FHA Mortgage Insurance to remain on loans FOREVER

November 20, 2012 by 11 Comments

HUD has announced in their Annual Report to Congress Regarding Financial Status of the FHA Mutual Mortgage Insurance Fund Fiscal Year 2012, their plan to revise the cancellation of FHA mortgage insurance premiums. This is set to go in effect on new FHA insured mortgages sometime in 2013. 

From HUD’s report:

Under a policy change made in 2001, FHA has been cancelling required mortgage insurance premiums (MIPs) on loans for which the outstanding principal balance reaches less than 78% of the original principal balance. However, FHA remains responsible for insuring 100% of the unpaid principal balance of a loan for the entire life of the loan, such loan life often extending far beyond the cessation of the MIP payments. As written, the timing of MIP cancellation is directly tied to the contract mortgage rate, not the actual loan LTV. The current policy was put in place at a time when it was assumed that home price values would not decline, but today we know that LTV measured by appraised value in a declining market can mean that the actual LTVs are far lower than amortized mortgage LTV, resulting in higher losses for FHA on defaulted loans. Analyses conducted by FHA’s Office of Risk Management projects lost revenue by approximately $10 billion in the 2010-2012 vintages as a result of the current cancellation policy. The same analyses also suggest that 10%-12% of all claims losses will occur after MIP cancellation. Therefore, beginning with new loans endorsed after the policy change becomes effective later in FY 2013, FHA will once again collect premiums on FHA loans for the entire period during which they are insured, permitting FHA to retain significant revenue that is currently being forfeited prematurely.

With FHA running out of funds, they are having to take measures to protect this mortgage program. You can also expect to see mortgage insurance premiums (upfront and annual) to increase in addition to FHA mortgage premiums remaining on the life of the loan. 

What does this impact you?

If you currently have an FHA mortgage, your mortgage insurance premium that you pay monthly is still set to drop off (cancel) once your principal balance reaches 78% of the loan to value and a minimum of 60 mortgage payments have been made. 

However, if you currently have an FHA mortgage in the mid-to-high 4% range and you have been considering an FHA streamlined refinance, you need to act quickly. 

If you are considering buying a home and you are planning on using FHA for financing, be prepared to have the FHA mortgage insurance remain on the loan until you either sell the home or can refinance to  a conventional mortgage.

If you are interested in buying or refinancing a home anywhere in Washington state, I’m happy to help you!

Filed Under: FHA, Mortgage Insurance Tagged With: ,

FHA Rate-Term Refi’s may be a Great Option for Higher Loan Amounts

September 6, 2012 by 1 Comment

I have been working with a couple of Seattle area home owners who either have a jumbo mortgage or have a mortgage that used to be “high balance conforming” and were caught “in the gap” when conforming high balance loan limits were rolled back to $506,000 in King County.  A jumbo (aka non-conforming) mortgage is a loan amount over $506,000 in King, Pierce or Snohomish counties for a single family dwelling.

Jumbo mortgages typically require an 80% loan to value for a refinance. This can also cause a challenge if the home has lost equity and the values are “underwater” or above an 80% loan to value. Homeowners with an existing Jumbo mortgage do not qualify for HARP 2.0 since their existing mortgage is not securitized by Fannie Mae or Freddie Mac. Homeowners who have a High Balance Conforming mortgage from prior to to loan limit roll back may qualify for HARP 2.0 – however, their loan limit will be restricted to the current levels ($506,000 in King, Pierce and Snohomish counties) causing them to have to bring “cash in” to close.

One client, let’s call him “Mike in Magnolia”, has a jumbo mortgage at 6.500% with a balance of $640,000 and estimates the value of his Seattle area home to be around $600,000.  He’s really like to refinance and take advantage of the current low mortgage rates.  

One option would be an FHA jumbo which would allow a loan amount up to $567,500. Based on this scenario and pricing as of 1:30pm 9/6/12, his rate would be 3.500% for a 30 year fixed (apr 4.382). This would provide him a PIMI (principal, interest and mortgage insurance) payment of $3,155.46 and cash for closing would be around $78,000. His home could appraise for as low as $585,000 and still have this scenario work at an 97.75% loan to value.

