Nevada Real Estate >> Las Vegas Real Estate Specialist: Nevada: Henderson: Anthem

I wanted to take a moment to make sure you are familiar with events surrounding a sweeping set of policy changes for FHA announced earlier this week. The announcement details the changes that Secretary Donovan promised to deliver by the end of January when he testified before Congress last month.

 

The new policies are designed to strengthen the FHA's capital reserves so we can continue to fulfill our mission of serving underserved communities.  In addition, we were determined that these changes should support, not disrupt, the nation's housing market recovery.  Bringing these changes to market has been the result of a lot of hard work and long hours.  And, I am proud to have worked with so many of you on this initiative.

 

What changes will be implemented?  We announced the following on January 20:

1. Increase the up-front mortgage insurance premium (MIP) to 2.25%;
2. Update credit score and down payment requirements for new borrowers;
3. Reduce seller concessions to three percent, from six percent; and
4. Implement a series of significant measures aimed at increasing lender enforcement. 

 

When combined with the risk management measures announced in September of last year, these new changes are among the most significant steps ever taken by FHA to address risk.  Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery.  Importantly, FHA will remain the largest source of home purchase financing for underserved communities.

 

Let's go into more detail:

 

Announced FHA Policy Changes:

 

1.      Increase the MIP to build up capital reserves and bring back private lending.

o    The first step will be to raise the up-front MIP by 50 basis points to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

o    If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.

o    This shift will allow for the capital reserves to increase with less impact on the consumer because the annual MIP is paid over the life of the loan instead of at the time of closing.

o    The initial up-front increase is included in Mortgagee Letter 2010-02 and will go into effect in the spring.

 

2.      Update the combination of credit scores and down payments for new borrowers.

o    New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program.  New borrowers with less than a 580 credit score will be required to put down at least 10%.

o     This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

o    This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

 

3.      Reduce allowable seller concessions from 6% to 3%.

o   The current level exposes the FHA to excess risk by creating incentives to inflate appraised value.  This change will bring FHA into conformity with industry standards on seller concessions.

o   The change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

 

4.      Increase FHA lender enforcement.

o    Publicly report lender performance rankings to complement currently available Neighborhood Watch data which will be accessible via www.hud.gov on February 1.

§  This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

o    Enhance monitoring of lender performance and compliance with FHA guidelines and standards. 

§  Implement Credit Watch termination through lender underwriting ID in addition to originating ID.

§  This change is included in Mortgagee Letter 2010-03 and is effective immediately.

o    Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.

§  Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

o    HUD is pursuing legislative authority to increase enforcement on FHA lenders.  Specific authority includes:

§  Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.  This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.

§  Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. 

 

Note:  This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.

 

In addition to the changes I have outlined, we are continuing to review FHA's overall response to housing market conditions, to evaluate its mortgage insurance underwriting standards, and to improve its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

 

I know this is a lot of information to absorb.  Listed below are links to some of the major stories about the announcement.  I promise to keep you aware as we implement these changes going forward.

 

Wall Street Journal (Nick Timiraos, 1/20) "FHA Sets Tighter Lending Requirements" The Federal Housing Administration is implementing more-stringent lending requirements and higher borrower fees to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency. LINK

  

Washington Post (Dina ElBoghady, 1/20) "FHA plans to require borrowers to produce more cash for downpayments" The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials. LINK

  

Chicago Tribune (Mary Ellen Podmolick, 1/20) "FHA homeownership rules to change" The Federal Housing Administration announced changes Wednesday that will make it more expensive for homebuyers to secure agency-backed mortgages while some consumers will be priced out of the housing market. LINK

  

CNNMoney.com (Tami Luhby, 1/20) "FHA loan requirements will make it harder to get a mortgage" It's going to be harder to get a government-backed mortgage from now on. LINK

CNBC.com (Diana Olick, 1/20) "FHA Boosts Insurance Premiums to Cushion Defaults" In a move to shore up the FHA's beleaguered balance sheet, Commissioner David Stevens on Wednesday announced big changes at the government mortgage insurer that now backs about half of all home loans to the nation's minorities. LINK

 

I want to thank you for your efforts to keep this housing system on track. The role of the Real Estate Agent, Mortgage Lender, Settlement Service Provider, and all who make the dream of homeownership a reality, is critical to stabilizing this economy.  Your work is for a good cause.  We really are making a difference in people's lives.  Thanks for the partnership!

