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New FHA loans MORTGAGEE LETTER & Explanations about Credit Scores - Make Your VOICE Heard

Important Blog Today – FHA loans & HUD’s changes - You can make your voice heard. Please read further..

fha loans & fha mortgages

So much has transpired in the last week with FHA loans and there are things that you need to know and understand why some of these changes took place.

Last week HUD put out their policy changes and what could take place in the near future. FHA loan changes go from fact to fiction. The next day, they put out the official HUD mortgagee letter, ML 2010-02.

Overall, I have noticed several comments that either the commentor seemed confused about the changes or believed that the changes would be no good and or destroy home buying. Which will lead me into my next blog tomorrow. We must ABOLISH FHA loans. (please stop by tomorrow for any eye opener)

Some important FHA changes -

What were the FHA loan changes by HUD? Please read : FHA loan rumors become a reality. Keep in mind, the only change that is official is # 1. The other specified changes will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

1. Raising the FHA UPMIP (upfront mortgage insurance premium) - So many keep saying that this is an added expense to borrowers at closing. Yes & No. This statement is misleading, even though it appears on the HUD settlement statement. In reality, you are allowed to finance this upfront mortgage insurance into the loan. The new change was only 50 basis points, going from 1.75% to 2.25%. This change will go into effect on or after April 5th, 2010, with all new FHA case numbers assigned.

Example on the difference :

On a $300,000 loan, you are talking about an additional $1,500 added onto the loan. This equates to an additional $8 per month. That is not much to disqualify someone, unless you were already exceeding the debt-to-income ratios already.

Why was this change made? To help re-establish FHA's capital reserves. David Stevens gives an explanation to some of this in FHA changes. Just a FYI - David has just recently joined us at Active Rain and was appointed the Assistant Secretary of Housing in early 2009. I wanted to share my thoughts because some of my views slightly differ from what Mr. Stevens wrote in his blog post.

2. FHA credit score changes & down payment updates - With all FHA loans, you still don't need a credit score. Keep in mind most lenders and investors have what are called lender overlays. The lender can add to the FHA guidelines. Why would a lender do this? To make it more sellable to other investors on Wall Street.

This is a change that is not really a huge change. You must now have a credit score of 580 or above in order to be allowed to use the regular 3.5% down payment guideline. Any score below this, the borrower will need at least 10% down. Why is this not such a huge concern? Most lenders are at 620 and several are at 640. The reason being is that most investors on Wall Street don't want to purchase loans less than a 620, because more loans under this score don't perform as well.

Credit scores under 620 - Yes, there are a few investors that allow for scores under 620, but BUYER BEWARE. Just because a loan officer has this program, doesn't mean that it will happen. On top of that, most lenders have major penalties if you fall under the 620 score. These penalties are anywhere from a 1/2% in rate to up to 2 additional points in fees, and sometimes both. Why? Because that lender will portfolio that loan, hoping that they can sell it in 12 months. The additional points and higher rate is to help with their risk, for those loans that don't perform.

My opinion on this? Work with a trusted loan officer that is not pushing the lower credit score. Work with a loan officer that will help you get your credit scores up in 6 months to a year. So what you missed the first time homebuyers tax credit. Because of the difference in fees and rate, it will cost you more money over the longer period than if you just waited and worked on your credit.

3. FHA seller concessions from 6% to 3% in seller help - Mr. Stevens stated this in his blog, FHA changes. "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."

Hey, I love making loans, but I will have to agree with HUD's assessment here. Now, I will say this though. It will hurt many markets across the U.S. Especially those families that are middle to lower income and those buying homes that are priced at $160,000 or lower, especially those at $90,000 and less.

Overall, we can have that whole argument that you need skin in the game, etc, etc. On all FHA loans, the borrower still needs 3.5% of their own money into the transaction. Sure, you can get a gift from family members, or even grants, and or even money from non-profit organizations. But the outcome in my opinion, could dampen the housing recovery even more. And that is why you can voice your concerns and add comments to the Federal Registry. FYI - I will be posting a powerful blog tomorrow on Abolishing FHA loans overall. Please stay tuned.

Make your VOICE heard in February 2010

The Federal Register

PS.. - Reminder - I will post a new blog when these changes become public on the Federal Registry, allowing everyone to voice their opinions. Here is when you can stand up and be officially heard. YOUR VOICE.