If Mike is willing to bring $142,000 to closing, he could consider a conventional refinance at $506,000. His home would need to appraise for around $600,000. Based on current rates of 3.875% for a 30 year fixed (apr 4.117); his PIMI payment would be $2640.83. His home would need to appraise for at least $600,000 for an 85% loan to value.

I’m working with another client who has a condo in downtown Seattle that has lost value. They obtained their mortgage after May 31, 2009, so it does not qualify for HARP 2.0. The condo IS on HUD’s approved list for FHA financing which will allow them to take advantage of today’s lower FHA mortgage rates with a loan to value of up to 97.75%.

FHA rate-term refinances are a “full doc” loan and will require an appraisal.  FHA mortgages may be assumable to a qualified buyer should these clients decide to sell their homes in the future.

If you’re interested in an FHA mortgage or having me review your scenario for your home located anywhere in Washington state, please contact me.

Filed Under: Refinance Tagged With: , , ,

FHA Streamlined Refinance: Credit vs Non-Credit Qualifying

July 25, 2012 by 10 Comments

With an FHA streamlined refi, most folks have the misconception due to the program name “streamlined” that the refinances are close very quickly and are a slam dunk with little to no paperwork. While they do close quicker than a typical refinance since more often than not, you’re not waiting on an appraisal, if you’re going for a lower cost or better rate, you’re probably opting for a “credit qualifying” FHA streamlined refi. What’s the difference?

FHA streamlined credit qualifying basically means that the borrower is providing income and asset documents, just like a regular refinance. By providing documentation that shows they actually qualify for the new mortgage, lenders provide preferred pricing. Since it is a “manual” underwrite (a real human is underwriting the loan and not a computer program) the debt to income ratio is limited to 45%.

FHA streamlined non-credit qualifying is when income documentation is not provided and not stated on the loan application. The borrower’s income is not a consideration. Because of the higher risk, the rate or pricing is often slightly higher.

EDITORS NOTE: Rates quoted below are expired (years old!!)…for a current mortgage rate quote for your home in Washington state, click here.

Right now (July 25, 2012 at 11:00 am) I’m working on a quote for an FHA streamlined refinance for a home located in Seattle. The rates quoted below are based on mid credit scores of 680 –  720 with no appraisal and the base loan amount is $289,000.

FHA credit qualifying 30 year fixed: 3.375% (apr 4.548) priced with just over 1 point in rebate credit which will cover closing cost and some of the prepaids/reserves. Principal and interest payment is $1300.01.

FHA non-credit qualifying 30 year fixed: 3.750% (apr 4.934) priced just under 1 point (about 0.25% difference in fee) which covers closing cost and some of the prepaids/reserves. Principal and interest payment is $1361.82.

NOTE: for a current rate quote on a home located anywhere in Washington state, based on today’s pricing and your scenario, click here.

What type of supporting documentation is required?  This is in additional to a complete loan application and credit report.

Non-credit qualifying:

  • Copy of your existing mortgage Note
  • Copy of your mortgage statement (we need to document a “Net Tangible Benefit”)
  • Bank statement (all pages) if funds are due at closing. Large deposits may be required to be documented.
  • Drivers license
  • Social security card
  • Payoff obtained from escrow company documenting that the current month’s mortgage payment has been made

Credit qualifying: all the above, plus…

  • last two years W2s
  • last two years tax returns (if self employed)
  • most recent paystubs documenting 30 days of income
  • most recent bank statements (all pages) documenting at least funds for closing. Large deposits may be required to be documented.

Additional documentation may be required depending on your personal scenario.

Whether you opt for non-credit qualifying or credit qualifying is your choice and depends on your financial scenario. When rates and pricing are the same for both scenarios, most would opt for “non-credit” qualifying. Since recent changes with how HUD prices FHA mortgage insurance for some loans, there has been major changes with which banks are offering FHA streamlines and how they’re pricing them.

If I can help you refinance your FHA loan on your home located anywhere in Washington state, please contact me.

Filed Under: FHA, Refinance Tagged With: , , , , , ,

Should I do an FHA streamline refi if my rate is 4.875%?

