Reform legislation
The Expanding the American Homeownership Act, H.R. 1852, known as FHA Reform or FHA Modernization, was approved by the U.S. House Financial Services Committee on May 3, 2007. The bill now awaits a vote by the full House of Representatives. It will enable the FHA to reach more prospective borrowers and allow millions more low- and moderate-income families to achieve the American dream of homeownership.
Some of the highlights of the legislation include:
- FHA mortgage limits:
- Increase the limit for lower cost areas from 48% to 65% of the government sponsored enterprises (GSE) conforming loan limit, permitting the FHA to insure newly constructed homes.
- Increase the limit for higher cost areas from 87% to 100% of the conforming limit with individual local limits set at the median price of a home in each area.
- Because of the FHA’s current mortgage limits, borrowers in high cost housing markets who don’t qualify for prime mortgages have no option other than high cost loans.
- Down payment:
- Eliminates the FHA’s 3% minimum cash investment requirement and down payment calculation.
- Provides FHA borrowers a range of options to control the amount of their down payment and mortgage payment based on their immediate and long-term goals.
- Loan term:
- Increases the maximum loan term from 30 years to 40 years. The longer loan term will decrease monthly payments yet build homeowner equity through a fully amortized loan.
- Mortgage insurance premium:
- Eliminates the 2.25% upfront and .55% annual premium caps allowing the FHA to raise or lower the premium to match the borrower’s risk. The FHA borrower gets a market interest rate loan; the risk is mitigated through the premium. "High cost loans" offset risk in the interest rate, sometimes 3% to 8% above market. For example, a 3% FHA upfront premium for a $100,000 mortgage is $19 per month. A 3% interest rate increase (6.5% to 9.5%) for the same mortgage is $156 per month. The difference of $137 would allow the use of $21,700 more towards the purchase of a house. The annual FHA premium charge is eliminated after 5 years and 22% property equity.
- Condominiums:
- Revises the definition of "mortgage" to insure condominiums as a single family unit rather than a multifamily project. The change would align the FHA to the industry and streamline processing, potentially reducing condominium costs.
- Reverse mortgages:
- Eliminates the FHA cap on the number of loans that can be insured.
- Sets a national loan limit at the GSE conforming rate so that all seniors have equal access to their equity regardless of where they live.
- Permit seniors to purchase a home and get a HECM in one transaction, so that seniors can easily move to more suitable housing. Currently borrowers must complete their home purchase transaction and HECM separately, incurring additional costs.
Current internal reforms include – (Top)
- Simplified appraisal: The FHA has eliminated paperwork and has made its appraisal more similar to conventional appraisals. (ML 2005-34)
- Streamlined FHA appraiser approval: The FHA has streamlined its appraiser examination and appraiser roster renewal procedures (ML 2006-26)
- Closing costs: The FHA has simplified closing costs and accepts customary conventional fees and reasonable costs deemed necessary to close a mortgage. (ML 2006-04 and 07)
- Repair requirements: The FHA has eliminated many repair requirements and forms. (ML 2005-48)
- Streamlined rehabilitation mortgage: The FHA has created a streamlined version of its 203(k) Rehabilitation Mortgage that drastically reduces the amount of paperwork and shortens processing times for lenders. (ML 2005-19 and 50)
- New construction: The FHA has greatly reduced documentation requirements for lenders. (ML 2006-33)
- Lender insurance: By allowing high performing lenders to electronically endorse FHA mortgages, the FHA has made the processing of FHA loans easier and more cost-efficient. (ML 2005-36)
- FHA resource center: The FHA has created a technical support center for industry partners. By using this approach lenders obtain clear and consistent technical guidance nationwide. (ML 2006-08)
- Reverse mortgages (HECM): In order to streamline and improve processing, the FHA has made significant changes to the reverse mortgage program. Some of these changes include:
- Elimination of some documentation (ML 2006-23)
- Improved counseling (ML 2006-25)
- Extension of principal limit rate lock (ML 2006-22)
- Clarification on how to handle judgments and liens (ML 2006-20)
- Line of credit payment option for Texas (ML 2006-06)
- Expansion of the national HECM counseling network (ML 2005-44)
Benefits of choosing FHA products – (Top)
Many unique benefits and protections for lenders
Why choose FHA?
