FHA Loan Advice

Taylor, Bean and Whitaker (TBW) Suspended From FHA Lending

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Tue, 04 Aug 2009 15:38:02 -0500

The third largest FHA lender in the country Taylor, Bean and Whitaker Mortgage has been suspended from FHA lending effective immediately. In addition, the Government National Mortgage Association (Ginnie Mae) is also defaulting and terminating TBW as an issuer in its Mortgage-Backed Securities (MBS) program and is ending TBW's ability to continue to service Ginnie Mae securities.

"Today, we suspend one company but there is a very clear message that should be heard throughout the FHA lending world - operate within our standards or we won't do business with you," said HUD Secretary Shaun Donovan.

For full info, go to http://fhaloanadvice.com/taylor-bean-and-whitaker-tbw-suspended-from-fha-lending/

HVCC Uproar

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Sat, 27 Jun 2009 12:46:14 -0500

Just a few thoughts on the current uproar about the HVCC. I'm amazed as I watch all this fighting about the HVCC and the havoc it has caused.

First, I think bureaucratic solutions always cause more trouble than they ever prevent. How does putting another middleman in the process do anything other than clog things up. These "management companies" don't add any more quality to the appraisal process than we had in the past. They just siphon off money that should be going to the people who actually do the work. Lenders' own appraisal review departments had already solved most of the inflated/fraudulent appraisal problems. Problems which were already vastly overstated in my opinion, anyway.

Second, I don't think inflated appraisals were ever the real problem in the first place. Sure there was a small minority of appraisers who would hit any value no matter what they had to do to get there, just as there are crooks in any business. That's not a reason to throw the baby out with the bath water. Real estate values went down for a hundred different economic reasons that had nothing to do with the value the homes appraised for in the past.

Another thing I'm finding fairly amusing in this argument is the way that appraisers talking about it and arguing with loan officers and real estate agents in the forums refer to real estate values as if they work the same way the stock market does. They seem to think there is a definite value to a home that can scientifically be established by their appraisal. Everyone knows this is complete bull. I can order appraisals from 5 different appraisers on the same property today and a few days from now I could receive 5 appraisal values that vary as much as 5 to 30 percent from one another with most having reasonable arguments for their value determination. I know that appraisers reading this will maintain that the rules in their appraisal handbooks will prevent these variations, but I will argue that those rules often differ substantially from what real people will pay for a property.

Carl Pruitt

http://FHALoanAdvice.com

http://FHATrainingSource.com

$8000 Tax Credit Still NOT Allowed For FHA Minimum Investment

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Sat, 30 May 2009 07:56:55 -0500

At least they don't do so in any way which stands much chance of meaningful success in the the real world. Here is the direct quote from HUD Secretary Sean Donovan's May 29, 2009 press release: "Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate." (emphasis added)

HUD has re-published Mortgagee Letter 2009-15 entitled "Using First-Time Homebuyer Tax Credits". This Mortgagee Letter does provide the regulatory framework for monetizing the $8000 first time homebuyer tax credit now in advance. There are two very important points that need to be made about this "monetization".

First, although the HUD announcement sets out a framework for the policy, HUD does not provide the money. Therefore, we will have to wait and see how the policy becomes a part of the real world and how long we will have to wait to see any delivery of money to the closing table.

I know many people had hoped to see some form of check issued by the Treasury to the buyer, but an Act of Congress would have been required to make that possible. HUD just does not have that option available under current law.

The reality is that the possibility of non-profits or lenders coming up with the money to make these loans when the tax credit proceeds cannot be assigned to a third party is very slim. Neither of these parties has the wherewithal to put out this money and then wait for the home to sell or be refinanced before they are paid. Although the Mortgagee Letter attempts to address these issues, there are no guarantees that some other issue in the borrowers life won't pop up and prevent the tax credit from being paid to them. With seller paid down payment assistance, the borrower never put their hands on the money. With this plan, the non-profits or lenders who would provide a second lien would have to hope they got repaid when or if the tax credit money arrives.

And don't hold your breath waiting on state agencies to take up the slack. The states don't have the money.

Second, the Mortgagee Letter specifically points out that according to "12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity)."

In other words, the borrower must still contribute 3.5% of their "own money" into the transaction. Of course, as was always the case, this can be a gift from a relative or similar close relationship.

The proceeds from this monetization can be used for additional down payment or to buy down the interest rate or to pay closing costs. The best use of the money will be dictated by the transaction. For example, many borrowers who are "on the borderline" of approval through the automated underwriting system may be able to change the decision to an approval with a little additional down payment. Other people (i.e. those who definitely plan to stay in the house for a very long time) would be better off paying down the interest rate with the "free money" from the tax credit. Borrowers who know they are going to move in a few years, and who can get the seller to pay all the closing costs may be better off waiting to receive their tax refund the normal way by waiting until they file their next tax return. The tax credit money can simply be put into the bank for a rainy day.

At any rate, this is all speculation until we actually see someone come forward with the actual money and not just a new bureaucratic pronouncement.

Following is the complete text of the Mortgagee Letter:

May 29, 2009

MORTGAGEE LETTER 2009-15

TO: ALL APPROVED MORTGAGEES

SUBJECT: Using First-Time Homebuyer Tax Credits

The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for as much as an $8000 tax credit to qualified first-time homebuyers. FHA supports this important initiative to promote homeownership. This mortgagee letter provides:

Basic information on the first-time homebuyer credit obtained from the Internal Revenue Service (IRS) website. Complete information on how the first time homebuyer tax credit works, including the eligibility requirements for the tax credit, the amount of the tax credit that a first-time homebuyer may be eligible to receive, and how a homebuyer may claim the tax credit is available on the IRS website at http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet7.
Guidance on how FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local government agencies or instrumentalities may assist homebuyers that are eligible for the tax credit.

I. About the First-Time Homebuyer Tax Credit

Please check the IRS website to ensure you have up-to-date information. A brief overview of the tax credit from the IRS website and a copy of IRS Form 5405 (including instructions) are attached for reference.

Pursuant to 31 U.S.C. 3727 and 26 U.S.C. 6402, a refund of the first-time homebuyer credit will be made by the IRS only to the taxpayer, not to a third party. In other words, any refund issued in response to a claim for this credit cannot be assigned by a taxpayer to a third party.

II. FHA Tax Credit Guidance

Secondary Financing

Consistent with existing FHA policy, FHA will permit entities covered by Section 528 of the National Housing Act to use the current authority to offer tax credit advances with second liens in a manner consistent with the requirements in 12 U.S.C. 1709(b)(9). Eligible government agencies and instrumentalities of government are described in handbook HUD-4155.1 5.C3 and 5.C4.

Conditions:

The tax credit advance, when combined with the FHA-insured first mortgage may not result in cash back to the borrower.
The second lien may not exceed the total amount needed for the down payment, closing costs, and prepaid expenses.
Secondary financing may be "soft" (silent) or require a monthly repayment.
If payments are required, they must be included within the qualifying ratios and, when combined with the first mortgage, cannot exceed the borrower's reasonable ability to pay.
Payments must be deferred for at least 36 months to not be included in the qualifying ratios.
If the tax credit advance loan has a short term for repayment, it must also provide that if the borrower fails to repay by the designated deadline, principal and interest payments begin automatically or the loan converts to a "soft" second.
The secondary financing may not require a balloon payment before ten years.

