This helpful email was a forward from Mortgage Mastery.
Ok, this is going to be a long one, but please don't get glassy eyed :). This is important and will affect your closings (for the good)!
IMPORTANT FHA NEWS!
The Senate Banking Committee passed by a vote of 21-1 the FHA modernization legislation this week. Senator Dole was the only "no" vote largely in principle over the way FHA is implementing risk-based pricing (administratively without Congressional authorization). The near unanimous vote virtually guarantees full Senate passage of the bill. It will then go to conference to reconcile differences with the House bill that was passed yesterday. Please understand that NONE of these items below have been finalized........ This is only what is on the table.
The speed with which the bill moved through the Committee demonstrates the political significance of the FHA program in today's marketplace. Accordingly, we expect the next steps to move equally fast and it is now likely that there will be an FHA bill ready for the President's signature in less than 30 days.
The key provisions of the Senate bill are:
FHA "floor" - increases from 48% to 65% of the GSE limit (i.e. from $200,160 to $271,050)
The House bill contains the same language virtually ensuring its inclusion in the final bill. The new "floor" will likely be effective upon signature by the President.
FHA "ceiling" may increase to $417,000
The House bill raised the FHA limit to around $730,000 in high cost areas- (note that we are in a low cost area, so our max should probably be $271,050 or it could go to $417,000 (which is also Fannie/Fannie's conforming limit). At a minimum therefore, the increase to $417,000 (in some areas) is a certainty assuming the bill passes. An increase above $417,000 will likely depend on market events.
This provision will likely not be effective immediately. FHA will need to analyze local markets to determine whether an increase is justified. We do believe that FHA will move to increase limits ASAP.
Lower and more flexible downpayment
The Senate passed the compromise provision that will require 1.5% borrower cash investment (vs the 3% now). There will be a cap of 100% loan-to value ratio. However, the upfront MIP will be required to be included in the 100% LTV effectively capping the loan amount at 98.5% assuming an upfront MIP of 1.5%. At first glance, our thoughts on this provision are:
The House bill still contains the zero downpayment provision. In this market environment, we believe it will be difficult to include the no downpayment proposal in any legislation. We believe the Senate provision will be the more likely scenario. However, lowering of the cash investment requirement is possible but unlikely.
No mention of risk-based pricing
There was no mention of risk-based pricing in the bill and no increase in the annual premium. In light of HUD's preemptive administrative action earlier this week to implement risk based pricing on January 1, 2008, it will be curious to see how this issue unfolds in the coming weeks and months. In the limited discussion this morning, risk based pricing was the one issue in which both Republicans and Chairman Dodd expressed concern at FHA's actions and want FHA to explain what they are planning to do with this change.
Condominium improvements
The bill will facilitate the acceptance of Fannie Mae and Freddie Mac approved condominium projects.
HECM (Reverse Mortgages)
There were several HECM improvements. They are: 1) raising mortgage amount to $417,000, 2) eliminating the cap on volume, 3) permitting use of HECMs for purchase transactions and cooperatives (right now only Fannie-not FHA- allows purchases using a Reverse Mortgage) and 4) lowering of the origination fee to 1.5% vs 2%
There were also several amendments accepted unanimously. They were: 1) much stiffer penalties to fraud (the draft called for 35 years in prison and $5 million in fines), 2) pre-purchase counseling demonstration, 3) expanding counseling to borrowers in trouble and 4) study on reverse mortgages.
What is next and when will the bill be enacted?
As we indicated, Senate was/is/will be the key to the enactment of the FHA legislation. Now that the Senate Banking Committee has moved affirmatively in a very bipartisan way, we are increasingly optimistic about the prospects for an FHA bill. We would expect the process to be completed and signed by the President in the next 30 days or so barring some unforeseen circumstance.
That being said, there is still the Conference of House and Senate Committee leaders to reconcile differences in the two bills and there are several thorny issues. Probably the most controversial are two House proposals. They are: 1) creation of a housing trust from a portion of the FHA profits and 2) raising the FHA limits in high cost areas above $417,000.
Because of the nature of Senate rules (i.e. minority has considerable power), we would expect most controversial provisions to be resolved along the lines of the Senate bill although changes are possible. However, House Financial Services Chairman Frank is deeply committed to the housing trust found. Republicans are vehemently opposed to it. I cannot imagine that a disagreement over this provision will hold up a bill but we'll have to see. The other is mortgage limits in high cost areas. As we noted, the House proposes to raise them to as high as $730,000. While the Senate Republicans will oppose such a provision, events in the mortgage industry could result in some type of compromise.
We will, of course, follow this process through the remaining steps that hopefully will end at a bill signing ceremony by the President.
So, what does this mean for you?
•·With the increase of the FHA limits, we will be able to put more buyers in FHA mortgages (remember that FHA is not credit score driven, only credit history driven- unlike Freddie and Fannie products).
•· If the buyer investment $$ decreases, that will allow the buyer to be less out of pocket than before.
•· More lenders will start "practicing" on your buyers without any experience at all of FHA. Don't let non-FHA experienced loan officers practice on your clients- We ARE the FHA experts.... Let our knowledge work for you.
We will keep you informed of what changes are actually put in place and when it happens!
FHA REMINDERS
Seller can contribute up to 6% of the Sales Price.
No Termite Inspection Required.
No Non-Allowables required for the seller.
Buyer can currently be in a Chapter 13 Bankruptcy.
It is an assumable loan (important when rates go to 8% and they are at 6%).
Buyer can have Federal Tax Liens and not have to pay them off!
FHA is now using the standard Fannie Mae appraisal form- No more VC sheets
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