There’s a huge debate going on right now about seller assisted down payment programs on FHA insured loans. Most of the program’s detractors are those who are on the outside looking in. The objections of those opposed to seller assisted down payment programs are not completely without merit. There have been some problems in the implementation of the program which have led to a higher than necessary foreclosure rate among those borrowers using the program. And yet foreclosure rates
Unfortunately, opponents of the program seem to completely ignore the advice of the people who are on the front lines of mortgage financing - mortgage originators. These opponents seem to think that just pointing out that mortgage originators stand to gain financially is enough to disqualify the originators’ opinions. Nothing could be further from the truth.
FHA mortgage originators are held to standards by HUD. Any company which has too high a percentage of originated mortgages go into default will get cut off from using FHA insurance altogether. Yet mortgage originators are still pushing to save the program because they are in a unique position to see the real benefits of the program. They are in a unique position to see firsthand all the factors which can contribute to foreclosure. They can see how to solve the problem without throwing the baby out with the bathwater.
The Nehemiah Corporation of America has set up a website where mortgage originators who want to help save down payment assistance programs can go to find out what they can do individually. It is filled with a lot of facts about the program that many people aren’t aware of and it has a day by day schedule of suggested activities that members of the housing industry can take to aid in the fight.
As usually happens, Congress has chosen a path of using the FHA program to bail out Wall Street mortgage banking interests and is selling it under the guise of helping out the common man. The public needs to put a stop to it and bring the FHA program back to its original purpose.
If you would like to help out in the fight, the Nehemiah Corporation’s website is located at;
On FHA Mortgage Guide, syndicated columnist Peter Miller points out today that the number of FHA mortgage endorsements is headed down when comparing the first two weeks of July with the first two weeks of August.
“There were 77,608 FHA endorsements during the first two weeks of August — that’s significantly less than the 82,079 loans that were insured during the last two weeks of July.”
My opinion is that the reason for this some of this decrease might possibly be exemplified in this line from a guideline change received in the middle of July from one prominent national FHA wholesale lender:
All conventional-to-FHA rate and term refinances are considered FHASecure, regardless of whether the borrower is delinquent or current.
For this particular FHA lender there is a 2.5 percent adjustment to the wholesale price of an FHASecure loan. This lender is one considered to have very competitive rates. Most other lenders have price adjustments at least as high or higher. This means that many good credit borrowers who would make excellent additions to the FHA loan pool now have to pay higher rates on FHA loans than would otherwise be necessary.
Lenders have adopted these guidelines based on secondary mortgage market changes which came about because HUD and the White House keep insisting on using the total number of conventional to FHA rate and term refinances to represent the number of homeowners “rescued” by their anti-foreclosure efforts.
It’s the Law of Unintended Consequences in full action.
The Housing and Economic Recovery Act of 2008 goes into effect on October 1, 2008. As part of this Act, Congress placed a one year moratorium on risk based mortgage insurance premiums on FHA loans.
Under the risk based premium structure that HUD put into effect on July 14, 2008, borrowers with better credit and lower loan to value mortgages are able to pay lower rates while riskier loans carry higher insurance rates. A perfectly sensible system that FHA statistics show may actually be a major benefit to lower income borrowers since this members of this group with FHA loans have been shown to have higher credit scores on FHA loans.
As part of what may be a little bit of political gamesmanship on the part of HUD, HUD has just announced a new mortgage insurance premium structure to take effect on October 1, 2008. Here are the details:
Upfront Mortgage Insurance Premiums
Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 Percent
Streamline Refinances (all types) = 1.50 Percent
FHASecure (Delinquent Mortgagors) = 3.00 Percent
Annual Insurance Premiums (paid monthly)
On 30 year loans with LTV > 95 %, annual mortgage insurance will be .55%
On 30 year loans with LTV < 95%, annual mortgage insurance will be .50%
On FHA Secure loans with LTV > 95%, annual mortgage insurance will be .55%
On FHA Secure loans with LTV < 95%, annual mortgage insurance will be .50%
On 15 year loans with LTV > 90%, annual mortgage insurance will be .25%
On 15 year loans with LTV < 90%, annual mortgage insurance will not be required
These premium changes apply to the folllowing FHA loan programs: 203b (standard 1-4 unit property), 203k (rehab loan), and 234c (condominiums) but they do not apply to FHA reverse mortgages.
Mortgages with FHA case number assignments made on July 14, 2008, through and including September 30,2008, shall maintain the risk-based premium structure for the life of the mortgage.
HUD promises to let us know what they plan to do at the end of the moratorium, but keep your eye on the legislation being pushed that restores seller paid down payment assistance programs. This legislation includes risk based mortgage insurance premiums.