July 6, 2012 by 18 Comments

This is a scenario I’m reviewing for one of my clients who lives in Seattle.  His existing mortgage is a 30 year fixed FHA at 4.875%. He closed on this loan after June 1, 2009 so it does not qualify for FHA’s reduced mortgage insurance premiums*. However, he can still take advantage of today’s low mortgage rates as long as the refi meets HUD’s “net tangible benefit” requirements of reducing his payment by at least 5%.

HUD’s Net Tangible Benefit requires that the “PIMI” (principal, interest and mortgage insurance) payment be reduced by at least five percent or the refinance cannot happen. This has been an issue for home owners who would like to refinance from their FHA 30 year fixed to an FHA 15 year fixed as HUD does not make an exception for those who would like to shorten their mortgage term if the payment increases — even if the borrower qualifies with documenting their income (some FHA streamlines do not require income to be documented). 

The Seattle client I’m working with is doing a “credit qualifying” FHA streamline refi for a 30 year fixed.  His current principal and interest is $1171.55 and the monthly mortgage insurance payment is $95.90 for a total PIMI payment of $1,267.45.  His new PIMI payment needs to be less by at least 5% ($63.37) which means his new PIMI needs to be $1,204.08 or lower.

As of 10:00 am this morning (July 6, 2012) I’m quoting 3.375% for a 30 year fixed FHA streamline refi with no appraisal (apr 4.554) with a base loan amount of $212,750.  After his upfront mortgage insruance premium credit from his existing FHA insured loan and interest rate credit, he’ll need to bring in about $1200 at closing. He won’t have a mortgage payment due until a month after closing and receiving a refund of his existing reserve account balance a couple weeks after closing.  

But what about the new PIMI?  Principal and interest is $957.01 and the monthly mortgage insurance is $210.85 for a total PIMI of $1,167.86.  The new refinance meets HUD’s net tangible benefit requirement.  

The Seattle homeowner is reducing their payment by $100 per month. **And after 60 payments and when the loan balance reaches 78% loan to value, the monthly mortgage insurance will terminate.  

**UPDATE 12/19/2012: FHA mortgage insurance will not be cancelled on new mortgages effective January 2013. It will remain on the life of the loan (until it is paid off or refinanced to a non-FHA mortgage).** Read more here.

*NOTE: If the FHA mortgage being refi’d was endorsed by HUD prior to June 1, 2009, the savings would be even greater as it would qualify for reduced mortgage insurance.

If you have an FHA insured mortgage and are interested in an FHA streamlined refinance on your home located anywhere in Washington, please contact me.  I’m happy to help you!

Filed Under: FHA, Refinance Tagged With: , ,

FHA Streamlined Refi Revamped and Revisited

June 14, 2012 by Leave a Comment

There is a lot of interest in the FHA streamlined refinance since HUD has greatly reduced the mortgage insurance premiums for some home owners who originated their existing FHA mortgage May 2009 and earlier. FHA streamlined refinances are designed to reduce mortgage payments and borrowers are not allowed to take “cash out” or pay off existing helocs or second mortgages. In order to qualify for an FHA streamlined refiance, the borrower must have made at least six payments on the FHA loan and needs to be current with the mortgage.  Here are a few tips on FHA streamlined refinances I thought I’d share with you.

No appraisal required. If you opt to not have an appraisal, then your new loan amount may not exceed your current loan amount. This means that your closing cost and prepaids/reserves cannot be financed (upfront mortgage insurance is still allowed to be rolled into the loan). Closing cost and prepaids/reserves may be paid for with interest rate rebate credit or cash at closing.  If you opt to have an appraisal, then your loan amount may be increased.

Credit qualifying vs non credit qualifying.  FHA streamline refi’s may not require verification of your income or assets (non-credit qualifying). Did you know that you may qualify for improved pricing if you opt for a credit qualifying FHA streamlined refi? Pricing varies throughout the day and when I’m locking an FHA streamlined refi for a Washington area homeowner, if pricing is the same, I’ll opt for non-credit qualifying. However if pricing is improved for a credit qualifying streamlined refinance, I’ll advise my client of the pricing differences and let them decide which route they prefer.