FHA Loans Rumor Alerts - 3% seller concessions & FICO scores - Part 1 of 2

FHA Loans Rumor Alerts - You don't need 10% or 20% down & more about credit scores - Part 2 of 2 (not truly all about part 2, but I do go into discussions about the credit scores - because of the recent FHA changes, I didn't get into great details about 10% or 20% down)

What is Transparency?? Best Mortgage Rates/Online services - (Part 1 of 2)

Transparency in Real Estate/Mortgages - Interview your Realtor or Loan Officer - (Part 2 of 2)

Okay.. it's been stated and written....

We need to ABOLISH FHA Loans!!!!

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For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

_____________________________________________________________________________________________________________________________

FOLLOW ME ON FACEBOOK

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages -

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

Experience & Knowledge at its BEST !!!

Follow me on:

______________________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

Posted by Jeff Belonger-The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans on 01/25/2010 10:52 AM

Comments (36)

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Originally posted at: FHA Mortgage Expert - Tri-State Area - New Jersey/PA/Delaware: New FHA loans MORTGAGEE LETTER & Explanations about Credit Scores - Make Your VOICE Heard

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36 Comments on New FHA loans MORTGAGEE LETTER & Explanations about Credit Scores - Make Your VOICE Heard

JAN

2010

Jeff - this is important stuff. Thanks for keeping us abreast of all the changes and what this means for buyers, and sellers.

Jeff

Jeff,

Needed information, Well presented.

"Work with a trusted loan officer that is not pushing the lower credit score."

This bothers me! LO's don't determine your score and shouldn't keep you from a home you can afford!!!

"Work with a loan officer that will help you get your credit scores up in 6 months to a year."

On the other hand I couldn't agree more!

But, you have to run the numbers! With the tax credit and possible inflation today is almost always the best time to buy! It's very unlikely a consumer will keep a home long enough to see any savings waiting. Not to mention where are they going to live in the mean time! It's simply to important to generalize!

Bill

Jeff, I will be following this post as well as tomorrows post.

With respect to the 10% Down with scores below 580 scores, I see this as something the investors might like and may actually embrase and open the FHA option to those deserving buyers that because of past issues do not meet the 620 scores.

With respect to the 3% versus 6% Sellers Assistance, I do understand the motive of HUD. Here in Northern Ohio we do have some homes with very low sale prices and my concern is 3% assistance will not cover the basic closing costs which amount to about 2,000 - 2,500. For low sales prices I would like to see a base assistance amount established as well as a Maximum.

Again, I will look forward to tomorrows post.

Jeff, thanks this is very informative and important. Look forward to your post tomorrow.

Thanks for explaining it. This makes it easier to explain to my clients.

JEFF.... . my pleasure and thanks for your continued support.

BILL.... . I love a person such as yourself, with centuries of real estate knowledge, I mean, with decades.... Seriously, you bring up some excellent points. But my whole stance on the borrower waiting is because in many cases, the loan officer is selling the fact that they can get them a mortgage now, even with a lower credit score. And here are a few issues I have with this.

1. The #1 issue is that many of these loan officers make it sound easy. Sure, no borrower wants to hear upfront, when applying, that their chances could be 50% or slim.But they need to hear this. What about the real word of Transparency?I get at least 1 e-mail per week now, from borrowers that tried the purchase of a new home with a loan officer and that borrower had credit scores of 610 or less. Many of these borrowers were in the 550 to 595 range. They all were promised loans and 30 days into the transaction, were denied. I could be here all day on that one.

2. In regards to buy now anyhow theory? Yes, we don't know the future... sure, you could start to recieve a tax right off now. Sure, you could get the tax credit now. And you bring up some other good points. But here is one.. forget about the higher rate for now. In most cases, you will still be charged about another 1 to 2 points extra because of the lower credit scores. On a $200,000 mortgage, that could be anywhere from $2,000 to $4,000. That alone could eat up your tax credit monies. On top of that, with a higher rate, your payment could be another $50 to $150 more a month. That could be another $1,200 to $3,600 in just 2 years. By then, most of your tax credit is gone.

Overall, one might say... well, just refinance in a year or 2... okie dokie... And rates will be what then? If they just move an extra 1/2% in 6 months, you won't be able to refinance, because you will have the same rate. And in reality, depending on your loan amount and your goals, it might not make sense to refinance in a year even if the rates stayed the same. I will be writing a more detailed blog based on what things you bring up. Yes, you bring up some very good points, but for the most part, I still think they are the wrong reasons to buy right now. Okay, you did state, if you need to buy now, where does one go? Extend your lease? I know some will fit into the situation that you mentioned, but in my opinion, for the most part... most won't... they can stay where they are at for now... and work on this. Bill, thanks for your input.