Purchase of Tax Credit

FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities thereof may purchase the tax credit anticipated by the homebuyer.

Conditions:

The proceeds of the sale of the tax credit may not exceed the anticipated tax credit due the homebuyer based on the computations of form IRS 5405;

The borrower must submit a signed certification that the tax credit is not subject to offset due to other indebtedness.
A copy of the borrower's tax refund and/or the IRS 5405 must be collected and retained in the FHA case binder.
Any costs attendant to the purchase of the tax credit are to be nominal and discounting the anticipated credit to cover the costs and expenses of the transaction must be reasonable and disclosed to the homebuyer. In FHA's view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive. (Example: $6000 to be refunded, with all fees and costs discounted, borrower should receive not less than $5850.00 for sale of tax credit.)
Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer's downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity). Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.

Due Diligence

FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

Require the homebuyer to draft and provide the IRS form 5405 "First-Time Homebuyer Credit."
Contact the borrower's employer and review pay stubs to confirm there are no outstanding garnishments.
Review the homebuyer's credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
Validate that all of the eligibility requirements for the tax credit are fulfilled
Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

III. Monitoring

In order to track the tax credit monetization activities, FHA will require FHA-approved mortgagees to input into FHA Connection the following data:

Name and EIN of the party who purchased the tax credit,
The amount of the anticipated credit, and
The amount the homebuyer paid for the monetization services.

The lender must also collect and maintain in the FHA case file the documentation that validates all of the tax credit monetization data submitted via FHA Connection.

FHA will monitor the purchase of tax credit transactions closely. Charging of excessive fees or costs in the purchase of the tax credit or increasing other fees or charges in the transaction without FHA approval may result in referral to the Mortgagee Review Board, and particularly with respect to entities that are not FHA-approved mortgagees, referral to the Federal Trade Commission, or referral to the appropriate State Attorney General office, as may be applicable.

If you have any questions regarding this mortgagee letter, please call FHA's Resource Center at 1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Sincerely,

Brian D. Montgomery

Assistant Secretary for Housing-

Federal Housing Commissioner

Attachments

	IRS Form 5405
	IRS Tax Credit Summary

Is Seller Paid Down Payment Assistance Coming Back?

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Sun, 15 Feb 2009 12:45:46 -0600

As a loan officer, I first began using seller paid down payment assistance programs with my customers almost as soon as the program was available in my area. I remember very clearly the feeling I had at the time that the programs could not last long before HUD put a stop to them. I told every customer I prequalified for the first couple of years that they better hurry up and find a home because their down payment program couldn’t possibly last very long.

When I first took the classes to get a real estate license and later a broker’s license, and then when I started training to become a loan officer, nothing was drilled into my head more firmly than the rule that any payments from the seller back to the buyer to cover down payment money were fraudulent and illegal. Now suddenly this particular money back from the seller was not a kickback as long as the money was funneled through a non-profit organization.

Yet at the same time I saw many deserving families who were ecstatic about becoming homeowners and who were ultimately very successful homeowners. They put up with a whole lot of extra scrutiny to qualify for an FHA loan instead of a subprime loan because owning a home was important to them. In fact, they went through a lot more than most of the high credit score, conventional loan borrowers who sold their previous home and made their relatively painless down payment. As a matter of fact, my personal experience with seller assisted down payment programs is that this is the group of borrowers who most appreciate the opportunity to buy a home and fight tooth and nail to keep it and foreclosures are very rare. This experience shades my view of the program.

On the other side of the coin, past loans where seller paid down payment assistance was involved do have higher default rates. They have had higher percentages of straw buyer fraud than other loans. They have had too many instances where the down payment and transaction fee were just added on top of the listed price. But are these issues with the seller paid down payment assistance programs or are they underwriting and quality control issues.

I don’t know if seller paid down payment programs are the answer or not. Maybe they are, or maybe some program similar to the VA 100% loan program would make more sense. I do believe that lack of a down payment isn’t the huge factor causing foreclosure that some of it’s critics suggest. I believe the problem is layering of risk - specifically high debt to income ratios. I know of lenders who have studied their own numbers and come to the conclusion that the difference between the default rates on FHA loans with seller paid down payment assistance and FHA loans without it would essentially disappear with some tighter underwriting standards.

I don’t believe the bill which is presently being pushed to restore seller paid down payment assistance has the right guidelines to make the program work. I’m going to discuss this in more detail over the next few posts, but in the meantime let me direct you to some viewpoints on each side of the argument:

As you can tell by the titles, a few of these articles are from some time ago before seller paid down payment assistance was discontinued, but the same arguments have been going on for ages. My own opinion of this issue has changed over time, I’d love to hear your thoughts about it.

Lenders Run Scared, Violate The Spirit of FHA

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Fri, 13 Feb 2009 20:21:28 -0600

Every single day I receive numerous emails and phone calls from loan originators and potential borrowers asking whether FHA guidelines have changed and asking me why a particular loan scenario can no longer be approved as an FHA loan. Consumers, in particular often get confused when I explain that FHA guidelines are not the issue. The problem is with the lender they or their mortgage broker have chosen.

In just the last few months I have seen ridiculous scenarios such as borrowers being asked for full documentation of their income on FHA streamline refinances! Or borrowers’ credit scores becoming an issue on streamline refinances.

Some time ago we began to see many lenders start enforcing a 580 minimum credit score in order to qualify for an FHA loan. At the end of January, Wells Fargo raised the minimum credit score for loans submitted by mortgage brokers to 620. To put that into perspective, a couple of years ago 620 was the score we looked for to qualify for a conventional Fannie Mae or Freddie Mac loan. At about the same time, everyone received a memo from Taylor, Bean and Whitaker - for a very long time one of the last bastions of wholesale lenders who followed FHA guidelines and still my personal favorite lender - indicating that TBW would no longer accept FHA loans with credit scores under 600.

I know that, to people with good credit, and to mortgage originators who specialize in loans for clients with excellent credit, griping about having to adhere to credit scores that low seems ridiculous. But to those loan originators who have made a specialty of helping good people who’ve been thrown a few unexpected curveballs in life yet still recovered, this goes against everything the FHA program represents.

I want to make one thing clear. I’m not talking about those people the subprime industry pushed into home loans without caring about anything except whether their credit profile fit into a box in a qualifying matrix. The people who had a history of borrowing too much every time they got access to credit again and then letting everything go when the payments added up. I’m talking about people who may have been laid off, or the primary wage earner in their family had health problems but who fought tooth and nail trying to keep their head above water and only used their credit cards to keep food on the table until they had to choose between their power bill or their credit card payment. But who did everything they could to re-establish a good payment history once their emergency was over. The kind of people who have downright terrible credit scores but are really a good bet when it comes to whether or not they will make their house payment.

Over 24 years in the real estate/mortgage industry has shown me that there are a lot of people in both of those groups. Over the last few years there has even been another group. Those with 690 to 750 credit scores who would gladly take a $10,000 payment from a house flipper to stand in as a straw buyer to help consummate a fraudulent real estate transaction.

