Here are the full details:

BUSH ADMINISTRATION ANNOUNCES FLEXIBILITY FOR “HOPE FOR HOMEOWNERS” PROGRAM
Changes will allow more struggling families to use the program and keep their homes

WASHINGTON - U.S. Housing and Urban Development Secretary Steve Preston today announced that the HOPE for Homeowners (H4H) Board of Directors has approved changes to the program to help more distressed borrowers refinance into affordable, government-back mortgages. The changes will reduce the program costs for consumers and lenders alike while also expanding eligibility by driving down the borrower’s monthly mortgage payments.

“Clearly, meaningful changes were needed. These modifications should increase lender participation and help more families who are having difficulty paying their existing mortgages, but can afford a new affordable loan insured by HUD’s Federal Housing Administration,” said Preston.

By taking full advantage of the new authority provided under the Emergency Economic Stabilization Act (EESA) of 2008, HOPE for Homeowners will provide additional mortgage assistance to struggling homeowners.

Modifications to HOPE for Homeowners include:

• Increasing the loan to value ratio (LTV) to 96.5 percent for some H4H loans;
• Simplifying the process to remove subordinate liens by permitting upfront payments to lienholders; and
• Allowing lenders to extend mortgage terms from 30 to 40 years.

“These changes will further encourage lenders to take a hard look at this program before heading down the path to foreclosure and will provide families with another resource to refinance into a loan they can afford,” said FHA Commissioner Brian D. Montgomery. “HOPE for Homeowners will continue to serve as another loss mitigation tool that can be used to help families keep their homes.”

HOPE for Homeowners will continue to only offer affordable, government-insured fixed rate mortgages. Further, this program will maintain FHA’s long-standing requirement that new loans be based on a family’s long-term ability to repay the mortgage. Only owner-occupants are eligible for FHA-insured mortgages.

Background

Increasing the Loan-to-Value and Adjusting Debt-to-Income Ratios

The program will increase the loan-to-value ratio (LTV) on H4H loans to 96.5 percent for borrowers whose mortgage payments represent no more than 31 percent of their monthly gross income and household debt no more than 43 percent. This change will expand the number of eligible borrowers. Raising the loan-to-value ratio reduces the gap between the existing loan balances and the new H4H loan and decrease losses to the existing primary lienholders. Alternatively, the program will continue to offer borrowers with higher debt loads a 90 percent loan-to-value ratio on their H4H loans. This LTV ratio will include borrowers with debt-to-income ratios as high as 38 and 50 percent. In conjunction with the LTV change, H4H will eliminate the trial modification that was previously required. This measure was too complicated and required delicate negotiations among the existing lienholders, the new H4H lender, and the borrower.

Immediate Payments to Subordinate Lienholders

H4H will offer subordinate lienholders an immediate payment in exchange for releasing their liens, to permit more borrowers access to the program. Previously, subordinate lienholders who released their liens were only eligible to receive a small recovery payment when the home owned by the H4H borrower was sold. Given the amount of time that would pass between the creation of the H4H and the ultimate sale of the home, as well as the tremendous market uncertainties, subordinate lienholders were not guaranteed any return at all. To address this problem, the subordinate lienholders may now receive an immediate payment at the time the H4H loan is originated.

Extending Loan Terms from 30 to 40 years

To assure that borrowers are put into the most affordable monthly payment possible, HOPE for Homeowners will permit lenders to extend the mortgage term from 30 to 40 years. For borrowers with very high mortgage and household debt loads, extending out the amortization period may reduce their monthly payments enough to make it possible for them to qualify for this rescue product and save their homes.

Consistent with statutory and regulatory requirements, borrowers must continue to meet the following criteria:

• Their mortgage must have originated on or before January 1, 2008.
• They cannot afford their current loan.
• They must have made a minimum of six full payments on their existing first mortgage and did not intentionally miss mortgage payments.
• The loan amount may not exceed a maximum of $550,440.
• The Upfront Mortgage Insurance Premium is 3 percent and the Annual Mortgage Insurance Premium is 1.5 percent.
• The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
• They do not own a second home.
• They did not knowingly or willfully provide false information to obtain the existing mortgage, and they have not been convicted of fraud in the last 10 years.
• They must follow FHA’s long-standing and strict policy of fully documented income and employment.

The HOPE for Homeowners program was authorized by the Housing and Economic Recovery Act of 2008. A Board of Directors was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage. The program began October 1, 2008, and will end September 30, 2011.

