Mortgage Programs

I've been following this because some folks I respect in the mortgage industry have been touting that the former higher "temporary" FHA loan limits are in effect as of November 18, 11.  Tonight I received this from HUD which would lead you to believe this is true:

FHA Update:

On November 18, 2011, the President signed into law H.R. 2112, Consolidated and Further Continuing Appropriations Act 2012 (HR2112). Section 238 of HR 2112 re-establishes the FHA loan limit at the higher of the dollar limit in Section 203(b)(2) or the dollar limit prescribed in Section 202 of the Economic Stimulus Act of 2008 for Forward mortgages.

Forward Mortgages:

Therefore, effective for all Forward mortgages with a case number assigned on, or after, November 18, 2011 through December 31, 2011, the loan limits referenced in Mortgagee letter 10-40 shall be in effect.

As a reminder, Mortgagee Letter 11-29 still applies to the time period 10/1/11 through 11/17/11:

• Loans that did not have credit approval on, or before, 9/30/11 are subject to the lower limits that were in effect 10/1/11 through 11/17/11.
• Loans that had credit approval on or before 9/30/11 and FHA to FHA refinances may be eligible for exceptions to those loan limits as defined in Mortgagee Letter 11-29.

The Department will be issuing a Mortgagee Letter by mid-next week that will include more detailed guidance and applicable updated loan limit tables for 2012. We expect supporting system changes to be completed within that same time frame.

With FHA loans, it's important to wait for the Mortgagee Letter or memo from HUD to confirm the change.  Once the ML letter is issued, FHA loans in Seattle will have the loan limit for 1-unit properties of $567,500 applies. 

As of now, Wednesday, November 23, 11, lenders (at least the major banks we work with) are not lending at the higher restored loan limit as of November 18, 2011. It appears this may change…we'll need to wait for the mortgagee letter from HUD and then wait to see when banks and wholesale lenders adopt the changes.

Stay tuned – I'll keep you posted.

HUD's Shaun Donovan was recently promoting Obama's jobs bill and the recently revised the Home Affordable Refinance (aka HARP 2.0).  Fannie and Freddie have revamped the Home Affordable Program to reduce the closing cost and eliminate the need for an appraisal on many qualified homes.

From Donovan last week on HARP for conventional refinances:

"…There are still millions of Americans who have worked hard and acted responsibly, paying their mortgage payments on time. But because their homes are worth less than they owe on their mortgage, they can’t refinance….

Just yesterday, the FHFA announced changes that will help more responsible borrowers take advantage of today’s low mortgage rates. These changes will knock down barriers such as closing costs and fees that can sometimes cancel out the benefit of refinancing altogether.

And by creating more competition so that consumers can shop around for the best rates, these changes will save homeowners on average $2,500 per year — that’s the equivalent of a pretty good-sized tax cut…"

With HUD promoting HARP 2.0, I'm hoping that they're taking a strong look at their own FHA Streamlined refinance.  FHA streamlined refi's already do not require an appraisal as long as the loan amount is not being raised over the balance of the existing FHA loan.  

The problem with the FHA streamlined refinance is that with the last adjustment to FHA's annual mortgage insurance and funding fee, it's more difficult to have these refi's pencil out. The annual premiums are so much higher than past insurance premiums that despite today's much lower rates, the higher insurance fees often cancel out the reduced rate benefit. Seattle area and other home owners who are not underwater with their home values may be able to switch to a conventional mortgage (with or without private mortgage insurance depending on the loan to value) and an appraisal will be required to prove the current value of the property.

In my opinion, with FHA streamlined refi's, HUD should either allow a reduced mortgage insurance rate for streamlined refi's and perhaps not offer a credit of the remaining upfront mortgage insurance premium. VA's IRRL loans offer a reduced funding fee of 0.5% for refi's.

Another option would be for HUD to allow the FHA borrower to refinance their FHA mortgage with the same FHA mortgage insurance premiums of their current FHA loan.  

HUD should also make it easier for borrowers with FHA ARM's to be able to do a streamlined refi into a fixed rate program.  Current guidelines require a reduction in payment of 5% and a caps the interest rate at no more than 2% higher than the ARM. If the borrower qualifies for the higher payment and they are opting for a fixed rate program, they should be allowed to do so.  Currently this eliminates borrowers from being able to streamline refi from an adjustable rate to a 15 year fixed.

HUD already has the risk with the loan, why not help Americans with FHA insured loans reduce take advantage of this current low rate environment by making FHA streamlined refinances more feasible? 

Mr. Donovan, it's time for HUD to knock down barriers such as closing costs and fees that can sometimes cancel out the benefit of refinancing altogether for FHA streamlined refinances.

EDITORS NOTE: This post was updated 11/21/2011 with the addition of the paragraph addressing changing the requirement for a steamline refinance out of an adjustable rate.