Entries from September 2007 ↓

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For those who don’t know, Alan Greenspan was the Chairman of the Federal Reserve Board from August 1987 through January 2006. Many people have blamed him for the subprime mortgage meltdown that is driving many borrower’s back to FHA mortgages now. Alan Greenspan has just released an autobiography entitled The Age of Turbulence: Adventures in a New World in which he shares the story of his life and gives an in depth insight into the mind of a man whose actions have left an indelible imprint on all our lives and businesses. If you would like to get an insider’s view of what factors go into determining interest rates, even on FHA mortgages, I would encourage you to read this book.

FHA loans are a great tool that allows many potential first time homebuyers with past credit problems to break into the housing market. Prices are low and seller concessions are high in the today’s real estate buyer’s market. However, many of the subprime mortgage 100% financing deals are gone. FHA is the only way for many prospective buyers to get a mortgage. Also hundreds of thousands of homeowners who bought homes over the past few years using those subprime mortgages are now facing interest rate increases of 3 to 5 percent or more! Five minutes of watching business news lately will easily explain why these people don’t believe they still have any mortgage options left.

Here are 5 myths about FHA loans that prevent many from trying.

1. FHA loans take longer to get approved.

The truth is that in today’s world of automated underwriting and paperless processing, FHA loans take no longer than conventional loans to close if you are being helped by a loan officer who understands FHA loans.

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This one is for all the loan officers and real estate agents wondering how the FHASecure program can be used to help more borrowers solve their subprime problems. I know HUD’s training call was customarily confusing.

Attend a FREE teleconference/webinar on the FHASecure program by one of the leading FHA experts in the country, Chip Cummings!

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For many years, the upfront mortgage insurance premium that is added to the principal balance of FHA mortgages was refundable on a pro-rata basis no matter how the loan was paid off. This was changed several years ago and now the upfront mortgage insurance fee is only refundable if you are refinancing with another FHA insured mortgage. Because this change is many years old now, most people who were due a refund from HUD have already received their refund. Yet everyday I still see ads enticing people to work from home “processing” HUD refunds!

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The House on Tuesday approved H.R. 1852 by a vote of 348-72. Now it’s on the way to the Senate. More info here: House passes plan to expand FHA’s role in mortgages

We’ve been talking a lot lately about FHASecure. FHASecure was a first step toward making FHA mortgages a solution for more borrowers, but it was the part of the solution that could be implemented with no change in the law. Now there is a bill working its way through Congress that takes a big step forward from FHASecure.

Over the years the percentage of mortgages closed under FHA’s insurance program has slowly dwindled down because the FHA loan limits are below normal loan amounts in many areas. In addition, FHA’s 3 percent downpayment requirement and strange fee structure have not made FHA mortgages a competitive program in the marketplace. Had FHA loans been a more competitive product, many of the borrowers who have risky subprime mortgages would have used FHA instead.

A bill (H.R. 1852), has been introduced that would increase the FHA loan limits nationwide and in high cost areas, eliminate the 3% downpayment requirement on FHA loans for first time homebuyers, extend the loan term to 40 years, allow FHA to risk-based price their products, eliminate the cap on the number of reverse mortgages that FHA can insure, and streamline usage of the FHA condominium loan program. It would also allow excess FHA funds to be put into an affordable housing fund, rather than go to the US Treasury. Reciting the list all at once leaves you out of breath. Good grief! That’s more real change to the FHA loan program in one bill than has happened since the 1930’s all combined.

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The crystal ball is a little murky on this issue. Many of the high loan to value subprime adjustable rate mortgages issued over the last few years were those referred to as “80/20’s”. This means a combination of a first mortgage for 80 percent of the sales price or home value and a second mortgage for the remaining 20 percent. The second mortgage was most often a fixed rate mortgage with a balloon payment at 15 or 20 years.

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Real estate agents and other people who sold homes before the last couple of years and don’t have any recent experience with FHA loans will often run screaming when they see an offer come in contingent on FHA financing. However, as of the latter part of 2005 FHA appraisal reform:

• Eliminated minor cosmetic repairs, allows “as is” appraisals and no longer requires automatic inspections for termite, well or septic.
• Eliminated Valuation Conditions sheets & the Homebuyer Summary form, preventing delayed closings.

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