The HOPE for Homeowners Board of Directors includes HUD Secretary Steve Preston, Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, and FDIC Chairman Sheila Bair. They have named the following people to serve on the board as their designees: FHA Commissioner and Chairman of the Board Brian Montgomery, Federal Reserve Board Governor Elizabeth Duke, Treasury Assistant Secretary for Economic Policy Phillip Swagel, and Federal Deposit Insurance Corporation Director Tom Curry.

Read more about HOPE for Homeowners at www.hud.gov/hopeforhomeowners

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HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development and enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.

HUD ANNOUNCES NEW, PERMANENT FHA MORTGAGE LOAN LIMITS
New limits range from $271,050 to $625,500

WASHINGTON - U.S. Department of Housing and Urban Development Secretary Steve Preston today announced the new Federal Housing Administration (FHA) mortgage loan limits for single-family homes as prescribed by the Housing and Economic Recovery Act of 2008.

Beginning January 1, 2009, FHA will insure single-family home mortgages up to $271,050 in low cost areas and up to a maximum of $625,500 in high cost areas. The February 2008 Stimulus Package temporarily raised the FHA maximum to $729,750 through December 31, 2008. The new $625,500 maximum, however, represents a significant increase over the $362,790 limit that was in effect prior to the Stimulus Package.

“In today’s environment where access to credit is being restricted, we need to make mortgage loans readily available to households throughout the country, and especially in high-cost areas,” said Preston. “These new loan limits will ensure FHA can to continue help struggling homeowners refinance into safe, affordable government-insured loans, and allow many first-time buyers take advantage of today’s buyers market”

For several years, FHA’s loan levels were below the cost of the average home in communities across the nation. As a result, families who needed FHA mortgage insurance to qualify to buy a home were effectively locked out of the process. In some cases, borrowers turned to exotic subprime loans.

FHA mortgage insurance makes home financing more available to low-income and first time homebuyers. This is because the mortgage is backed by the full faith and credit of the government, freeing lenders from assuming the risk of default.

Higher FHA loan limits do not cost the government any money because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA-insured mortgage loans.

The Housing and Economic Recovery Act pegs the national conforming mortgage loan limit to a house price index chosen by the new Federal Housing Finance Agency (FHFA). For 2009, the national conforming limit will remain at the current level of $417,000.

The Act says that the new FHA loan limits will be set at 115 percent of the median house price in a given area, as determined by HUD, but can not be lower than 65 percent of the conforming loan limit (the national floor). Also, the FHA mortgage limit cannot exceed 150 percent of the national conforming loan limit (the national ceiling).

Home Equity Conversion Mortgages

The Act also pegs the national mortgage limit for FHA-insured reverse mortgages to the national conforming loan limit. The FHA product known as the Home Equity Conversion Mortgage (HECM) will therefore have a national mortgage limit of $417,000. Unlike the new forward mortgage loan limits, the new HECM loans limits are effective on loans insured or after November 6, 2008. This is the first time that a single limit applies to these mortgages nationwide. As in previous years, the special exception areas of Alaska, Hawaii, Guam, and the Virgin Islands may have higher loan limits. Starting in January 2009 counties in those areas may have loan limits of 115 percent of area median prices, where that amount is above $417,000, up to a ceiling of $625,500.

Reverse mortgages allow homeowners age 62 and older to borrow against the value of their homes without selling them. Homeowners can select a lump-sum payment, monthly payments or tap into a line of credit. No repayment is required as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

HUD will inform mortgage lenders and brokers of the new limits through a mortgagee letter posted on www.hud.gov and www.fha.gov.

HUD is making available comprehensive listings of the new loan limits in all counties throughout country. Downloadable files are available for FHA Forward Loans, FHA HECM loans, and Fannie Mae and Freddie Mac purchases on the HUD website. The limits are determined by the county in which the property is located, except that for properties located in metropolitan statistical areas the limit is determined by the county with the highest median home price within the metropolitan area.

HUD is the nation’s housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation’s fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov.

Nevertheless, I get an email or two every day from consumers and mortgage brokers alike asking me which lenders are taking part in the program. So I would be remiss in not giving out a link to the place where you can find the complete list of lenders who are taking part in the program. The list is updated on Fridays.

