Future FHA Changes

There are so many changes going on in the mortgage industry that it is no wonder we all seem a little confused, including underwriters.

FHA just recently relaxed the limits on origination fees and waived the 90 day property flipping rule for a period of one year. You can view the new property flipping guidelines here. Updates

What concerns me the most are the changes David Stevens, FHA Commissioner, is thinking about for the future.

• Raising the minimum down payment,
• establishing a minimum credit score,
• increasing the cost of mortgage insurance, and
• decreasing the amount the seller can kick in.

Read this article put out by the Wall Street Journal.
FHA Future Changes

I have some very real concerns about these changes. The average American, even with a job and good credit, doesn't have that kind of money set aside for a down payment and closing costs.

That only leaves them with two options: a VA mortgage, or a USDA Rural Development mortgage.

A VA Loan has always been a great 100% LTV loan for our veterans. Even though it does not require a down payment, the other guidelines are pretty strict. I'm sure the foreclosure rate is very low. I hope they don't start changing this program because our veterans have earned this exception.

The USDA Rural Development loans are also 100% LTV. They have a Guarantee program that is similar to a VA "Guaranteed" loan and they have a Direct Mortgage program with payments that can be subsidized by the Government. Both of these great programs are available but the property must be located in a rural area. There is more information here: Rural Development Guidelines

So, soon the average American will only have two options, unless they are a Veteran, and those are: buy a home in a rural area, or Rent!

Construction Loans

We get questions about Construction Loans all the time. Unfortunately many of those questions are after they are in a bad situation.

This will be a short post but I want you to think about this information BEFORE you start. These are the major issues that you need to consider.

Construction loans are lender specific. Your best bet on this type of loan
is to work with a bank local to the property.

From our experience:

Most construction lenders will pay off the land loan at the initial closing.

Most lenders will not use equity in the land as down payment unless you have
owned or buying for at least one year.

Lenders do not like to make construction loans if you have already started
construction. This is totally real!

Good Luck

Authorized User Tradelines

We get questions all the time about how lenders view Authorized User Tradelines when they determine repayment ability or Debt to Income. I hope this helps.

DU (desktop underwriter) takes credit report tradelines designated as authorized user tradelines into consideration as part of the DU credit risk assessment. However the lender must review credit report tradelines in which the applicant has been designated as an authorized user in order to ensure the tradelines are an accurate reflection of the borrower's credit history.

If the lender believes the authorized user tradelines are not an accurate reflection of the borrower's credit history, the lender should evaluate the borrower's credit history without the benefit of these tradelines and use prudent underwriting judgment when making its final underwriting decision.

In order to assist the lender in its review of authorized user tradelines, DU issues a message providing the name of the creditor and account number for each authorized user tradeline identified.

When ensuring tradelines are an accurate reflection of the borrower's credit history, as a general guide, if the borrower has several authorized user accounts but only has a few accounts of his/her own, the lender should establish:

• the relationship of the borrower to the owner of the account,
• if the borrower uses the account, and
• if the borrower makes the payments on the account.

If the authorized user tradeline belongs to another borrower on the mortgage loan, no additional investigation is needed. On the other hand, if the borrower has several tradelines in good standing and only a minor number of authorized user accounts, the lender could make the determination that:

• the authorized user accounts had minimal, if any, impact on the borrower's overall credit profile; and
• the information reported on the credit report is an accurate reflection of the borrower's credit history.

The lender is not required to review an authorized user tradelines that belongs to the borrower's spouse when the spouse is not on the mortgage transaction.

FHA No Longer Limits Origination Fee

Good news for mortgage originators and lenders. FHA no longer limits the origination fee to 1%.

This is also good news for potential buyers looking for a FHA loan. Lenders and brokers are not non-profit organization. If they can't make at least a small profit on a mortgage they won't offer that option to borrowers. That is a no-brainer to anyone that understands the cost of origination and lending.

HUD's mortgagee letter 2009-53 covers the origination fee and the new Real Estate Settlement Procedures Act (RESPA).

The new RESPA requirements spell out how all the fees must me noted on the GFE and the settlement statement.

The new laws also require that a lender submit all GFE and Settlement statements in the case binder submitted for insurance endorsement.

FHA Expects all lenders and brokers will continue to charge reasonable fees. The new requirements will make these fees available for review.

I think this is a good thing for all legit lenders and brokers. It will remove all doubt or false accusations that have been the butt of political finger pointers. Most of which do not have a clue about the mortgage industry!