TIM.... . in regards to the 10% down payment.. I don't see as many investors embracing this, because there will be a higher risk. If these loans don't perform in the first 12 months, they will be stuck with these loans. I think so many have been snake bitten in the last 24 months, that I don't think it's a great risk. But again, each borrower is different. Overall, we do have the same concerns about these changes, when it comes to the seller help changes.... thanks and I hope to have my next blog out by 8 am EST tomorrow ... thanks

REBECCA.... . my pleasure and thanks for the comment. As I mentioned to Tim, I hope to have my next blog post out by 8 am tomorrow morning... thanks

Your right about the 580 credit score. I haven't found anyone doing under 640 locally. Can't wait until tomorrow.

Seems to me that the way to insure that borrowers will not default is to only approve fully documented loans and keep the LTV at a reasonable percentage of income for mortgage and ALL debt.

When loans are processed with little documentation, DTU, etc. and the back ratio is in the 45-55% range, defaults will come.

Requiring more money to close simply denies home ownership to serious qualified Americans.

Jeff, I forgot to say as you did that the 10% down and 3-6% Sellers assistance are just proposals that will be out for comment. Like you, I will be voicing my opinions when they come out for public comment.

I do agree that the key to the success of the 10% will be how the investors respond to the proposal. I look at 10% skin in the game might encourage some to open opportunities to some buyers that were shut out in the past.

Good stuff - reblogged!

Our lenders here will not loan to anyone with under 620 credit score ... not 619 not 619.5..even if the top numbers is 630 but the middle numebr is 619 will they loan... so we are used to that... but sellers being able to help with closing costs is crucial... and the government should look at the 17% drop in home sales in Decemebr and re think putting this into action... maybe they should keep their tax credits and then let sellers help with closing costs up to at least 5%... and not raise what the buyer needs to put down over 5% too... 3.5% is where it should stay..but 10% will put a halt to a lot of people buying homes..

Jeff i agree the bump in the UFMIP is not a huge change. The credit score change is not a biggee either since the few lenders that will even look at the loans below a 580 are few and the pricing hits are nasty. The seller help would be the one area where i think this could make a big difference.

Jeff, I don't know who was doing a 580 credit score. However, my concerns lies with the seller's concessions at the low end of the market. For purchasers at the lower end the seller contribution would make a difference in their ability to purchase. They may have saved up the down payment, but the additional cost, they may not be prepared for.

Jeff, I commented on David's blog yesterday. FHA/HUD standards for insuring the loan and letting lenders bundle them to sell is what I have to work with for most home buyers today. They do not have a savings account with 5, 10, 15 or 20% of the cost of a home to put down. For me to sell a house I must be able to make it more appealing than renting. The mortgage industry appears to have the ear of our government and telling them things that will (IMHO) slow down the housing market even more.

While an $8 per month increase may not kill the deal but, I think the industry owes a full and truthful explanation as to where that "insurance" money is going and how it has helped the American taxpayer so far since we got hoodwinked into paying for a bailout for "system".

The only way to help resolve the current mess is for the mortgage companies to re-cast the bad loans they made with either lower interest rates and/or extending the time line for re-payment to a 50 year note. If that does not happen then we are all just sitting around waiting for the inflation factor to kick in.

We can kick, scream, shout, and make all the suggestions we want - the government is being controlled by lobbyist. But, good luck with it.

I am also very interested to see if any investors will embrace the under 580 / 10% down sector. It would truly be a sub-prime niche with FHA insurance. Something to keep our eye on but we're not holding our breath either! Great points. Not worried about the UFMIP bump either. Thanks for the post!

~Cari

JOE.... . I know 1 or 2 that could help your clients down to 620 out in your area. But overall, it is extremely costly for those under 620. I truly think my post tomorrow will be an opener... thanks

LENN.... . damn, usually spot on with your assessments and comments. I couldn't agree more with this statement that you made... "Requiring more money to close simply denies home ownership to serious qualified Americans."

That statement alone will be the blunt of my blog post tomorrow and those that say that we should abolish FHA loans because of the high default rates. It truly irks me when common sense is thrown out the window, when people need to do true comparisons prior to making statements that really don't make sense. But stay tuned for more on this tomorrow. Overall, thanks for your logic and for your support.