So here it is: Hope For Homeowners Lenders List

If anyone has any success (or horror) story about using  the H4H Program, I would love to hear about it.

If you are a mortgage broker, or loan originator, don’t give up on the FHA programs just because these new programs turn out to be a bust. Get some training on FHA guidelines and prepare yourself to help all the new buyers that are going to be coming into the market.

Yet mortgage loans are still being made every day everywhere and in high volume. Borrowers are out in force searching for loan officers who can help them.

Many loan officers trying to survive are concentrating on using the latest FHA loan innovations to try and save the homes of people losing them to foreclosure in these bleak times. A laudable goal, but not a great business plan. Here’s why.

Two primary building blocks of a successful mortgage career are repeat customers and client referrals. These two items are the boost that elevates a mortgage career above the daily grind of prospecting. Unfortunately, building a business around rescuing borrowers in foreclosure does not lend itself to either of these. Experience shows that once a borrower is in foreclosure, even if rescued the first time, they usually end up back there with worse credit and a more difficult situation. In addition, due to endless guideline changes and processing hassles for this type loan from both HUD and lenders, the process is usually intensely stressful and not conducive to creating referral business except by luck. And who wants to bet their future in the mortgage industry on luck at this point?

Here are 5 simple tactics loan officers can use to survive in today’s tough mortgage market.

1 - Master FHA guidelines and best practices

• Get education on the basic FHA programs. Reading the HUD manuals won’t get the job done. They are horribly organized and very confusing. Find a good, well organized reference manual and study it in your spare time. This alone will put you head and shoulders above most of the mortgage originator crowd which is fumbling around and irritating their underwriters with their lack of knowledge and common sense.
• Learn the rules of the Streamline 203(K) Program. This allows your customers who want to buy a foreclosure home in need of repair without worrying about breaking the bank trying to fix the house up, or worse simply not being able to buy that home.
• Get your hands on an organized, well thought out system for rapidly and accurately qualifying borrowers, verifying information, and getting preapprovals for your potential borrowers and their real estate agents. The loan officer with the best system gets the deal done quickly and with fewer mistakes or problems. This creates a referral machine that can’t be stopped.

2 - Affiliate yourself with a well known, well established local FHA lender if possible. Unless you have substantial experience originating FHA loans and maintaining your office in compliance with all the guidelines, give up on trying to be a one man shop keeping 100% of the commissions generated. You will end up keeping more money in your pocket with a strong organization behind you.

• “Net Branches” with 100% commission splits for loan officers and no local supervision are going to increasingly find themselves on the regulatory radar.
• With all the horrible things people have been reading and hearing in the news over the past couple of years, people are very wary of mortgage brokers right now. As a matter of fact, many people believe all mortgage brokers are crooks. A mortgage office with one or two loan officers working out of someone’s basement, a hole in the wall in a strip shopping center, or even an executive office suite with a shared receptionist is no longer going to be able to inspire confidence in borrowers. The time has come to decide whether you are fly by night con man, or a professional who truly wants to put your clients in a better position and be paid well for doing it.
• Make sure that wherever you work, you have a very good processor who is extremely well rewarded for doing a good job

3 - Study and master the foreclosure market from both the lender and real estate agent sides of the business. Be the lender with all the answer when agents with no foreclosure experience send you their buyers.

• Learn all about HUD and bank REO bidding processes and the insider tips for effective bidding. Give your borrower the advantage over all the others who are just learning the process.
• Make solid contacts with REO handlers for various lenders so that they trust your prequalifications and possibly even make you aware of properties before they hit the market.
• Learn about every down payment grant program still available in your area. Borrowers will do business with the loan officer who is most knowledgeable about getting them the best terms.

4 - Find out everything you can about effective emotional direct response marketing techniques and learn how to adapt it to your mortgage business. This will help you avoid falling victim to every marketing guru that comes around with the latest greatest bag of tricks. The techniques you need have all been around for ages.

• Study direct marketing techniques and systems until you have above average skills in this respect.
• Once you truly understand how emotional direct response marketing techniques can be applied to building a mortgage business, find a good source for ready made marketing materials you can customize for yourself. Without understanding the correct concepts, picking the best source for marketing materials is nearly impossible.

5 - Build a referral network and work hard at maintaining it.

