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FHA cash-out loans - Beware of a possible change!!!!

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

October 24, 2008 02:35 AM

fha loans & fha mortgages There has been talk that FHA is going to reduce their cash-out LTV. At this moment, there are 2 different types of maximum cash-out's. 95% & 85%..... There are different quidelines for each cash-out mentioned above. FHA Loans cash-out LTV's. (the two current types)

From speaking to a few people, it looks like FHA will go back to the 85% LTV for cash-outs. The main reason behind this is because the 95% cash outs aren't performing as well as they would like. It's a shame, because I think this is a great FHA loan program. I have closed 3 FHA cash out loans in the last year and all 3 of them are doing well.

Here is my take on why they should still be a viable mortgage. As it stands, you can do a rate & term refinance on a FHA loan up to 97.75% of the value of your home. (LTV) And if you are qualifying this borrower with the normal qualifications such as income and credit, the borrower should be good to good except for unseen circumstances. Circumstances such as loss of job, loss of income, death in the family, divorcee, etc etc.

Now, you are doing a FHA cash out up to 95%. You are including some of your credit cards into the new loan to reduce your total monthly payment. You still qualify by normal guides and such. And you might save $300 or more a month on your total output. Sounds great, right? You are ahead of the game, right?

But.... yes, there is always a but... I am sure there are studies out there that many of these same borrowers go back out there and open up some new credit cards. Wham, they could be right back to where they were or possibly with a higher debt load. But overall, I would think that the consumer should still be better off. Wouldn't they just go out there now and get new credit cards if they couldn't refinance?

FHA cash out -- If anyone is still interested in doing a 95% cash out, as long as it follows these basic guidelines, you would need the new mortgage to be assigned a FHA case number for any lender or investor to do this loan. The problem is that there hasn't been a date set for this to take place. Again, if you are thinking about this, you need to act quickly. I will update this blog with any new information that I obtain... thanks

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Scott Geary

Infinity Home Mortgage Company Inc - Allentown, PA

Your Pennsylvania Mortgage Source

Being forever cynical, I wonder IF the MI companies had ANYTHING to do with this change? After all 95% to 85%??? Why not 90%? Oh well, I'm sure they didn't....... As for the cut back itself, I am sure that there were some abuses to the product that likely influenced the change. After all, still quite a few 'non-prime' brokers out there without FHA expertise, using improper channels of delivery, probably operating in a business as usual mode utilizing the program. The 85% vs 90% just sticks in my craw. Thanks for the heads up!

Oct 24, 2008 03:48 AM

Jason Sardi

Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC

Your Agent for Life

Jeff - If any folks are on the fence in refinancing and need a higher LTV... they best be acting fast. Thanks for the info, I had heard rumors of this and now it appears those rumors may be well founded.

Oct 24, 2008 03:54 AM

Bo Hussung

Bell Title /Triserv LLC - Nashvle, TN

Jeff, I am inpressed. The landscape is changing so quickly that I am sure it is a full time job just to keep. Good info. I wish I knew more to weigh in an opinion, but I supppose that is why I rely on professionals like yourself.

Oct 24, 2008 05:54 AM

Fred Chamberlin

Guild Mortgage Co - Oak Harbor WA - Oak Harbor, WA

Oak Harbor/Whidbeynulls, #1 Experienced FHA Mortgage Consultant

Good warning Jeff. I too have closed several 95% cash out FHA refinances that were done to improve the client's financial picture. I hate it whenever we lose a viable product, such as the DPAs, that would help in this critical time.

Oct 24, 2008 06:14 AM

John Popp

Charlotte, NC

I thought that our Government was trying to help homeowners by asking the capital markets to ease credit restrictions. The 95% FHA Cashout Program is probably the only viable product left that allows homeowners get the cash they need to consolidate their bills or get the much needed home improvments that are required.

This would be a mistake.

Oct 24, 2008 07:59 AM

Lanre-"THE REAL ESTATE FARMER" Folayan

Samson Properties - Bowie, MD

I don't make promises.I deliver results.SOLD HOMES

As usual always abreast of the FHA Loan. I am glad that I found this blog. I am going to read your other one later. Thanks for sharing Jeff. Have a great weekend. Great post.

Oct 24, 2008 09:37 AM

Tom Burris

NMLS# 335055 - Baton Rouge, LA

Texas/Louisiana Mortgage Pro - 13 YRS Experience

I was on a conference call and everyone was complaining about this because it is 90% of their business.

LOL

We cap cas-out at 80% in The Great State of Texas.... and I am still in business.

