September 19, 2011
The FHA anticipates a wide variety of scenarios a loan applicant might face during the process of applying for an FHA mortgage loan; the agency tries to anticipate many of these situations by issuing guidance for borrowers and lenders alike to prevent gray areas wherever possible.
Sometimes these gray areas can’t be helped (usually based on individual circumstances) and the borrower and/or lender must contact the FHA for additional instructions. Other times the guidance issued is sufficient for the lender to decide on the right course of action and move forward on the FHA loan without further delays.
One situation the FHA anticipates is known as an “excessive loan” or “excessive loan amount. According to the FHA official site, “An excessive loan amount occurs when the lender closes a loan in an amount higher than that permitted by FHA requirements.”
In cases like these the FHA rulebook says that in order to get FHA loan insurance, the lender has options which include paying down the principal or choosing to “reclose the loan to the insurable amount.”
An FHA loan is, by regulation, automatically rejected or disapproved if the FHA loan exceeds the “statutory limit”. But there are instances where the loan may exceed the “maximum allowable” loan-to-value ratio or exceeds the maximum loan amount but not the statutory limit.
The FHA rules say the lender must, “provide, within 30 days of the date of the letter of notification, evidence that the principal loan balance has been paid down to an insurable amount. If the lender does not respond within 30 days, the HOC may take appropriate sanctions….In the event a claim is presented to FHA, only the existing principal balance and other permissible costs will be considered by FHA for payment of the claim.”
In these situations, is the lender allowed collect from the borrower the money the bank paid to FHA/HUD for a required principal reduction?
The FHA rules in these cases say that, “If the lender advances the principal loan reduction on behalf of the borrower, the lender cannot require a repayment amount, either in lump sum or monthly payment, if the amount will jeopardize the borrower’s ability to repay the mortgage and potentially cause a default.”
Borrowers and lenders who find themselves in this situation should contact the FHA for further clarification where needed.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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