• Learn the methods that really work to get appointments with and build a network of real estate agents. Hint: Telling them you have the best rates and quickest closings isn’t the way to do it.
• Develop a system to help For Sale By Owners market their properties. You can get many buyer leads for your real estate agent referral partners with this method.
• Don’t use your fancy corporate website for finding new borrowers. It won’t work. You need it for those customers that want to apply online on a professionally set up website, but you need an entirely different type of website to attract customers. They aren’t on the internet to see your list of every type mortgage on earth that you “specialize” in and read your description of how great your company is. They want information about mortgages so they can determine who to trust. Set your website up so that it entices customers to trust you and becomes a part of your “referral” network.
• Use cheap real estate book and classified ads to draw buyers to your website or call capture line in a non-threatening manner. Use the same tactics that work for a website to slowly train them to trust you and build your pipeline of potential prospects.

FHA training is the foundation of a successful mortgage career during the tough times loan officers must still face ahead. These 5 tactics can help build that foundation and set you up for success for years to come.

“I’m absolutely not opposed to people putting money down. For most of my career in the mortgage business, buyers had to put down essentially 5%.

FHA is a self supporting program where the borrowers as a general rule carry their own weight by paying mortgage insurance premiums. They have to prove their ability to make the payments along with whatever payment they may be making on that SUV and those TVs. In addition, every lender and broker who offers FHA loans is held accountable for their default rates. FHA programs aren’t the problem bringing down the credit industry.

With seller assisted DAPs, the borrowers lose some of their ability to negotiate with the seller and end up in the long run funding their own down payment. Unlike the government programs which are being forced as replacements, this down payment assistance doesn’t come directly out of the taxpayers’ pockets.”

Krista Railey, an analyst for ml-implode.com, subsequently posted the following comment in response. You can find the context of her response here, but I will quote it to save you the time:

“I agree with you Carl. These programs create housing inflation and lead to higher default rates. Every single SFDPA program that I look at is ran as a for profit venture without regard for borrowers. I invite you to take a close look at the programs and the individuals behind the programs, and you will likely find a convoluted mess of multiple entities brokering programs. As to providers that do not obfuscate their identity and file IRS 990 returns, the flow of cash from the non profits to for profit entities involving the Officers says it all.

Currently Christopher Russell, Ryan Hill and the Penobscot Indian Nation is suing the ML Implode and myself to remove my documented article regarding their program from my blog and stifle free speech. Needless to say, its a sad day when bloggers get sued to silence criticism- especially on such a controversial issue as seller-funded down payment grants.

DownpaymentOutfitSuesMLImplodeInEffortToSilenceCr.html

If H.R. 6694 passes, it will be a travesty against FHA and the Taxpayers and will create higher home prices, higher defaults, and higher mortgage insurance costs for borrowers that save their down payment.

In fact, some buyers who save their down payment and are ready for homeownership will be displaced entirely just so some buyers can purchase before they are ready.

Representatives Maxine Waters (D-CA), Al Green (D-TX), and Gary Miller (R-CA) are selling out to trade groups and special interest while ignoring the fact that housing inflation and inflation overall is a greater threat to the housing market than whether buyers without down payments can purchase homes.”

Krista has misunderstood my original post which was actually made in support of bringing back seller assisted down payment programs, however her own post she links to makes some excellent important points and brings many issues to the table that I would like to comment on. Some issues that have been bothering me for quite some time.

I have covered in great detail elsewhere on this site the reasons why I feel that seller assisted down payment assistance is NOT, inherently, the significant source of FHA defaults that its critics think.

Here is a short list of just some of those reasons.

• The raw numbers used by HUD to document this increased default rate are significantly inaccurate.
• The study used by HUD to document the higher default rate of DAPs does not adjust for the higher levels of fraud which exist in the areas included in the study. Fraud which was most likely intricately but not inherently associated with transactions involving down payment assistance.
• Defaults are much more closely associated with areas experiencing rapidly decreasing values caused by foreclosures unrelated to FHA loans than they are to lack of down payment.
• Lender analysis has shown that when seller assisted DAPs are not combined with high debt ratios or unjustified bad credit or lack of previous housing payment history then default levels are comparable to loans without down payment assistance.

In other words, in my opinion the difference between a borrower making no down payment or a 3.5% percent down payment is not a significant factor in the desire of that borrower to fight and scrape to prevent default and keep their home when the going gets tough. Now a 20% or even a 10% down payment might be a greater incentive for that struggling borrower, but it is naive to think that 5% or less down payment makes a significant difference as long as the borrower had the real capacity to repay the loan in the first place. I believe that mortgage fraud is the most significant factor in the difference between default rates on loans with seller assisted down payment programs and loans with other types of down payment assistance.