Now, in the midst of this huge crisis the mortgage industry is in, those good folks are being thrown under the bus because the mortgage industry has become too reliant on automated underwriting and credit scores instead of traditional guidelines and common sense. The system has become disconnected from the people and it gets worse every day.

I can’t count the number of times I’ve looked a 750 credit score borrower in the eyes and spoken with them and just known that I couldn’t rely on them to pay back $20 in gas money much less a home loan. Yet they have credit that causes the automated systems to allow them to be approved with 58% debt to income ratios. The kind of people who have good credit scores, but you can easily see would run those credit cards up to their high limits with no qualms whatsoever. Who you know in your gut from your conversation would walk away from their home loan if the mortgage balance was even slightly under water. And I’ve known of many of this group who did just that.

And I’ve seen an equal number of 550 credit score borrowers (or worse) who fought their way out of bankruptcy after a horrendous unexpected catastrophe. Who don’t even have any high credit limits to run up to if they wanted. But who would fight tooth and nail to keep their home paid for even if it was worth 80% of what they paid for it. Just because it is their “home” and not just a house. The kind of people who have always been helped by the traditional FHA loan, but who have already been fighting an uphill battle against automated underwriting for years.

Underwriters today (and in the underwriters’ defense, lenders as well) want to see those automated approvals that cause them not to have to look at the patterns of the borrowers’ credit and find out why those people had problems and what they’ve done to stop them from happening again.

Why is all this happening? It’s almost as if common sense has been divorced from the mortgage industry for so long that no one can imagine how we did it back when underwriters really tried to analyze people and not just “files”. Before complicated software started (supposedly) analyzing things underwriters couldn’t possibly even understand. Like what the chances of default were just because you had a department store card compared to not having one. Or how many and what type of lines of credit the group of people likely to make their payments possessed. The funny thing is that defaults have gone up by unbelievable order of magnitude since the mortgage industry started using these more advanced and supposedly accurate methods of underwriting.

I know lenders have all sorts of reasons they feel we need these higher credit scores. They’ve analyzed all the pools and tranches and macro trends and determined that groups of loans with these characteristics will be more likely to perform as investments. But the sad thing is that no one is comparing today’s loans to the days when real people took their time and followed the debt ratio guidelines and asked people why they were late on their payments. When it took a month or more and stacks and stacks of paper to check and double check and make sure a good decision was being made. Before the whole goal became to close as many loans as you can as fast as you can so you can collect your fees and turn the loan over to the next company to collect the payments.

Maybe, just maybe, this is one process that hasn’t improved with time. Maybe it’s time to give very serious thought about whether automated underwriting has been a positive influence in the mortgage industry as a whole and in FHA lending in particular. I’d love to hear your thoughts.

Update: In a comical turn of events as we face FHA loans with minimum credit scores of 620 in some instances, here is a quote from a Fannie Mae guideline update published just after I wrote the above post:

"Starting April 4, 2009…

In order to provide lenders with increased efficiencies for the origination and underwriting of limited cash-out refinance transactions, and allow more borrowers to take advantage of today’s historically low interest rates…

Expanded Eligibility Criteria

The following expanded eligibility guidelines will be applied to limited cash-out refinance loan casefiles meeting the DU Refi Plus eligibility criteria noted above (including the successful identification of the existing Fannie Mae mortgage loan):

Loan casefiles with an LTV less than or equal to 80 percent will not be subject to the minimum “representative” credit score requirement of 580.

High-balance mortgage ARM loan casefiles with an LTV less than or equal to 80 percent will not be subject to the minimum “representative” credit score requirement of 680.

Reduced Employment Documentation Requirements

DU will offer the following reduced employment documentation requirements on all DU Refi Plus eligible loan casefiles:

Salary/Bonus/Overtime: one current paystub and a verbal verification of employment

Commission/Self-Employment: one year’s federal income tax return"

Second Appraisal Required On Cash Out FHA Refinances

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Mon, 29 Dec 2008 19:13:02 -0600

Just a quick heads up about a change to the guidelines for the FHA 95% loan to value cash out refinance program effective for all case numbers issued after January 1, 2009. This change does not apply to the standard 85% loan to value program.

The guidelines already included additional requirements that many loan officers have overlooked when taking applications for 95% loan to value cash out refinances:

The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application.
If said property is encumbered by a mortgage, the borrower must have made all of his/her mortgage payments within the month due for the previous 12 months, i.e., no payment may have been more than 30 days late and is current for the month due.
The property that is security for the refinanced mortgage must be a 1- or 2-unit dwelling.
Subordinate financing may remain in place, but subordinate to the FHA insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the homeowner qualifies for making scheduled payments on all liens.
Any co-borrower or co-signer being added to the note must be an occupant of the property. Non-occupant owners may not be added in order to meet FHA’s credit underwriting guidelines for the mortgage.

In Mortgagee Letter 2008-9, FHA already made it a requirement that two appraisals were required when the loan amount exceeds $417000. Those loans are also limited to 85% LTV (loan to value).

Now HUD has extended this requirement to any loans with an LTV above 85% beginning with any case number issued on or after January 1, 2009.

From Mortgagee Letter 2008-40:

In addition, FHA will now require a second appraisal for all cash-out refinances where the LTV, exclusive of the UFMIP, will exceed 85 percent of the appraiser’s estimate of value. This second appraisal requirement applies regardless of the loan amount or the location of the property, i.e., whether the property is in a “declining area” or is not. This second appraisal requirement for cash-out refinances is effective for all case number assignments on or after January 1, 2009 and is to adhere to the instructions set forth in ML 2008-09. Please also note that cash-out refinances with LTVs exceeding 85 percent will be over-selected for post-endorsement technical reviews (PETR) to assure the quality of the underwriting.

Mortgagee Letter 2008-09 sets out the requirements for the 2nd appraisal. It must be done by an FHA approved appraiser engaged by the lender and the costs may be passed on to the borrower. If the second appraisal has an estimated value more than 5% below the first appraisal, the maximum mortgage must be determined based on the lower appraised value.

If you are a mortgage broker, please take note of that last sentence. This means that wholesale lenders are going to be picking these loans apart even more closely than they have been. And they haven’t exactly been easy with the underwriting lately to begin with. Also, remember that the borrower should be prepared to have as much as $900 of their cash out eaten up by appraisal fees!

If you would like to find an easy way to keep up with all these guidelines in an organized, easy to read handbook (HUD doesn’t understand what those terms mean), then check out http://fhatraininingsource.com.

FHA Streamline Refinance: Rules Effective January 1, 2009

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Mon, 15 Dec 2008 12:15:34 -0600

This blog is normally focused primarily on providing information for originators of FHA loans, but this post should prove useful to both loan originators/processors and consumers. With mortgage interest rates plummeting to record levels, and home sales plummeting as well, many people have a renewed interest in refinancing for lower interest rates and sometimes shorter mortgage terms.

The FHA streamline refinance is a great option for quite a few of them. Here are the rules which will be in effect beginning January 1, 2009 for calculating FHA streamline refinances.

