As much as I have welcomed new limits for FHA loans when the same got raised few weeks back. Click here to look up your County it makes me wonder if this will be our new sub prime market?
Are we pushing our buyers that are not in the best financial place again?
Just as a good reminder here are requirement for FHA loans.
Requirements for New FHA-Insured Loans:
___ New FHA loans must be properly underwritten and must be based on current appraised value of the house and borrower's documented income (borrowers with higher (but not disqualifying) debt levels would need to make six months of timely payments at the new FHA payment level to qualify for the guarantee);
___ New FHA loan must extinguish all existing liens and meaningfully reduce the borrower's mortgage debt service;
___ New FHA loan must be within applicable FHA loan limits;
___ HUD will set reasonable limits on loan fees and interest rates; and
To reduce costs to the government - and avoid inappropriate enrichment to the borrower - the government will retain a second lien on the property. When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply.
Coordination of Existing Lien-Holders. The Secretary of HUD will be authorized to take action to facilitate coordination among different existing lien-holders.
Separate FHA Fund. To protect the FHA Mutual Mortgage Insurance Fund, these new loans will exist in a separate fund in FHA - and will be permitted to be resold (together or separately) through GNMA.
Improving FHA Capacity. The FHA shall take actions as necessary to increase its capacity, including:
___ Contracting for the establishment of underwriting criteria, pricing standards, and other factors relating to eligibility;
___ Contracting for independent quality reviews of the underwriting of these mortgages; and
___ Increasing personnel.
Eligibility Requirements for Existing Loans (Requires All of the Following):
___ Owner-occupied principal residences only (no investors, speculators or second homes);
___ [Existing senior loan being refinanced must have been originated between January 1, 2005 and July 1, 2007];
___ To remove any incentive for borrowers to "purposely default," the borrower must have had a mortgage debt-to-income ratio of no less that 40 percent as of March 1, 2008, and must certify that he/she has not intentionally defaulted on existing mortgage(s). Regulators can make exceptions for involuntary changes after that date;
___ Participating mortgage holders/investors must waive any penalties or fees on the existing mortgage and must accept proceeds of the new loan as payment in full;
___ Existing mortgage holders/investors must accept their losses - taking substantial write-down sufficient to establish a 5 percent loan loss reserve for the FHA, bring the loan-to-value ratio on the new FHA-loan down to no greater than 90 percent of property's current appraised value, result in a meaningful reduction in mortgage debt service by the borrower, and to pay all up-front fees for the new loan. Accordingly, to qualify, mortgage holders would need to accept a substantial write-down, receiving no more than 85 percent of the property's current appraised value as payment in full for the existing loans.
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