and other paperwork that demonstrate that the income from the business are reliable and likely to continue. Freelance or contract employees would likewise be required to provide evidence that their income is consistent and “likely to continue”, a phrase you’ll find repeated again and again in rules that govern these types of home loans.
In addition to FHA loan rules, all lenders have their own standards that must be met–the borrower who is self employed, freelance, or contract would have to met the lender’s expectations as well as the FHA minimum standards.
When asking questions about FHA loans such as the one we’re talking about here, it’s always best to provide more information without divulging private details such as account numbers, bank names, etc. A description of the nature of the account (an expense account, the borrower’s business account created to deposit freelance income into, or a small business account, for example) is most helpful–it gives just enough additional information to help better answer the reader question.
In the specific case of this reader’s question,the best course of action is to discuss the situation with a loan officer to see what might be required in order to have the account considered as part of the applicant’s verifiable income.
Do you have questions about FHA home loans? Ask us in the comments section.