In order to qualify for an FHA streamline refinance you must be a homeowner who currently has an FHA-insured mortgage. Streamline refinances for conventional mortgages are in the planning stages, but have not been implemented yet.

An FHA streamline refinance does not require any proof of income or any verification of funds to close. No repairs are required unless the house has lead paint. FHA does not require a credit report, but some lenders may require one for loan pricing purposes. FHA guidelines require only a verification of the mortgage payment history for the last 12 months (or the length of time the mortgage has been held). HUD’s Credit Alert Interactive Voice Response System (CAIVRS) need not be checked, but a check of HUD’s Limited Denial of Participation (LDP) and General Services Administration (GSA) exclusion lists is still required for all borrowers.

Continue reading →

Obama Picks Secretary of HUD Nominee

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Sun, 14 Dec 2008 23:08:21 -0600

Yesterday Obama named Shaun Donovan, New York’s Housing commissioner who also worked in HUD during the Clinton administration, as his nominee for Secretary of Housing and Urban Development. I don’t know much about him other than what I read in this profile in the New York Times in which there is a quote that turns my stomach a little due to my admittedly slightly hypocritical for an FHA specialist belief that government regulation and meddling is never a good solution:

I would never believe that the private sector, left to its own devices, is the best possible solution. I’m in government because of the role of government in setting rules and working in partnership with the private sector. On the other hand, there’s no way you could ever get to a scale that can really affect the housing problems in this country without working with the market. - Shaun Donovan from a 2006 New York Times profile.

But I’m always willing to wait and see what happens, even though 80% of the reason he is the nominee is probably because he took a leave of absense from his previous job to work on Obama’s campaign. According to Politico, Donovan “was one of the earliest public officials to foresee the magnitude and destructive capacity of the subprime crisis.” and “…unlike many Clinton-era housing officials, the 42-year-old financing expert never subscribed to the prevailing (and deeply misguided) belief that low-income homeownership was the panacea for all the nation’s housing ills.” So at least he may not be as short sighted and driven by untoward influences as some of his predecessors have been.

Here’s a link to Obama’s address in which he announces the nomination and gives his reasons: Obama Makes HUD Pick

FHA Guidelines

Is There Trouble Brewing With FHA?

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Wed, 10 Dec 2008 23:03:13 -0600

A lot has been going on in the world of FHA since my last post, so there is quite a bit of catching up to do!

First, let me remind you about the changes that are happening with FHA loan limits and the down payment requirements in January. Don't let these catch you flat footed with your clients losing their loans. More on that in a separate post.

Second, one of the changes that will affect loan officers takes effect on January 16, 2009 when the 1% limit on loan origination fees on FHA loans that has been in effect forever will be removed. This is part of the same rule introducing the new "simplified" (in the George Orwell sense) Good Faith Estimate which does not have to be used until 2010.

Some consumer activists have complained that removing this limitation is an instance of HUD giving up on consumer protection. This is far from the case. First, people not directly involved in the origination and processing of an FHA loan for a customer with credit problems or other issues that cause their loan not to fit easily into the box have no idea of the work involved in getting that customer a loan.

I have worked on both the real estate broker side of the transaction as well as the loan officer side. Some may disagree, but I believe I know what I am talking about when I say that the loan officer in such a transaction really deserves at least the same pay as the real estate agent and neither deserves less than the agent is getting now. I know that, unlike with the average conventional loan, they end up doing more work. Yet many people seem to think a loan officer should be happy to split less than half the real estate agents' pay with the mortgage company, the lender, the government, the appraiser and the attorney.

No one in the transaction has to wrangle as many different people and as many different seemingly uncontrollable factors as the loan officer. Some consumer activists who think that human nature can be overridden may believe otherwise, but a person doing any difficult job does it more effectively when they are well rewarded for the effort. I think having to pay a little bit extra is a small sacrifice for a borrower who has problems it takes an expert to solve. They aren't being "ripped off" by having to pay more.

Traditionally, this has meant that FHA borrowers with difficult loans (estimates are that this group includes at least 60% of mortgage applicants today) almost always ended up paying higher interest rates which paid yield spread premiums so that a busy expert FHA loan originator would feel motivated to spend the extra time and absorb the extra stress involved in getting such a transaction closed. Now this will be pushed out into the open where it belongs. Unfortunately, this benefit will be dulled because the fee will still be limited by state regulations in most cases. Consumers need to realize that experts in a field will leave that field if their work is not well rewarded, leaving only the order takers who aren't experienced and prepared enough to solve the problems borrowers have.

Now on to the main subject. All this praise of the expert professional FHA loan officer needs to be tempered by the fact that every day more loan officers who don't have a clue what they are doing and don't care to take the time to learn, or even worse do have a clue but have turned to the dark fraudulent side of the business are entering the FHA loan origination business.

According to the Mortgage Bankers Association, in October the percentage of total loans originated that were government insured had risen from 9.4% in January 2008 to 32.9% in October! November was the second straight month that GNMA issued more mortgage backed securities than Fannie Mae or Freddie Mac. GNMA, or Ginnie Mae, backs government insured loans in much the same way that FNMA and FHLMC (Fannie Mae and Fredie Mac) back conventional loans, with the exception of explicit backing by the FHA and VA insurance funds. Government bond issues have not been higher than conventional issues since just after the savings and loan crisis in the 1980s. The point is that FHA and VA loans are taking over the market.

In theory, according to the guidelines, FHA has a system to control abuses of the program by unscrupulous mortgage lenders, brokers and loan officers. HUD has an audit process that participants agree to when they sign up to take part in the program. HUD has a system for eliminating lenders whose default rates exceed the national average by too much. HUD insists on a written quality control plan that each FHA lender must have and follow to prevent fraud and insure quality loans. FHA insists on verifying and analyzing a borrowers ability to repay the loan. FHA has a thorough and effective loss mitigation program to help keep borrowers in their homes when they have financial difficulties.

The trouble is that enforcing and implementing these guidelines, rules and procedures requires more staff than FHA has available at a time when FHA loan numbers are increasing at a record pace. A few weeks ago, Business Week published an article entitled "FHA Backed Loans: The New Subprime". My initial response to this article was to get my nose out of joint and sit down to write a thorough rebuttal, but I was interrupted and therefore given time to really think about the situation and calm down.

My first instinct was to point out that the real numbers show that FHA foreclosure starts and delinquency rates have held steady while conventional numbers went up. In spite of FHA grabbing a larger section of the market. However, we must also take into account that, according to a recent audit FHAs insurance fund has dropped 39% from last year. The fund has dropped from $21.2 billion a year ago to $12.9 billion. Even so, the worst case scenarios still indicate that the fund will continue to remain above the legal limit or 2% of outstanding FHA mortgages. FHA just simply has an awesome loss mitigation system.

However, the Business Week article has several examples of high volume lenders who should never be allowed to originate FHA mortgages, but have wriggled through the cracks and are still going strong in spite of the rules which say they shouldn't be in business. These are the same type lenders who helped throw gasoline on the bonfire as the subprime business went up in flames. According to the article, "Thirty-six thousand lenders now have FHA licenses, up from 16,000 in mid-2007." To top that off, the government is strongly encouraging as many lenders as possible to join the FHA program and constantly introducing more flexible programs to bail people out of foreclosure and to allow larger loans.