Krista points out in her article that there is a definite “correlation” between increased use of seller assisted down payment programs and increased FHA default rates. I am far from an expert on the subject, but one of the first things learned when studying statistical analysis is that correlation is not the same thing as causation. The increase in defaults is also associated with higher rates of job loss and dislocation, higher gas prices, and of course, falling real estate values. As far as I can tell, increases in FHA default rates follow the same pattern in the same areas as all other types of loan defaults.

I agree with Krista that these programs are a cause of some inflation in real estate values. However, by that reasoning FHA should do away with seller assistance for closing costs as well, or taken to its logical conclusion we should get rid of FHA altogether. Any program which makes it easier for people to buy homes is going to contribute to price inflation.

Aside from HUD’s very successful loss mitigation program, one of the greatest advantages in terms of default rates that FHA loans possess is that the underwriter theoretically analyzes the reasons why bad credit occurred and why that situation is unlikely to happen again. In other words, the underwriter determines that the borrower has corrected whatever personal situation contributed to their past credit problems.

Subprime loans, on the other hand, have never required such analysis. Subprime lenders ended up giving loans for 100% of the value of the home as long as you had a paltry 580 credit score (sometimes even lower) and a certain number of credit lines showing on the credit report - regardless of the reason for the bad credit or whether the problem still existed. These loans vastly outnumbered FHA loans during the real estate boom and, I believe, far outdistanced seller assisted down payment programs in causing higher real estate prices.

Now, after all that seemingly enthusiastic defense of seller assisted down payment programs, I must say that some of Krista’s comments and concerns combined with information I have gleaned elsewhere have convinced me that there is a better way to achieve the FHA goal of helping those unable to meet conventional lending guidelines. Those who just don’t have the capacity in today’s economy to save up a significant down payment.

One of the reasons I have now changed my opinion is pointed out in Krista’s article. Non-profits have a surprising tendency to be associated with abuse from within the ranks. I won’t go into details here but hers is not the only report I have seen of abuses and strange flows of cash from the participants. Even from the top most well respected participating non-profits. And definitely from the swarm of non-profits that aren’t in the limelight, but are owned or controlled by home builders or mortgage lenders. All this aside from the fact that the first gut  reaction any mortgage originator or real estate agent with long experience has to these programs is to wonder why an action that would be regarded as mortgage fraud if the seller did it directly suddenly becomes “clean” when laundered through a non-profit agency. I believe this creates an aura around the transaction which contributes to a lack of respect for the rules.

Sure, I could tell you that the answer to this is simply to have the non-profits monitored more closely, but why bring in more inefficient regulators if there is another solution to the problem of getting buyers into homes. And I think there is.

There is also the problem of the increased mortgage fraud which tends to be associated with these programs. I believe this is primarily caused by the ease iwith which the seller and buyer can access the down payment money involved. Without these programs house flippers and other fraudulent sellers would either have to actually give straw buyers their down payment money two months in advance of closing the transaction, or would have to fraudently support the existence of the money with faked bank account statements. Why take those risks when it can all be done at the closing table with a paltry $500 or less in extra costs?

After a great deal of thought and analysis, I have come to the conclusion that the answer to these problems lies in one of the original FHA Modernization proposals. That answer is to lower the buyer contribution to 1.5% of the sales price. This amount is enough to show that buyer has at least a small amount of flexibility in their budget and ability to save, while not punishing those the FHA program exists to help in the first place. I also don’t believe that there would be any significant increase in defaults between a 1.5% down payment and a 3.5% down payment as long as other underwriting standards were maintained and layered risk was considered by the underwriter. This would also substantially increase the risk of discovery for those fraudulent house flippers who were endangering the FHA program through the use of seller assisted down payment programs in combination with mortgage fraud and thus make a significant dent in another problem weighing down the FHA program.

So, the answer to the question I asked in the title to this article is “Yes”, but not for any of the reasons HUD used as justification for banning the programs. I look forward to hearing other opinions on this and would like to thank Krista Railey for inspiring me to re-examine this issue.

But they aren’t the only game in town.