Oct 24, 2008 12:50 PM

Lisa Hill

Florida Property Experts - Daytona Beach, FL

Daytona Beach Real Estate

I just left a long comment one your post from June... I followed the link in this post. I'm learning about FHA loans, little by little, through your posts. Sometimes, I read posts that are completely over my head. So it's taking me a while to learn. But thanks for the education =)

Oct 24, 2008 01:17 PM

Sharon Paxson

Sharon Paxson, Realtor® EQTY Forbes Global Properties - Newport Beach, CA

Newport Beach Real Estate

Thanks for this information, I appreciate it as it so important to be able to discuss this with your clients.

Oct 25, 2008 03:22 AM

William Collins

ERA Queen City Realty - Scotch Plains, NJ

Property and Asset Management

Jeff,

Thanks for the post. Even with the cutbacks, FHA is still the best game in town.

Oct 25, 2008 08:12 PM

Rebecca Anne Cole

PNC Mortgage - Timonium, MD

I have also done many FHA cash out loans up to 95% that put the borrower in a sound financial situation. Thanks for the post and the warning.

Oct 27, 2008 04:58 AM

Randall Schrader

Competitive Insurance of Dundee - Dundee, FL

Hey Jeff, who are you hearing this from? What are the probabilities and procedures to implement such an event?

Oct 28, 2008 02:41 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

I just wanted to thank everyone for their comments. Many of us seem to be on the same page on this one. I was talking to a loan officer the other day, I would be okay with a 90% cash-out option. This would also be much cheaper than going with a conventional loan then.

To answer some questions....

RANDALL.... I heard this from one of our investors and I have seen this from another loan officer also. I haven't talked to my HUD contact as of yet.... but I think it's real news... the question would be, when..

TOM Burris.... yes, I know that you can't go above 80%, not matter what the FHA or conventional guidelines say. It's a state law... I guess unless you are a federal charted bank. Do you know anything on that one?

Oct 28, 2008 08:55 AM

Robert Lowery NMLS 211598

Prosperity Mortgage - Perry Hall, MD

95% FHA cash out is definately gone. I received word on this last week. Don't know the time frame, but it is definately on the brink of being eliminated.

Hopefully, they are considering 90%.

Oct 28, 2008 03:17 PM

Richard Sweum

1st Security Bank - Everett, WA

Hey Jeff, have you noticed the stock prices on MGIC, PMI and a couple of the other private mortgage insurance companies? They are gonners. Done. Stick a fork in them! MGIC lost 80% of its value in the last 7 days. Most stopped doing cash out anyway, but if FHA goes to 85%...holy friggin cow, there are going to be a lot people going to Cabelos to get ammo. Could anyone have muffed things up this badly if they were trying?

You think rates will jump in the 7's tomorrow with the upcoming fed-funds cut?

By the way, hang in there and I hope you are doing well!

Oct 28, 2008 04:41 PM

Shane Milne

Bank of England - Irvine, CA

Honest Mortgage Answers

Unfortunately it's now official

2009 Mortgagee Letters

09-ML-8 Limits on Cash-Out Refinances

Mar 14, 2009 02:20 PM

Anonymous

Pelson Randig, Ohio Bank

Is this all a joke? Not one single post on this thread reveals any knowledge or understanding or true experience. Yes, there can be good 95% cash out loans, IF they are sold properly. But they are gone, I believe forever. They perform terriby....

Go Texas you superstar. I sell in 29 states, you?

The bad ill-staffed companys will suffer greatly....the POA LOs who became crap FHA LOs are in deep trouble.

Some of us will be ok......

I have 14 loans on my personal production board right now . Two are subordinations, R&T, working through that process. Two are unlikely to qualify, pending reciept of tax returns, but are 95% CO, FHA. Five are locked and CTC, 4 of those are CO 95%, the other conforming R&T 80%. The other 5 I have the appraisals in, always COD, should close by the end of March, getting the case file #'s, three of those jumped from conforming to FHA CO 90% plus as a result of light value, one is a HECM, and the other a 5/1 ARM, IO......

Mar 16, 2009 04:22 PM

#21

Jason Sardi

Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC

Your Agent for Life

Thanks for the pipeline report, Pelson.

Mar 17, 2009 12:26 AM

Tom Burris

NMLS# 335055 - Baton Rouge, LA

Texas/Louisiana Mortgage Pro - 13 YRS Experience

I think the only 'joke' in this discussion is Pelson.

He should go to bed and get his rest so he cand tend to his production pipeline.