While this has been going on, according to the article, "FHA staffing has remained roughly level over the past five years, at just under 1,000 employees, ... The FHA unit that approves new lenders, recertifies existing ones, and oversees quality assurance has only five slots; two of those were vacant this fall, according to HUD's Web site. Former housing officials say lender evaluations sometimes amount to little more than a brief phone call, which helps explain why questionable ex-subprime operations can reinvent themselves and gain approval." (emphasis added)

To make things worse, FHA's computer systems can't even accurately track or determine which lenders and brokers have already been convicted of fraud or some other violation! This leaves the system extremely vulnerable.

Surely, a little bit of the bailout money could be directed towards making sure FHA has the resources to prevent FHA itself from needing to be bailed out.

In the meantime, remember that the vast majority of lenders and brokers are still coloring within the lines and present little potential problem. I highly encourage every loan officer to help out by holding themselves to a higher standard. Don't just be an order taker whose goal is simply to get every borrower who wants one into a house. Learn the rules thoroughtly, get all the FHA training you can, and make sure the borrowers you help will really benefit from the loans you are helping them get.

Carl Pruitt

FHA Guidelines, Analysis and Updates: http://fhaloanadvice.com

Real Estate Related Domain Names For Sale

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Sun, 07 Dec 2008 18:46:36 -0600

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Revisiting FHA As The New Subprime

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Sun, 07 Dec 2008 18:05:59 -0600

One of my strongest pet peeves has long been those who insist on calling FHA "The New Subprime". I have addressed it many times here and on my website at FHA Loan Advice (where I'm about to address it once again in more detail).

FHA has always underwritten loans based on a real concern for whether the borrower can indeed afford the payments. FHA has never cared only about whether or not the borrower fit into a "matrix" or not, with no consideration or explanation of previous patterns of credit. FHA has also always theoretically held lenders and brokers to reasonable limits on defaults on the loans they originate.

Last week I read an interesting article in Business Week that ticked me off so badly I had to think about it before I penned any sort of response. Now that I have calmed down, though, I find the article does make some very good points. HUD needs more more emphasis on managing compliance and preventing fraud and they need more staff to do that. They need tighter control over the people allowed to take part in the FHA program. They need this more than we need increased limits, and higher down payments and the banning of down payment assistance. This should be the first order of business for the politicians rather than dreaming up one ridiculous ineffective bailout program after another.

You can find the article at "FHA-Backed Loans: The New Subprime" if you would like more information.

Hope for Homeowners Guidelines Relaxed

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Wed, 19 Nov 2008 21:43:28 -0600

Since the Hope for Homeowners program has been a failure so far in helping any homeowners avoid foreclosure, U.S. Housing and Urban Development Secretary Steve Preston announced today that standards for the program are being relaxed in the hopes that some actual borrowers might be helped by the program. The three most significant changes to the program are 1) allowing a loan to value of 96.5 percent for some H4H loans, 2) simplifying the process for removing subordinate liens by allowing upfront payments to lienholders and 3) Allowing lenders to stretch the terms on the mortgage to 40 years which theoretically could help with debt ratio problems.

Click Here for the full details on the new Hope For Homeowners guidelines

Thanks!

Carl Pruitt

For more updates on FHA Guidelines and FHA training for loan officers, please check out http://fhatrainingsource.com

Which Lenders Are Offering The Hope For Homeowners Program?

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Fri, 31 Oct 2008 12:33:46 -0500

I have previously expressed my view that the “Hope For Homeowners” program is really more of a “Hope For Politicians” program designed to make the citizens believe that the politicians really care about them. According to articles I have seen quoting Fox News (although I haven’t found the source quote yet), only 79 borrowers have been accepted into the program in the month since it officially began. Although, to be fair, secondary mortgage market issues can create quite a gap between the legal start date and the actual start date of such a mortgage program.

Nevertheless, I get an email or two every day from consumers and mortgage brokers alike asking me which lenders are taking part in the program. So I would be remiss in not giving out a link to the place where you can find the complete list of lenders who are taking part in the program. The list is updated on Fridays.

So here it is: Hope For Homeowners Lenders List

If anyone has any success (or horror) story about using the H4H Program, I would love to hear about it.

If you are a mortgage broker, or loan originator, don’t give up on the FHA programs just because these new programs turn out to be a bust. Get some training on FHA guidelines and prepare yourself to help all the new buyers that are going to be coming into the market.

FHA Training: 5 Simple Tactics To Help Loan Originators Thrive In Tough Times

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Wed, 29 Oct 2008 22:47:40 -0500

FHA training for loan officers is more important than it has ever been. Times are tough in the mortgage business. Loan officers are dropping out like flies. Heck, even lenders are dropping like flies! The loan officers disappearing the quickest are those who aren't experts in originating FHA loans.

Yet mortgage loans are still being made every day everywhere and in high volume. Borrowers are out in force searching for loan officers who can help them.

Many loan officers trying to survive are concentrating on using the latest FHA loan innovations to try and save the homes of people losing them to foreclosure in these bleak times. A laudable goal, but not a great business plan. Here's why.

Two primary building blocks of a successful mortgage career are repeat customers and client referrals. These two items are the boost that elevates a mortgage career above the daily grind of prospecting. Unfortunately, building a business around rescuing borrowers in foreclosure does not lend itself to either of these. Experience shows that once a borrower is in foreclosure, even if rescued the first time, they usually end up back there with worse credit and a more difficult situation. In addition, due to endless guideline changes and processing hassles for this type loan from both HUD and lenders, the process is usually intensely stressful and not conducive to creating referral business except by luck. And who wants to bet their future in the mortgage industry on luck at this point?

Here are 5 simple tactics loan officers can use to survive in today's tough mortgage market.

1 - Master FHA guidelines and best practices

Get education on the basic FHA programs. Reading the HUD manuals won't get the job done. They are horribly organized and very confusing. Find a good, well organized reference manual and study it in your spare time. This alone will put you head and shoulders above most of the mortgage originator crowd which is fumbling around and irritating their underwriters with their lack of knowledge and common sense.
Learn the rules of the Streamline 203(K) Program. This allows your customers who want to buy a foreclosure home in need of repair without worrying about breaking the bank trying to fix the house up, or worse simply not being able to buy that home.
Get your hands on an organized, well thought out system for rapidly and accurately qualifying borrowers, verifying information, and getting preapprovals for your potential borrowers and their real estate agents. The loan officer with the best system gets the deal done quickly and with fewer mistakes or problems. This creates a referral machine that can't be stopped.

2 - Affiliate yourself with a well known, well established local FHA lender if possible. Unless you have substantial experience originating FHA loans and maintaining your office in compliance with all the guidelines, give up on trying to be a one man shop keeping 100% of the commissions generated. You will end up keeping more money in your pocket with a strong organization behind you.