Underwriting overlays. Although HUDs guidelines might state something different, the banks and lenders we work with allow us to help home owners who have a low-mid credit score of 640 or higher. If your credit score is below 640, you may want to consider working directly with your bank.

Net tangible benefit. HUD requires that the loan “makes sense” and that is defined as a reduction in your mortgage payment (principal, interest and mortgage insurance) of at least 5%. It may also mean refinancing your FHA ARM into an FHA fixed rate product. Unfortunately, if you’re refinancing an FHA 30 year to a FHA 15 year fixed rate product, and your payment does not go down by 5%, you will not meet the current “net tangible benefit” requirement – even if you’re doing a “credit qualifying” FHA streamlined refinance and fully disclosing your income. This is something HUD needs to correct, in my opinion.

Reduced mortgage insurance premiums. HUD has announced reduced mortgage insurance premiums (both annual and upfront) for FHA loans that were endorsed (insured) by HUD prior to June 1, 2009.  FHA loans are endorsed by HUD after closing – sometimes several weeks after closing so it’s possible your FHA mortgage closed in May of 2009 and not endorsed until after the cut-off date.

Credit of your existing upfront mortgage insurance premium (UFMIP). If your existing FHA insured mortgage was originated over the past three years, it may not quaify for qualify for the reduced mortgage insurance, however, you probably will receive a refund of a portion of the original UFMIP. The refund is credited towards the closing cost of your new FHA loan and ranges from 80% to 10% of the original UFMIP by the 36th month.

FHA streamlined refinances are available for non-owner occupied homes too! If you have a home that has been converted to a rental property and the underlying mortgage is FHA, it’s eligible for an FHA streamlined refinance as long as the owner occupied it for a least 12 months.  With a non-onwer occupied FHA streamlined refinance, it must be done without an appriasal so no closing cost may be financed (except the upfront MIP).

If you are interested in refinancing your existing FHA insured mortgage on a home located anywhere in Washington, I’m happy to help you. I’ve been originating FHA home loans at Mortgage Master Service Corporation since April 2000, where we have in house FHA underwriters at our main office in King County.  Click here for your FHA rate quote.

Filed Under: FHA, Investment Property, Refinance Tagged With: , , , , , ,

Preapproved with FHA Financing? You Better Double Check with your Lender.

March 8, 2012 by Leave a Comment

If you are currently preapproved to buy a home using FHA for your financing, I highly recommend you check with your mortgage originator to make sure your preapproval is still valid.  

Why the worry?  FHA will have higher mortgage insurance rates effective with new loans (case numbers issued as of) April 9, 2012.  How much somebody is preapproved for is based on their debt to income ratios, which includes the proposed new mortgage payment.

Based on the scenarios I used on my post announcing these changes, a loan amount of $417,000 would see an increase in payment of $48.95.  For a borrower who’s currently maxed out on their debt to income ratios (DTI), this could reduce their borrowing power by about $10,500.  FHA “jumbo” borrowers are hit extra hard with FHA’s additonal tax fee, my previous post for a loan amount based on the Seattle FHA loan limit of $567,500 has an increase in payment of $183.85. For the borrower pushing their DTI, $183.85 increase in monthly payment pencils out to $39,700 in less home someone will qualify for.

Even if your preapproval letter states it’s valid until a certain date beyond April 9, 2012, it is subject to “changing market conditions”. Your scenario is not “locked in” or approved until you have a signed around contract that you’ve submitted to your lender to complete your loan application. Changing mortgage rates and property taxes also impact how much you qualify for.

Your mortgage originator can (and should) review your current preapproved scenario and plug in the mortgage insurance rates to determine how much your payment will be going up and to see if it impacts how much you’re preapproved for. 

If you are considering buying or refinancing a home anywhere in Washington State, I’m happy to help you! Please click the links at the top of this page for a rate quote or to apply.

PS: This also impacts home owners who are considering refinancing from a non-FHA loan to an FHA or who are doing a credit qualifying (full doc) FHA streamlined refinance.