There are literally thousands of federal, state, county, local and charity based grant programs available all over the country. During the last few real estate boom years, sellers had no patience with waiting while potential buyers jumped through all the hoops necessary to qualify for these programs, but times are different now. Those sellers who once had no patience have now had their home for sale by owner, listed and expired with 3 different real estate agents and on the market for over a year. They will jump at any buyer they can get and do whatever they can to help sell that buyer their home. They will now wait 45 days for a buyer to get qualified for down payment grants.

Just a quick glance at some programs available in my own immediate area gives a good example of what is available in other areas.

In Dekalb County, GA the DeKalb County Community Development Department has the DeKalb County First-Time Homebuyer Program will give first time buyers up to $8000 if they meet income requirements and go through a counseling program.

Those same buyers may be eligible for as much as $5,000-$20,000 in additional funds through the Georgia Dream Homeownership program, under the Georgia Department of Community Affairs.

In Northeast Georgia, the Community Foundation for Northeast Georgia, the IMPACT! Group, The Brand Banking Company and a network of local builders are partnering to form the Northeast Georgia Down Payment Assistance Program for consumers who buy certain homes in Northeast Georgia. Many other local banks will be following suit. They need the builders to pay back their construction loans.

The National Association of Realtors provides a resource for locating local down payment assistance programs on their website. Their site is being updated in response to this situation and will be down until October 8, 2008.

There are many other similar programs all over the country. Some of them provide outright grants and others provide second mortgages which must be paid back upon selling the home. For FHA loans, the grant programs are the ones you are looking for.

Here is a quick breakdown of some of the specifics.

Borrowers are eligible for the program whether they are current or delinqent on their mortgages provided that:

• they have not intentionally defaulted on their mortgage or any other debt.
• they have made a minimum of 6 full payments on their current loan.
• the home is their primary residence and they have no interest in any other property.
• they cannot have been convicted of fraud under state and Federal laws in the last 10 years.
• As of March 1, 2008, the borrower’s aggregate total monthly mortgage payment debt-to-income ratio (DTI) on all existing mortgages must be greater than 31 percent of the borrower’s gross monthly income.

The mortgage being refinanced must have been originated on or before January 1, 2008 and the present lender must:

• Waive all prepayment penalties and late payment fees (including insufficient funds fees) on the mortgage.
• Agree to accept the proceeds of the new H4H mortgage as payment in full
• Release their outstanding mortgage liens.

Any type of mortgage is eligible for refinancing under the H4H Program, including conventional (prime, Alt-A, subprime) or government-backed (FHA, VA, or Rural Development), fixed-rate or an adjustable rate mortgage.

The Upfront Mortgage Insurance Premium (UFMIP) is 3.00 percent of the base loan amount (loan amount excluding UFMIP) regardless of the loan-to-value (LTV) ratio.  The Annual premium (collected monthly) is 1.50 percent of the base loan amount.

The amount of the H4H mortgage may not exceed a nationwide maximum mortgage limit of $550,440.  The LTV of the H4H mortgage is limited to 90 percent of current appraised value of the property, including the UFMIP.

As a condition of the H4H mortgage, the borrower must share with HUD a portion of the initial equity, which is defined as the difference between the appraised value at the time of H4H loan origination  and the original principal balance on the H4H mortgage. Example:  Appraised value is $200,000.  Maximum loan to value on a H4H mortgage is 90%, or $180,000.  The equity amount that would be stated in the SEM is $20,000.

In the event of refinance, sale or other disposition, HUD will receive the following percentage of initial equity:

• During Year 1  100% of equity is paid to FHA
• During Year 2    90% of equity is paid to FHA
• During Year 3    80% of equity is paid to FHA
• During Year 4    70% of equity is paid to FHA
• During Year 5    60% of equity is paid to FHA
• After Year 5      50% of equity is paid to FHA

I haven’t run any actual numbers, but my own immediate impression is that if I were one of the homeowners that qualified for this program I would give it a quick “Thanks, but no thanks!” Most people won’t be in their homes long enough to make this deal with the devil worth it.

For the full text of HUD’s guidance for loan originators, click here.

Mortgage applications have dropped precipitously over the last few weeks for other reasons, so it will be interesting to watch how the ban will affect home sales if it lasts very long. Although we do need to let the air out of this real estate/credit bubble, watching people hurt financially due to all this uncertainty in the mortgage market is painful for everyone.