"Net Branches" with 100% commission splits for loan officers and no local supervision are going to increasingly find themselves on the regulatory radar.
With all the horrible things people have been reading and hearing in the news over the past couple of years, people are very wary of mortgage brokers right now. As a matter of fact, many people believe all mortgage brokers are crooks. A mortgage office with one or two loan officers working out of someone's basement, a hole in the wall in a strip shopping center, or even an executive office suite with a shared receptionist is no longer going to be able to inspire confidence in borrowers. The time has come to decide whether you are fly by night con man, or a professional who truly wants to put your clients in a better position and be paid well for doing it.
Make sure that wherever you work, you have a very good processor who is extremely well rewarded for doing a good job

3 - Study and master the foreclosure market from both the lender and real estate agent sides of the business. Be the lender with all the answer when agents with no foreclosure experience send you their buyers.

Learn all about HUD and bank REO bidding processes and the insider tips for effective bidding. Give your borrower the advantage over all the others who are just learning the process.
Make solid contacts with REO handlers for various lenders so that they trust your prequalifications and possibly even make you aware of properties before they hit the market.
Learn about every down payment grant program still available in your area. Borrowers will do business with the loan officer who is most knowledgeable about getting them the best terms.

4 - Find out everything you can about effective emotional direct response marketing techniques and learn how to adapt it to your mortgage business. This will help you avoid falling victim to every marketing guru that comes around with the latest greatest bag of tricks. The techniques you need have all been around for ages.

Study direct marketing techniques and systems until you have above average skills in this respect.
Once you truly understand how emotional direct response marketing techniques can be applied to building a mortgage business, find a good source for ready made marketing materials you can customize for yourself. Without understanding the correct concepts, picking the best source for marketing materials is nearly impossible.

5 - Build a referral network and work hard at maintaining it.

Learn the methods that really work to get appointments with and build a network of real estate agents. Hint: Telling them you have the best rates and quickest closings isn't the way to do it.
Develop a system to help For Sale By Owners market their properties. You can get many buyer leads for your real estate agent referral partners with this method.
Don't use your fancy corporate website for finding new borrowers. It won't work. You need it for those customers that want to apply online on a professionally set up website, but you need an entirely different type of website to attract customers. They aren't on the internet to see your list of every type mortgage on earth that you "specialize" in and read your description of how great your company is. They want information about mortgages so they can determine who to trust. Set your website up so that it entices customers to trust you and becomes a part of your "referral" network.
Use cheap real estate book and classified ads to draw buyers to your website or call capture line in a non-threatening manner. Use the same tactics that work for a website to slowly train them to trust you and build your pipeline of potential prospects.

FHA training is the foundation of a successful mortgage career during the tough times loan officers must still face ahead. These 5 tactics can help build that foundation and set you up for success for years to come.

Find out about the best FHA training available and get FHA guideline updates and information at http://fhaloanadvice.com/fha-training-5-simple-tactics-to-help-loan-originators-thrive-in-tough-times/

Are Seller Assisted Down Payment Programs Bad For FHA?

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Thu, 16 Oct 2008 17:01:24 -0500

In answer to a recent comment on my post “H. R. 6694 Passes Out Of Committee” I made the statement that:

“I’m absolutely not opposed to people putting money down. For most of my career in the mortgage business, buyers had to put down essentially 5%.

FHA is a self supporting program where the borrowers as a general rule carry their own weight by paying mortgage insurance premiums. They have to prove their ability to make the payments along with whatever payment they may be making on that SUV and those TVs. In addition, every lender and broker who offers FHA loans is held accountable for their default rates. FHA programs aren’t the problem bringing down the credit industry.

With seller assisted DAPs, the borrowers lose some of their ability to negotiate with the seller and end up in the long run funding their own down payment. Unlike the government programs which are being forced as replacements, this down payment assistance doesn’t come directly out of the taxpayers’ pockets.”

Krista Railey, an analyst for ml-implode.com, subsequently posted the following comment in response. You can find the context of her response here, but I will quote it to save you the time:

“I agree with you Carl. These programs create housing inflation and lead to higher default rates. Every single SFDPA program that I look at is ran as a for profit venture without regard for borrowers. I invite you to take a close look at the programs and the individuals behind the programs, and you will likely find a convoluted mess of multiple entities brokering programs. As to providers that do not obfuscate their identity and file IRS 990 returns, the flow of cash from the non profits to for profit entities involving the Officers says it all.

Currently Christopher Russell, Ryan Hill and the Penobscot Indian Nation is suing the ML Implode and myself to remove my documented article regarding their program from my blog and stifle free speech. Needless to say, its a sad day when bloggers get sued to silence criticism- especially on such a controversial issue as seller-funded down payment grants.

DownpaymentOutfitSuesMLImplodeInEffortToSilenceCr.html

If H.R. 6694 passes, it will be a travesty against FHA and the Taxpayers and will create higher home prices, higher defaults, and higher mortgage insurance costs for borrowers that save their down payment.

In fact, some buyers who save their down payment and are ready for homeownership will be displaced entirely just so some buyers can purchase before they are ready.

Representatives Maxine Waters (D-CA), Al Green (D-TX), and Gary Miller (R-CA) are selling out to trade groups and special interest while ignoring the fact that housing inflation and inflation overall is a greater threat to the housing market than whether buyers without down payments can purchase homes.”

Krista has misunderstood my original post which was actually made in support of bringing back seller assisted down payment programs, however her own post she links to makes some excellent important points and brings many issues to the table that I would like to comment on. Some issues that have been bothering me for quite some time.

I have covered in great detail elsewhere on this site the reasons why I feel that seller assisted down payment assistance is NOT, inherently, the significant source of FHA defaults that its critics think.

Here is a short list of just some of those reasons.

The raw numbers used by HUD to document this increased default rate are significantly inaccurate.
The study used by HUD to document the higher default rate of DAPs does not adjust for the higher levels of fraud which exist in the areas included in the study. Fraud which was most likely intricately but not inherently associated with transactions involving down payment assistance.
Defaults are much more closely associated with areas experiencing rapidly decreasing values caused by foreclosures unrelated to FHA loans than they are to lack of down payment.
Lender analysis has shown that when seller assisted DAPs are not combined with high debt ratios or unjustified bad credit or lack of previous housing payment history then default levels are comparable to loans without down payment assistance.

In other words, in my opinion the difference between a borrower making no down payment or a 3.5% percent down payment is not a significant factor in the desire of that borrower to fight and scrape to prevent default and keep their home when the going gets tough. Now a 20% or even a 10% down payment might be a greater incentive for that struggling borrower, but it is naive to think that 5% or less down payment makes a significant difference as long as the borrower had the real capacity to repay the loan in the first place. I believe that mortgage fraud is the most significant factor in the difference between default rates on loans with seller assisted down payment programs and loans with other types of down payment assistance.

Krista points out in her article that there is a definite “correlation” between increased use of seller assisted down payment programs and increased FHA default rates. I am far from an expert on the subject, but one of the first things learned when studying statistical analysis is that correlation is not the same thing as causation. The increase in defaults is also associated with higher rates of job loss and dislocation, higher gas prices, and of course, falling real estate values. As far as I can tell, increases in FHA default rates follow the same pattern in the same areas as all other types of loan defaults.