TIM.... . no worries... I did the same in my first blog post about these FHA changes, not making that part clear. Overall, sure, 10% in the game could encourage some investors... but overall, in most cases, those with the credit issues won't have 10% down. Keep in mind, I said most... ;o) There are always the few and the exceptions. thanks

BRIDGET.... . thanks for reblogging this and for your continued support.

DEBRA.... . you bring up a good point about the tax credits. These are some of the things that I have thought about in the past. I will be talking more about this tomorrow.. stay tuned.. thanks

ROY..... . it's not even the 580 scores... what about those scores under 620? Many lenders won't even do these.... hence my comment to William, comment # 6... the second one down.. thanks

SUSAN.... . overall, out largest concern should be about the seller's concessions. As I stated, yes, I can see where HUD is coming from. But we need to look at the layers of risk and the different markets... because overall, this alone could kill much of the real estate market... and we need to look into this deeper and voice our opinions. But I want people to look at this from both sides of the fence... from that of HUD's side and that of the buyer's side.. thanks

Thanks Jeff for all the information. Definitely what a Real Estate Professional needs to know to help keep clients informed! pippa

Jeff: Thanks for the update-I appreciate it. I for one do not believe FHA loans will be abolished. I remember when we bought our first home in 1993. FHA wasn't available then for what we needed to borrow but the program was alive and well. It just goes to show you FHA has been around for a while. I expect it to continue. After all, what would the Jeff Belongers of the world do without FHA? Lol! Take care.

FHA needs to do what it has to do to stay solvent. Most of these changes will not hamper lending that much in my opinion.

There are lenders out there that keep sending me e-mails that they will lend to borrowers with below 620 scores. Every time I send them files, they find a reason to say "No" even with low LTV and DTI. To me the bottom line is that nobody is really doing FHA loans with sub 620 scores so the 10% down on 580 scores is a non-issue.

In my opinion lowering seller concessions will be the most hurtful part of the new guidelines. The first time buyer who is buying a home under $150k does not have enough money to cover their prepaids. On the other hand, we need HUD to get FHA back up to the proper reserve levels. FHA will never go away...but I would not be surprised if in January of 2011 we have a 5% down payment for FHA. We shall see.

Jeff,

If you're saying I'm old school, you're right and proud of it!

As I said run the numbers! Give the consumer a factual basses to make a derision. Explain the facts in light of the client's reality not generalities!

We're not that far apart.

Bill

GREGORY.... . when you say that we got "hoodwinked", I am sure you are referring to last years bailout of some larger banks... and in regards to Fannie Mae... well, non of that money went to FHA's fund reserves. I will be talking about some of this tomorrow. Where I fault HUD is not having a huge concern a year ago, when the writing was in the wall... that they waited until now. At least with the UPMIP... something that I will talk about tomorrow also. PS.. you said at the end... we can kick, scream, and make suggestions all day long... but good luck with it. Well, I believe if we bend the right ears and hard enough, that we can possibly make a change. I don't kick and scream, I make educated and common sense suggestions. Not saying you said that, but just clarifying... I will say this... that we will see the housing market slow more, if the 3% becomes a reality in the smaller markets. thanks for your feedback.

CARI... . I am really not concerned if investors will embrace the 10% down under 580. That is a very small fraction of any market. Besides, I just don't see it happening, because of the risk with the credit score analysis.. Maybe if it went to 600 with 10% down. But again, this should not be our main focal point. You had also made this statement... "It would truly be a sub-prime niche with FHA insurance."

I don't like using the word subprime with FHA... too many loan officers and lenders thought FHA as their subprime savior when subprime basically disappeared... and this hurt us some and is hurting us now. I will explain later... thanks for the comment..

PIPPA..... . my pleasure, I am glad I could help some... and thanks for stopping by.

PAUL M. ... . in regards to FHA loans being abolished.. I am not going to say a thing... just stop by tomorrow to read my post on it.. ;o) I will make some points on all of this and just for the fact that HUD has been around since 1934. But I don't want to give too much away. thanks

MIKE.... . I agree 110%... because we will need FHA in order to turn the corner. I do think that the 3% seller help will hurt some markets though. We all just need to come together with some solutions to coincide with this change.., it's out there... thanks

PAUL W. ... . well, that was mostly my point, that they are extremely hard to do,under 620. But, that is absolutely not true though, because there are some lenders doing below 620 and they are being closed... but it's a lot more detailed than just saying that .. hey, I have a 599 and that lender can do 599 scores. It then becomes a challenge, because of more criteria that needs to be met... and that many loans officers that can do these credit scores, don't explain this correctly, making it seem easy to the home buyer. I know this personally, because a few clients and I trapped a few loan officers in what they were saying... and then to see them wiggle their way out... it's just sad when the average loan officer can't be transparent on this topic of credit scores... thanks

MARK... . I don't think you and I are the only ones that feel this way. :o) Seriously... it will become a much heated topic as the weeks go on,especially when leading up to the new change date. We all must comment on the registry to have our voices hear, but within reason... thanks

Jeff - great post and you are correct only one of the "changes" has gone into effect.