Filed Under: FHA, Mortgage Insurance, Residential Purchase Tagged With: ,

FHA to Reduce Mortgage Insurance Rates for some FHA Streamlined Refi’s

March 6, 2012 by 1 Comment

Today HUD announced that beginning June 11, 2012, FHA will REDUCE the cost for an FHA streamlined refinance for FHA insured mortgages that were originated prior to June 1, 2009. A mortgagee letter will follow to make the following changes official:

Upfront mortgage insurance (UFMIP) will be reduced to 0.01% (from 1.00%).

Annual mortgage insurance (typically paid monthly) will be reduced to 0.55% (cut in half from 1.10%).

This is great news to those who originated their FHA loans prior to June 1, 2009. Once I receive the mortgagee letter from HUD, I'll be sure to update you.  We'll need clarification on how HUD defines "origination".  UPDATE:  FHA's Mortgagee Letter clarifies that loans must be "endorsed" by HUD prior to June 1, 2009.  This is different than your closing date and typically takes place weeks after closing.

FHA streamlined mortgages are popular right now considering today's low mortgage rates and that they do not require an appraisal. 

Currently, a Seattle area home owner doing an FHA streamlined refinance with a loan amount of $400,000 and credit scores of 720 or higher would have a rate of 3.750% (apr 4.449) with a principal, interest and mortgage insurance (PIMI) payment of $2,234.59.  With the proposed reduced FHA mortgage insurance, assuming the home owner originated their FHA loan prior to June 1, 2009, their PIMI payment would be $2,034.45 (apr 4.071): a difference of $200 per month!

If you would like more information about refinancing your FHA insured mortgage for your home located anywhere in Washington, please contact me.  I have been originating FHA insured mortgages for Washington home owners since April 2000 at Mortgage Master Service Corporation and I'm happy to help you.

UPDATE 3/6/2012: INFORMATION ON HUD'S MORTGAGEE LETTER. 

Filed Under: FHA, Mortgage Insurance Tagged With: , ,

HUD extends Waiver for “Anti-Flipping” Rule through 2012

December 28, 2011 by Leave a Comment

Mortgageporterhouse

UPDATE: HUD HAS ANNOUNCED THIS WAIVER WILL BE EXTENDED THROUGH DECEMBER 2014.

HUD recently announced they will extend their anti-flipping waiver through December 2012.  From HUD:

In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity…[HUD] will extend FHA’s temporary waiver of the anti-flipping regulations. 

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days… The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA.  All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers.  The Waiver continues to be limited to sales meeting the following conditions:

  • All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction. 
  • In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.
  • The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program. [Reverse Mortgages]

In addition to what HUD covered in their email on Friday, the waiver also specifies that:

  • the sale must be by the owner of record
  • the property may not have been a repeatedly “flipped” over the past year
  • the property was marketed openly and fairly

When a home is being resold 20% or higher than what the seller purchased the property for in less than 90 days, often times a second appraisal will be required and the seller will need to show documentation to support the increased value in the home, such as receipts for the improvements made. A property inspection report will also be required by the lender to assure the quality of the improvements made to the property. Any health or safety issues disclosed by the property inspection will need to be corrected.

If a home has been re-sold withing 91-180 days at more at 100% or more than the seller’s acquisition cost, the same conditions will apply. If a second appraisal is required, the home buyer is not allowed to pay for it per HUD. Thanks to LO Comp, which the Fed passed in April, your friendly mortgage originator cannot use their commission to pay for this cost either.

Investors who are reselling in a short period of time for a much higher amount than their acquisition cost should be prepared for the cost of the second appraisal when the buyer is using FHA for financing. Folks should also retain detailed records of improvements (including all receipts) when they’re planning to quickly resale a home. The seller’s acquisition cost is the sales price of the home, plus the seller’s closing cost, including real estate commissions. It does not include any repairs.  

If you are considering buying a home located anywhere in Washington State, I’m happy to help you! Click here for a mortgage rate quote for homes located anywhere in Washington.  I’ve been originating home loans at Mortgage Master Service Corporation since April 2000, including FHA insured loans.

Filed Under: Appraisals, FHA Tagged With: , ,
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