I agree with Krista that these programs are a cause of some inflation in real estate values. However, by that reasoning FHA should do away with seller assistance for closing costs as well, or taken to its logical conclusion we should get rid of FHA altogether. Any program which makes it easier for people to buy homes is going to contribute to price inflation.

Aside from HUD’s very successful loss mitigation program, one of the greatest advantages in terms of default rates that FHA loans possess is that the underwriter theoretically analyzes the reasons why bad credit occurred and why that situation is unlikely to happen again. In other words, the underwriter determines that the borrower has corrected whatever personal situation contributed to their past credit problems.

Subprime loans, on the other hand, have never required such analysis. Subprime lenders ended up giving loans for 100% of the value of the home as long as you had a paltry 580 credit score (sometimes even lower) and a certain number of credit lines showing on the credit report - regardless of the reason for the bad credit or whether the problem still existed. These loans vastly outnumbered FHA loans during the real estate boom and, I believe, far outdistanced seller assisted down payment programs in causing higher real estate prices.

Now, after all that seemingly enthusiastic defense of seller assisted down payment programs, I must say that some of Krista’s comments and concerns combined with information I have gleaned elsewhere have convinced me that there is a better way to achieve the FHA goal of helping those unable to meet conventional lending guidelines. Those who just don’t have the capacity in today’s economy to save up a significant down payment.

One of the reasons I have now changed my opinion is pointed out in Krista’s article. Non-profits have a surprising tendency to be associated with abuse from within the ranks. I won’t go into details here but hers is not the only report I have seen of abuses and strange flows of cash from the participants. Even from the top most well respected participating non-profits. And definitely from the swarm of non-profits that aren’t in the limelight, but are owned or controlled by home builders or mortgage lenders. All this aside from the fact that the first gut reaction any mortgage originator or real estate agent with long experience has to these programs is to wonder why an action that would be regarded as mortgage fraud if the seller did it directly suddenly becomes “clean” when laundered through a non-profit agency. I believe this creates an aura around the transaction which contributes to a lack of respect for the rules.

Sure, I could tell you that the answer to this is simply to have the non-profits monitored more closely, but why bring in more inefficient regulators if there is another solution to the problem of getting buyers into homes. And I think there is.

There is also the problem of the increased mortgage fraud which tends to be associated with these programs. I believe this is primarily caused by the ease iwith which the seller and buyer can access the down payment money involved. Without these programs house flippers and other fraudulent sellers would either have to actually give straw buyers their down payment money two months in advance of closing the transaction, or would have to fraudently support the existence of the money with faked bank account statements. Why take those risks when it can all be done at the closing table with a paltry $500 or less in extra costs?

After a great deal of thought and analysis, I have come to the conclusion that the answer to these problems lies in one of the original FHA Modernization proposals. That answer is to lower the buyer contribution to 1.5% of the sales price. This amount is enough to show that buyer has at least a small amount of flexibility in their budget and ability to save, while not punishing those the FHA program exists to help in the first place. I also don’t believe that there would be any significant increase in defaults between a 1.5% down payment and a 3.5% down payment as long as other underwriting standards were maintained and layered risk was considered by the underwriter. This would also substantially increase the risk of discovery for those fraudulent house flippers who were endangering the FHA program through the use of seller assisted down payment programs in combination with mortgage fraud and thus make a significant dent in another problem weighing down the FHA program.

So, the answer to the question I asked in the title to this article is “Yes”, but not for any of the reasons HUD used as justification for banning the programs. I look forward to hearing other opinions on this and would like to thank Krista Railey for inspiring me to re-examine this issue.

HOPE for Homeowners Origination Guidance From HUD

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Thu, 02 Oct 2008 02:42:32 -0500

From HUD: The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new temporary FHA mortgage insurance program called the HOPE for Homeowners (H4H) Program. Under this Program, certain borrowers facing difficulty in paying their mortgages will be eligible to refinance into affordable FHA-insured mortgages. The H4H Program is effective for endorsements on or after October 1, 2008 through September 30, 2011.

Continue reading →

Carl Pruitt

FHA Training Source

FHA Streamline 203k Basics - Part 2

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Fri, 26 Sep 2008 23:08:13 -0500

Streamline 203K FHA Loans - The Basics Part 1 can be found here.

Streamline 203K loans can be used to finance many different types of repairs and improvements. Many originators are surprised by some of the repairs that are eligible to be financed.

Here is the list of eligible repairs and upgrades:

Repair/Replacement of roofs, gutters and downspouts
Repair/Replacement/upgrade of existing HVAC systems
Repair/Replacement/upgrade of plumbing and electrical systems
Repair/Replacement of flooring
Minor remodeling, such as kitchens, which does not involve structural repairs
Painting, both exterior and interior
Weatherization, including storm windows and doors, insulation, weather stripping, etc.
Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
Accessibility improvements for persons with disabilities
Lead-based paint stabilization or abatement of lead-based paint hazards
Repair/replace/add exterior decks, patios, porches
Basement finishing and remodeling, which does not involve structural repairs
Basement waterproofing
Window and door replacements and exterior wall re-siding
Septic system and/or well repair or replacement

Here is the list of improvements which are ineligible for financing with a streamline 203k loan:

Major rehabilitation or major remodeling, such as the relocation of a loadbearing wall
New construction (including room additions)
Repair of structural damage
Repairs requiring detailed drawings or architectural exhibits
Landscaping or similar site amenity improvements
Any repair or improvement requiring a work schedule longer than three (3) months; or Rehabilitation activities that require more than two (2) payments per specialized contractor. That would necessitate a “consultant” to develop a “Specification of Repairs/Work Write-Up”
Improvements which require plans or architectural exhibits
Improvements which require a plan reviewer
Improvements which result in work not starting within 30 days after loan closing; or cause the mortgagor to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted. (FHA anticipates that, in a typical case, the borrower would be able to occupy the property after mortgage loan closing)

When borrowers need repairs or improvements from this second list, a regular FHA 203K loan would be required.

In the next segment we will cover how the FHA Streamline 203K process works.

FHA Streamline 203k Basics - Part 1

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Fri, 26 Sep 2008 13:08:24 -0500

One of the most exciting opportunities today for loan officers and real estate agents alike is the opportunity to sell off the glut of foreclosed homes on the market. A big problem with these potential deals is that most people who are losing their home because they can't make the payments usually lack the money for routine maintenance as well. Once foreclosed upon, those homes hit the market needing some serious sprucing up.

In 2005 HUD came up with a new FHA insured mortgage program they called the "Streamline (K)" Limited Repair Program. The Streamline 203k loan permits homebuyers and those refinancing to borrow up to an additional $35,000 into their mortgage to improve or upgrade their home.

Most loan officers go looking for a special set of guidelines for Streamline 203k loans. There are some specialized guidelines and loan to value rules, but the key thing to remember is that all standard FHA underwriting guides apply just the same way they for any regular FHA loans when it comes to credit, income and asset documentation. This includes decisions reached by both automated underwriting systems and manual underwrites.