What Is A Reverse Mortgage? (Part 4)
A 12 Part Series

Part 4 - Pros and Cons of a Reverse Mortgage

Why Should You Consider a Reverse Mortgage

• Allows the homeowners to stay in their home permanently.
• Pays off existing mortgages on the home.
• Simple to qualify for because credit scores and income are not considered.
• No monthly payments are due for as long as the homeowner lives in the home.
• The homeowner receives payments on flexible terms:
  • Credit line for emergencies
  • Monthly income
  • Lump sum distribution
  • Any combination of the above
• A reverse mortgage can not get "upside down" so the heirs will never owe more than the home is worth.
• Heirs inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off.
• Proceeds are not taxable.
• The interest rate is lower than traditional mortgages and home equity loans.  

Reasons Why You Shouldn't Do a Reverse Mortgage

The fees on a reverse mortgage are the same as a traditional FHA mortgage. But, the fees are higher than a conventional mortgage because of the insurance premium. The largest costs are:

• Upfront FHA Mortgage Insurance Premium of 2% of the maximum loan amount
• Origination fee - 2% of the first $200,000, then 1% of the remaining maximum mortgage amount, with a minimum of $2,500 but not to exceed $6,000
• Although Social Security and Medicare are not affected, Medicaid and other needs-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.
• Counseling. The program is not well understood by most individuals, and all borrowers must get counseling on reverse mortgages. However, independent reverse mortgage counseling is readily available.

Next: Part 5 - Reverse Mortgages, Income and Taxes
  

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages
 

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

 

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	Lew Corcoran, Sr. Mortgage Consultant Reverse Mortgages / FHA Loans / VA Loans USDA Rural Development Loans in Massachusetts and Florida Save on closing costs when you apply for a mortgage online ActiveRain Blog / Localism / New England Properties The Mortgage Market Watch and Interest Rate Lock Advisory

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What Is A Reverse Mortgage? (Part 1)
A 12 Part Series

Part 1 - Definition of a Reverse Mortgage

A reverse mortgage is a Home Equity Conversion Mortgage (HECM) - it's a special type of home loan that allows senior citizens to convert a portion of the equity in their homes into cash. Reverse mortgages are offered through the FHA (Federal Housing Administration), and is available only to homeowners or home buyers aged 62 or older.

A reverse mortgage is a safe plan that can give older Americans greater financial security. The equity that has built up in their homes over years can be paid to senior citizens. Because they are being paid from the equity in their homes, senior citizens can use the cash for whatever purpose they want. Many seniors use it to supplement social security and retirement benefits, meet unexpected medical expenses and daily living expenses, make home improvements, travel, and more.

A reverse mortgage is often used to fully pay off an existing home mortgage and thereby allow Seniors to cease making monthly mortgage payments. And, unlike a traditional home equity loan or second mortgage, no repayment is required on a reverse mortgage until the borrower(s) no longer use the home as their principal residence.

Seniors can also use a reverse mortgage to purchase a primary residence if they have cash on hand or have proceeds from the sale of another home. The cash on hand is used to pay the difference between the proceeds or a reverse mortgage and the sales price plus closing costs for the property they are purchasing.

The maximum available loan amount is a percentage of the home's value that is based on the age of the youngest homeowner. The loan does not have to be repaid until the last surviving homeowner permanently moves out of the property, sells the home, or passes away. At that time, the estate has 12 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. The estate initially has 6 months, but up to 2 3-month extensions can be granted. All remaining equity is inherited by the estate. And, the estate is not liable if the home sells for less than the balance of the reverse mortgage.

Difference Between a Home Equity Loan and a Reverse Mortgage

With a traditional second mortgage or a home equity line of credit (HELOC), you must have sufficient income, credit and equity in the home to qualify for the loan. You are also required to make monthly mortgage payments. The reverse mortgage is different from a home equity loan in that it pays you, and is available to you regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limit for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.

You don't make payments, because the loan is not due as long as you live in the house, and it is your primary residence. As with all home owners, you still are required to pay your real estate taxes, homeowner's insurance, and other conventional payments such as utilities. However, with a reverse mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."

Next:  Part 2 - Reverse Mortgage Eligibility Requirements

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

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	Lew Corcoran, Sr. Mortgage Consultant Reverse Mortgages / FHA Loans / VA Loans USDA Rural Development Loans in Massachusetts and Florida Save on closing costs when you apply for a mortgage online ActiveRain Blog / Localism / New England Properties The Mortgage Market Watch and Interest Rate Lock Advisory

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