Dispelling common myths about participating with FHA FHA’s Centerpiece Mortgage Program
FHA insured mortgages offer many unique benefits and protections for lenders: – (Top)
- More security: FHA insures the mortgage, lowering your risk
- More qualified borrowers due to:
- Lower down payments: FHA loans have a low 3% down payment and that money can be a gift (Lower down payments mean higher loan amounts)
- Lower costs: FHA loans have competitive interest rates because the Federal government insures the loans
- Less likely foreclosure: The FHA has been around since 1934 and will continue to be here to protect borrowers. Should borrowers encounter hard times after buying, FHA has many options to help keep them in their homes and avoid foreclosures
Why Choose FHA? – (Top)
- Get to closing faster – easier to qualify:
- No minimum credit score is required
- Non-traditional credit is acceptable
- Low down payment
- Non-occupant co-borrower is permitted
- Expanded qualifying ratios
- Protections and advantages:
- No prepayment penalties
- Fully assumable
- Default assistance
- Lower premiums
- Non-credit qualifying streamlines refinances
- Competitive interest rates and lower premiums
- Compatible with industry requirements on:
- Appraisal and repair
- Closing costs
- Lender insurance
- Automated Underwriting Systems (AUS) using FHA’s TOTAL Scorecard
- Similar documentation for comparable products
- FHA’s loan products meet your borrowers’ needs:
- Flexible buy and repair with Streamlined 203(k) mortgage
- Reverse mortgage (HECM)
- 95% cash-out refinances
- Manufactured homes
- Construction – permanent mortgage
- Works well with state and local agency products
Dispelling common myths about participating with FHA – (Top)
- Myth: Takes more time processing
Truth:- Takes no more time than a conventional loan
- Adds no additional or special requirements
- Uses TOTAL Scorecard/AUS approval allowing you to complete a loan in the amount of time it takes to get the appraisal
- Myth: More paperwork
Truth: Requires only one additional document signed by the borrower - Myth: Higher costs
Truth:- Rates competitive with the best in the industry
- Lender insurance programs eliminate shipping and reshipping costs
- Streamlined loan process
- Myth: The borrower can’t pay certain loan costs or fees
Truth:- FHA eliminated non-allowable closing cost fee schedule (ML 06-04, 06-07)
- The borrower, or any interested party to the loan, may pay all reasonable and customary charges
- Myth: FHA is too restrictive
Truth:- FHA provides guidelines for underwriting – same as industry investors
- FHA allows for manual underwriting for all loan programs – some in the industry will not approve a mortgage loan without an automated approval
- Automated Underwriting Systems approval is not required – allows for hands-on, common sense judgments
FHA’s Primary Mortgage Program – (Top)
Mortgage Insurance for One-to-Four Family Homes [Section 203(b)] is the centerpiece of FHA’s single-family mortgage insurance programs and the most commonly used program. It has these advantages:
- Availability: in all areas of the country, provided a market exists for the property and the home meets HUD’s minimum property standards
- Versatility: may be used to purchase or refinance a new or existing one-to-four family home in both urban and rural areas, including manufactured homes on permanent foundations
- Adaptability: lenders typically offer terms at 15 or 30 years
- Negotiability: interest rates are negotiated between the borrower and lender
FHA Homeownership Centers – (Top)
For local home buying, FHA mortgage insurance information, or technical support for industry professionals, please visit the FHA Resource Center or email your question to: hud@custhelp.com or telephone the FHA Resource Center at: (800) CALLFHA (800-225-5342).
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