Click here for the general criteria for a deal to qualify for the FHA Streamline 203k

FHA Training For Loan Officers and Mortgage Offices

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Mon, 22 Sep 2008 13:04:11 -0500

As most people who have read this blog for long know, I am a huge fan of the training materials on FHA produced by Chip Cummings. Chip just returned home from the Atlanta HUD Home Ownership Center where he was actually training FHA on how to do FHA!

I use the "ABCs of FHA Lending" manual every day myself. With FHA seeming to change daily lately, keeping up with all the changes in a handy reference is very important.

I'm really excited about a couple of things that Chip has done lately in response to requests from loan officers.

The first is a series of ongoing FHA training calls over the next few days with more to come in the future. There are several different subjects but the two I am most excited about occur on September 24th and September 30th.

One of the most exciting opportunities loan officers will have over the coming months is the opportunity to move ahead of the market as real estate prices go down and help brand new homeowners use FHA loans to buy up all the now lower priced properties sitting on the market.

On September 24th at 1PM EST, there is going to be a great coaching call on "Understanding Short Sales". Click on the link in the last sentence to sign up for the call.

On September 30th at 3PM EST, the coaching call is going to be on another great loan officer niche market that actually ties in with the previous call "Attacking the FSBO Market". Again, click on the link to sign up for the call.

Now for the product I'm most excited about. Chip has produced a series of 7 DVDs with 18 hours of great FHA training including worksheets, checklists and manuals to cover all the bases of making money in the FHA mortgage market. You can purchase the DVDs as a complete set or individually. Go to http://fhatrainingsource.com/fhatraining for more details.

Here are the topics covered:

1.   How to Get FHA Approved in Less Than 60 Days!
2.   Originating FHA Loans - The Right Way!
3.   Processing FHA Loans - From A to Z!
4.   FHASecure and Refinance Transactions
5.   Taking Advantage of Chapter 13 BK's
6.   Marketing FHA Loans to Ultra-Niche Markets!
7.   Rehab Loans - All About 203k's

Of course, I'll keep commenting here on many of these subjects, but when it comes to surviving in the mortgage market today, the more knowledge you have the better off you are. There a big problems in the mortgage and real estate markets right now. Better prepared loan officers can take these problems and create a huge opportunity for the future.

H. R. 6694 Passes Out Of Committee

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Wed, 17 Sep 2008 11:30:42 -0500

H. R. 6694 was passed out of the Financial Services Committee yesterday with strong support from both parties. The bill will probably be voted on by the entire House of Representatives soon. However, this is just the very first step in a long journey before the Bill is finally passed and there is not much time left before the October deadline when H. R. 3221 takes effect and seller assisted down payment programs are banned.

FHA Down Payment Program Update

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Tue, 16 Sep 2008 21:52:14 -0500

On Sept. 16, 2008 HR 6694 is being considered by the House Financial Services Committee. The Committee should be encouraged to pass the bill out of committee to be voted on by the entire House of Representatives.

Today, several lobbying groups representing rental property owners have issued declarations in opposition to HR 6694, the bill which would reinstate the use of seller assisted down payment programs with FHA mortgages.

Of course rental property owners would love to see the opportunity to own a home taken away from potential home buyers who can prove the ability to pay but are unable to save for a down payment. To justify their opposition, these organizations use the same flawed and faulty data used by HUD which has already been dismissed as inaccurate by the courts when it has been challenged.

U.S. housing markets are already almost down for the count, yet government officials are taking no action to protect the interests of the average citizen. Officials have been putting all their efforts into enacting programs to protect wealthy mortgage banking firms and real estate investors while giving lip service to the troubles of average citizens.

HUD data is extremely unreliable. Data from the lenders actually originating the loans shows that stricter underwriting and fraud control would essentially eliminate the gap in foreclosure rates between borrowers using down payment assistance and those making nearly meaningless 3% down payments.

Every effort should be made to save these valuable down payment assistance programs.

For more information on FHA training for loan officers, and to find out what you can do to help save these programs, visit FHA Loan Advice

The Federal Reserve: What It Is, What It Does and Why You Should Care

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Mon, 01 Sep 2008 11:01:28 -0500

Most people in the mortgage business run around talking about "Fed rate cuts" and Federal Reserve Meetings and what the Fed is going to do about interest rates. Yet most people don't have a clue how the Federal Reserve works behind the scenes, or what its true goals are. Here is a link to an hour plus presentation given by G. Edward Griffin back in 1998. Mr. Griffin is the author of THE CREATURE FROM JEKYLL ISLAND - A Second Look at the Federal Reserve, a history and analysis of the Federal Reserve.

In this presentation, Mr. Griffin explains the inner workings of the Federal Reserve in layman's terms that anyone can understand. It's a long presentation, but extremely well worth the time it takes to listen to it. Once you have listened to it, you will understand today's mortgage/credit crisis as you never have before.

Here's the link to the presentation:

http://24hourmortgageinfo.com/federal-reserve/what-is-the-federal-reserve-anyway-and-why-should-i-care

FHA Mortgage Insurance Premiums Increasing For Some Borrowers

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Thu, 28 Aug 2008 15:54:09 -0500

The Housing and Economic Recovery Act of 2008 goes into effect on October 1, 2008. As part of this Act, Congress placed a one year moratorium on risk based mortgage insurance premiums on FHA loans.

Under the risk based premium structure that HUD put into effect on July 14, 2008, borrowers with better credit and lower loan to value mortgages are able to pay lower rates while riskier loans carry higher insurance rates. A perfectly sensible system that FHA statistics show may actually be a major benefit to lower income borrowers since this members of this group with FHA loans have been shown to have higher credit scores on FHA loans.

As part of what may be a little bit of political gamesmanship on the part of HUD, HUD has just announced a new mortgage insurance premium structure to take effect on October 1, 2008.

Find out the details of the new FHA mortgage insurance premiums here:

http://fhaloanadvice.com/fha-mortgage-insurance-premiums-going-up-for-most-borrowers/

For the FHA training necessary to keep up with ongoing FHA guideline changes, check out http://fhatrainingsource.com

FHA Down Payment Assistance - Should It Be Saved?

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Fri, 22 Aug 2008 23:39:08 -0500

There is a great conversation going on about a Friday, August 21, 2008 post over on the Blown Mortgage blog regarding seller funded down payment assistance programs. I encourage everyone to go and take a look at it before reading the rest of this column. The conversation is centered around a guest post by Josh Lewis entitled "RIP FHA Down Payment Assistance Programs, Not So Fast".

As I expected would occur on a blog which keeps a necessary sharp eye on the dirty underbelly of the mortgage business, most of the commenters disagree with Mr. Lewis' opinion that down payment assistance programs should be saved.

(Read the rest on my blog at FHA Loan Advice)

Sorry Investors, FHA Didn't Waive The Anti-Flipping Rule For You!

Carl Pruitt - http://FHALoanAdvice.com (FHA Loan Advice) — Fri, 20 Jun 2008 06:11:00 -0500

The waiver of the FHA anti-flipping rule only applies to lenders, their subsidiaries or their vendors who are selling the foreclosed homes to owner occupant buyers. For more information, see my blog post "FHA Guidelines: FHA Waives Anti-Flipping Rule".

Carl Pruitt

http://fhaloanadvice.com