This afternoon HUD held a conference call to address questions about the new Housing Law and HUD's plans to implement the many changes.

The new minimum investment for purchases is 3.5%. It is flat for all loan amounts. The maximum LTV is now 100%, but this includes the base loan amount and the upfront mortgage insurance premium. The way the calculations work, the 100% maximum LTV is not an impacting number. With a 3.5% down payment and the maximum UFMIP cap expected to be set at 3%, the LTV calculated with the base loan plus the UPMIP will never reach 100% LTV.

MIP changes have not been promulgated, but the new cap is 3%. Since the present law does not allow for tiered adjustments, all loans will have increased UFMIP. Likely the new UFMIP will be lower than 3%, but it will certainly be higher than the present 1.5% The new pending legislation has provisions to allow for tiered adjustments, in an attempt to correct one of the problems with the rushed law.

I asked if the additional LTV available under the 100% cap could be used to contribute towards the buyer paid closing costs, as allowed under present FHA calculations. The answer is no. The maximum base LTV is 96.5%. UFMIP is added to a maximum total LTV of 100%. There are no available LTV adjustments in the new law if the buyer pays a portion of buyer costs.

This is a significant change, as much so as increasing the minimum investment.

There were clarifications for applying the Oct 1 deadline for DPA. Of course if the law changes with the new pending legislation, then new rules will apply.  Under current law, DPA is no longer allowed for loans approved after September 30. The underwriter signature on the final loan cover sheet (Mortgage Credit Analysis Worksheet MCAW) is the determining factor for manually approved loans. The final automated underwriting submission date is the determining factor for automated approved loans.

The question came up regarding loans that have received final approval and are waiting to close for some reason. If the automated underwriting is updated for any reason after September 30 - income update, credit reissue,  asset change - the date of the new submission will cause the loan not to qualify for DPA.

The conference call lasted for 2 hours, ending with a lengthy but helpful question and answer period. All participants were knowledgeable and listened closely. Every question asked was excellent. One point was made continuously, HUD has a lot to address in implementing the new law. They will allow time to promulgate procedures and to provide for necessary industry reaction.

Many other topics were covered. I will try to post additional information from the conference call later in the week.

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.