New Lending Policies Announced by FHA

	If you've been listening to the housing news, you've probably heard about some lending changes that were announced by the Federal Housing Administration (FHA). While many of the news reports were confusing, the truth is pretty clear...and isn't as bad as some people may have heard. Overall the measures announced by the FHA are intended to help the organization better manage its risks and strengthen its capital reserves, while still providing home loans to the nation. The good news, as FHA Commissioner David Stevens stated recently, is that "by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery" and "remain the largest source of home purchase financing for underserved communities." What's Changing? If you or someone you know is considering an FHA loan, some of these changes may affect you. Here's a clear, concise rundown of the major changes and what they mean: 1. Increased mortgage insurance. The mortgage insurance premium (referred to as private mortgage insurance by many people) will be increased from 1.75% to 2.25%. This change will add some cost to purchasing a home, but will not overburden consumers since the mortgage insurance is paid over the life of the loan, rather than upfront at closing. This change will become effective on April 5, 2010. 2. New down payment and credit score requirements. According to the new policy, homebuyers who have a credit score of at least 580 may still be able to purchase a home with 3.5% down, but those with credit scores of less than 580 will be required to put down at least 10%. This change is designed to help the FHA balance its risk, while still providing affordable down payments for consumers with a history of good credit and responsibility. 3. Reduced seller concession. Basically, this change means that the person selling the home will now only be able to offer the homebuyer 3% to help defray closing costs, as opposed to 6% under the previous policy. In addition to these changes, the new policies contain a series of new measures aimed at increasing lender enforcement. The bottom line is that the changes will impact some homebuyers more than others. But in the end, the FHA is still committed to providing affordable home loans. If you're concerned about your credit score or are worried about what these changes may mean to your specific situation, please call or email to schedule an appointment. There are many different programs available for homebuyers, so finding the right plan for you just requires a short discussion about your goals and financial picture.

FHA to Provide Early Relief to Struggling Homeowners

HUD No.10-017 Lemar Wooley (202) 708-0685

FOR RELEASE Friday January 22, 2010

FHA TO PROVIDE EARLY RELIEF TO STRUGGLING HOMEOWNERS

WASHINGTON – Homeowners with FHA-insured mortgage loans who are experiencing financial hardship are now eligible for loss mitigation assistance before they fall behind on their mortgage payments. Previously, these homeowners were not eligible for such assistance until after they had missed payments.

The Helping Families Save Their Home Act of 2009 signed into law by President Obama expanded FHA’s authority to use its loss mitigation tools to assist FHA borrowers avoid foreclosure to include those facing ”imminent default” as defined by the Secretary. FHA today issued guidance to FHA-approved loan servicers on how to assist these FHA borrowers.

“Loss mitigation assistance is beneficial to both borrowers and FHA because it helps borrowers retain their homes while protecting the FHA insurance fund from unnecessary losses,” said FHA Commissioner David Stevens. “FHA has always required lenders to establish early contact with delinquent borrowers to discuss the reason for missing a payment and to evaluate reinstatement options. Now servicers will have additional options for those borrowers who seek help before they go delinquent, which increases the likelihood that the borrower will be able to retain their home.”

Effective immediately, the loss mitigation options of forbearance and FHA’s Home Affordable Modification Program (FHA-HAMP) may be used to assist borrowers facing imminent default.

• FHA defines an “FHA borrower facing imminent default” to be an FHA borrower who is current or less than 30 days past due on the mortgage obligation and is experiencing a significant reduction in income or some other hardship that will prevent him or her from making the next required payment on the mortgage during the month that it is due.
  
  
• A forbearance agreement is an agreement by the loan servicer to postpone, reduce or suspend payments due on a loan for a limited and specific time period.
  
  
• FHA-HAMP allows qualified FHA-insured borrowers to reduce their monthly mortgage payment to an affordable level by permanently reducing the payment through the use of a partial claim combined with a loan modification. The partial claim defers the repayment of a portion of the mortgage principal through an interest-free subordinate mortgage that is not due until the first mortgage is paid off. The remaining balance is then modified through re-amortization and in some cases, an interest rate reduction.
  
  

The borrower must be able to document the cause of the imminent default which may include, but is not limited to, one or more of the following types of hardship:

1. A reduction in or loss of income that was supporting the mortgage loan, e.g., unemployment, reduced job hours, reduced pay, or a decline in self-employed business earnings. A scheduled temporary shutdown of the employer, (such as for a scheduled vacation), would not in and by itself be adequate to support an imminent default.
   
   
2. A change in household financial circumstances, e.g., death in family, serious or chronic illness, permanent or short-term disability.

Loan servicers must document the basis for its determination that a payment default is imminent and retain all documentation used to reach its conclusion. The servicer’s documentation must also include information on the borrower’s financial condition.

Additional information and guidance can be found on HUD’s website.

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HUD is the nation's housing agency committed to sustaining homeownership; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.