Thanks for keeping is in the loop.

More good stuff. Well written and re-blog material.

I think FHA is a great program (as long as it self sustaining) even if they have to raise the UPMIP.

FHA is the only game in town for most people these days, and I can sell whatever they do to assure they can stay "in business" - as I'm sure you can and will, notwithstanding the title of your blog post tomorrow.

I don't know, if I had to take a stab in the dark, I'd think the 6% concessions will stay. I know its all up for debate, etc. I rarely use more than 3%, BUT those that need more are the buyers of lower priced homes, and I don't know, that seems unfair to the lower income buyer - Certainly something FHA would not be looking to do.

Thanks for the update! I sell a lot of condos, most of the complexes where people want to be are not currently approved. Have you done the work to get any approved. Is there an avenue to get this done. Who does it?

Great blogs. Thank you. I enjoyed reading them!

WILLIAM... . comment # 22.... . you old? nah... besides, I couldn't tell.. ;o) Seriously, I know what you are saying and you should know that I do run those numbers.. and give the facts. But we do need to keep preaching this, because even some of those trusted loan officers that get referrals from realtors, don't fully do their job correctly. Sure, they closed the loan with no hiccup. Sure, it seemed like a reasonable rate with decent fees. But wait, that same loan officer didn't take the time to explain how an adjustable rate works? But sold that loan to your client, because they liked the lower rate? I have a problem with this... see, now you got me started.. lol

JP.... . thanks for the polite compliment. It will be interesting to see what happens when the comments start to come pouring into the registry. Time will tell..

KAREN.... . my pleasure and thanks for stopping by.

MARK... . I think FHA is an excellent program and I will be talking about this in my post for tomorrow titled, "Abolish FHA loans now"... Overall, thanks for the kind words and for reblogging this.

MARGARET... comment # 27... . I will agree... it is up to 35% to 40% of market share in the last year... up from like 15% from 5 years ago. This is huge... in regards to the title of my blog post tomorrow? Well, just stop by for a sneak preview. Don't judge me or assume just by my title.. ;o) Time will tell... thanks

STEVE..... . I am not sure about the 6% seller concessions staying. HUD seems very firm on this, just as they were in their decision on killing seller-funded DPA programs. Both Donovan and Stevens seem set on this... I do wish they would reconsider the smaller markets though.. those markets that support lower incomes and or lower valued homes. But I guess time will tell. We at least agree on your last statement, that this change alone will be unfair to the lower income buyer. thanks for your input as usual.

ERIC... . yes I have and it's not that hard. You just need a good lender/loan officer that is will to do the leg work to get those condo associations approved. It has to be done by the lender themselves... thanks

TODD & DEVONA.... . comment # 30... . thank you very much for the kind words and for the polite compliments... much appreciative... thanks

This is very important to know when working with buyers to let them know about timing, the impact as far as cost, etc.

I'm gonna have to bookmark this for future reference. It's more than I can take in right now! This is gonna require some focus.

JAN

2010

CHRIS.... . it's extremely important... I had one realtor actually tell me on a reblog, why even bring these changes up now... lol Rut Row... I will be writing about that.. thanks

LISA..... . bookmark it all you want and come back for some night reading prior to sleeping... ;o) It should definitely put you to sleep... lol

Another great post Jeff and too many comments to read through them all. I'm going to stick with my position on the seller contribution proposal though, especially with FHA recently adopting (reiterating in their words) HVCC like appraisal procedures. HUD is pushing the reduction in seller contributions to combat pressure to inflate appraisals. Shouldn't we wait to see if the appraisal changes work first?

In my market the reduction in seller contributions will mean more $ needed by buyers. Our loan amount are too low and closing costs too high. All we will be doing is forcing buyers to close with less cash reserves, and that isn't going to help anyone.

Great debate going though- thanks for putting this out there Jeff.

Gerry Suarez, Jr.

Your FHA Loan Pro!

Okay.. it's been stated and written....

We need to ABOLISH FHA Loans!!!!

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