Not long ago, FHA lending was just another government-sponsored program unworthy of political attention or media limelight. Now, with no less than three new reform initiatives, FHA is generating excitement, confusion, speculation, and even venom for political pundits and the media.
Fixing Broken ARMs
FHASecure is a new federally-insured (temporary) lending program announced by President Bush on August 31, 2007, and released to FHA-approved lenders on September 4. Qualified homeowners seeking payment relief from their adjustable rate mortgage (ARM) may be able to use FHASecure to restructure their loan into a more stable, fixed-rate program, even if they are already delinquent on payments. "Risk Based" fee schedules, which are to be released shortly, will help price these loans appropriately.
Do You Qualify?
To qualify for an FHASecure loan, borrowers must meet the following five criteria:
- A history of on-time mortgage payments before the borrower's teaser rate expired and loan reset;
- 3% equity in the home; or cash to compensate (see your mortgage professional to find out about other methods of meeting this requirement);
- A sustained history of employment;
- Sufficient income to make the mortgage payment; and
- The loan application must be signed no later than December 31, 2008.
Even if you do not meet these criteria, you should still contact a qualified mortgage professional because he or she can often provide you with other resources to help overcome your current challenges and reach your financial goals.
The House Takes Initiative
Last month, the House overwhelmingly passed FHA reform bill HR 1852 (The Expanding American Homeownership Act of 2007). The next step is the Senate where a vote is expected within the next few months.
As the bill stands now, there are a number of significant changes that could dramatically impact home lending, including making FHA loan limits as high as $729,750 in high-cost areas, such as California and Florida. It's uncertain if the Bush administration will support the bill in its current form, but it has several features that could easily reshape FHA lending as we know it.
What could this legislation mean for borrowers in the future, if this initiative is to pass in its current state:
- Lower Down Payments: Authorizes zero and lower down-payment loans for borrowers who can afford mortgage payments but lack the cash for a required down payment. (In fact, options are now available which may help to expand or stabilize certain programs for those who have little to no cash.)
- Subprime Borrowers: Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers without authorizing unnecessary fee hikes on such borrowers.
- Reverse Mortgages: Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses by removing the loan cap to avoid program shutdowns, raising loan limits, and reducing the maximum fee lenders can charge for these loans.
- Multifamily Loans: Raises FHA multifamily loan limits so these loans can fully fund construction costs in high-cost areas, and enhances sale of foreclosed FHA rental housing loans to localities so that affordable housing can be maintained in local communities.
- Higher Loan Limits: Raises the FHA loan limit in each area to the lower of (a) 125% of the local area median home price or (b) 175% of the national conforming loan limit.
Senate's Blueprint for Reform
Read twice and approved by a Senate banking panel on September 19, this is the Senate's version of FHA reform. Again, further steps are necessary before this initiative is to become law. Following are some issues that the legislation is attempting to address:
- Increase loan limits across the board;
- Reduce down payment requirements;
- Simplify FHA requirements for condominiums and housing co-ops;
- Expand reverse mortgage programs;
- Enhance home buyer counseling before and after purchase;
- Establish alternative credit scoring pilot program;
- Enhance fraud protection;
Bottom line
By updating and expanding FHA, lawmakers are clearly invested in removing some of the current limitations in FHA lending. All politics aside, this new flexibility will likely help many homeowners.
Home buyers, home sellers, ARMs holders, and other borrowers looking to refinance, don't allow yourself to be overwhelmed by all of the information surrounding these initiatives. These are the facts. Print out a copy of this article and call your mortgage specialist today. Find out what opportunities are available to help you meet your financial goals.
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