One of the primary market benefits of an FHA loan has always been that credit scores were not a factor. A borrower with great credit scores could definitely have their loan approved more easily, but someone with some credit problems could still get approved - provided they had a well documented common sense explanation for their credit problems and could show that the problem had been resolved. In spite of not relying on credit scores, FHA foreclosure rates went down while conventional mortgage foreclosure numbers went up in spite of their almost excessive reliance on credit scores.
Just a short post to let you know that HUD has acted faster than I have seen them do anything in the last 20 years. The higher loan limits are now official and its time for all loan officers to hit the phones to see how many people we can help. The limits are different for each county. You can find out the limit in your county by clicking on the “FHA Loan Limits” link at the top of the page. I can honestly say that I am very pleasantly surprised. I didn’t expect anything to happen on this for several months.
I’m sure you’ve seen on the news by now that Fannie Mae and Freddie Mac loan limits are going up due to the fiscal stimulus bill pushed through Congress recently. The good news is that this also means that FHA limits are going up temporarily. They are even going up to as high as $729,750 in accordance with the original House of Representatives proposal for FHA reform instead of the lower Senate bill limits.
Every time the Federal Reserve cuts the Fed Funds rate, as they did by .75 percent the other day, mortgage companies are deluged by calls from borrowers with loans in process hoping they can get a better rate. Most of the time the answer is no! Don’t worry though - this isn’t your loan officer trying to take advantage of lower rates to make more money without passing it along to the consumer.
Many subprime loans for borrowers with past credit problems have substantial prepayment penalties.
FHA loans do not have prepayment penalties with one small exception. When you pay off an FHA loan through either selling or refinancing the property, you must pay interest through the end of the month in which you are paying off the mortgage. So if you are selling or refinancing to pay off an FHA mortgage, make sure your payoff reaches your lender as close to the end of the month as possible. Otherwise, you will be paying interest for the rest of the month after you have already paid off the mortgage.
Personally, I have pretty much given up on FHASecure. If I find someone who miraculously actually qualifies for the program, their second mortgage holder often insanely refuses to resubordinate their lien.
It is my opinion, though, that the substantial publicity for this loan program has caused more people to look into using the FHA program after they thought they had no way to refinance their mortgage due to falling home values. There has been a real value to that. The standard FHA program already provides a solution for many. They had no other choice but FHA, but they never would have tried FHA without the publicity.
Amusingly, as often occurs in government bureaucracies headed by political appointees, HUD has seemed to be chasing their tail lately trying to put the best spin on the FHASecure program. Now, according to an article by Peter G. Miller in Realty Times, they have come up with the claim that the term FHASecure really applies to any conventional to FHA refinance! Huh? I know what I heard in the conference calls and read in the mortgagee letter, and this is definitely not what it started out as.
Due to one of the comments that came in on my last post, I need to make myself a little more clear.
I’m not talking about the underwriters but the underwriting rules themselves. The underwriters were just following them. The commenter felt that while the boom was underway conventional underwriters were pressured to to do their jobs too quickly and thus made mistakes.
There is an article on the BusinessWeek.com site that confirms something that I have been thinking for some time. The author, Preshant Gopal, points out that some of the areas where foreclosures are concentrated are not the areas where adjustable rate mortgages are concentrated. In areas where the value bubble has burst, borrowers are walking away from homes whether they have an ARM or not.