As would be expected, detractors of the down payment assistance programs were out cheering today, while supporters were touting a recent report from the Congressional Budget Office on “The FHA Seller-Financed Downpayment Reform and Risk-Based Pricing Authorization Act of 2008″ (H.R. 6694) which reportedly confirms that seller-financed DPA will generate $65 million over the next five years and save taxpayers $13 million next year.

Although the behind the scenes deal that had been arranged to save down payment assistance programs like Nehemiah, Ameridream and Futures was pushed to a cold back burner due to the current credit market crisis, word on the street is that it will be discussed again once a bailout bill has been worked out.

Streamline 203K loans can be used to finance many different types of repairs and improvements. Many originators are surprised by some of the repairs that are eligible to be financed.

Here is the list of eligible repairs and upgrades:

• Repair/Replacement of roofs, gutters and downspouts
• Repair/Replacement/upgrade of existing HVAC systems
• Repair/Replacement/upgrade of plumbing and electrical systems
• Repair/Replacement of flooring
• Minor remodeling, such as kitchens, which does not involve structural repairs
• Painting, both exterior and interior
• Weatherization, including storm windows and doors, insulation, weather stripping, etc.
• Purchase and installation of appliances, including free-standing ranges, refrigerators, washers/dryers, dishwashers and microwave ovens
• Accessibility improvements for persons with disabilities
• Lead-based paint stabilization or abatement of lead-based paint hazards
• Repair/replace/add exterior decks, patios, porches
• Basement finishing and remodeling, which does not involve structural repairs
• Basement waterproofing
• Window and door replacements and exterior wall re-siding
• Septic system and/or well repair or replacement

Here is the list of improvements which are ineligible for financing with a streamline 203k loan:

• Major rehabilitation or major remodeling, such as the relocation of a loadbearing wall
• New construction (including room additions)
• Repair of structural damage
• Repairs requiring detailed drawings or architectural exhibits
• Landscaping or similar site amenity improvements
• Any repair or improvement requiring a work schedule longer than three (3) months; or Rehabilitation activities that require more than two (2) payments per specialized contractor. That would necessitate a “consultant” to develop a “Specification of Repairs/Work Write-Up”
• Improvements which require plans or architectural exhibits
• Improvements which require a plan reviewer
• Improvements which result in work not starting within 30 days after loan closing; or cause the mortgagor to be displaced from the property for more than 30 days during the time the rehabilitation work is being conducted. (FHA anticipates that, in a typical case, the borrower would be able to occupy the property after mortgage loan closing)

When borrowers need repairs or improvements from this second list, a regular FHA 203K loan would be required.

In the next segment we will cover how the FHA Streamline 203K process works.

In 2005 HUD came up with a new FHA insured mortgage program they called the “Streamline (K)” Limited Repair Program. The Streamline 203k loan permits homebuyers and those refinancing to borrow up to an additional $35,000 into their mortgage to improve or upgrade their home.

Most loan officers go looking for a special set of guidelines for Streamline 203k loans. There are some specialized guidelines and loan to value rules, but the key thing to remember is that all standard FHA underwriting guides apply just the same way they for any regular FHA loans when it comes to credit, income and asset documentation. This includes decisions reached by both automated underwriting systems and manual underwrites.

Here are the general criteria for a deal to qualify for Streamline 203k:

• May be used for purchase or refinance of one-to-four (single family) residences, including HUD REO properties
• May be either fixed or adjustable rate mortgages
• Combines the funds to purchase or refinance (pay off existing liens) along with the funds needed to repair/rehabilitate the property. Repairs are completed after closing. (NOTE: Cannot do a Cash-Out Refinance)
• One closing, with rehabilitation funds escrowed and disbursed as the work is satisfactorily completed
• Can be used to update homes, correct health and safety issues, pay for higher cost items such as a roof, etc.
• Property value must be sufficient to purchase/refinance and complete the rehabilitation
• Property must be 100% complete or equivalent document and must be at least one (1) year old. (EXCEPTION: Presidentially declared disaster areas for one (1) year after the disaster)
• Borrower and credit eligibility same as for other programs (No Investors, including REO sales)

Here are a few additional aspects of the Streamline 203k:

• No minimum borrowing threshold, but there is a maximum of $35,000, which must include a 10% contingency fund
• Appraisal is completed as “Subject To Repairs”
• A minimum 10% Contingency Fund is required
• Unlike regular 203k’s no consultant and plan is required
• No general contractor is required
• The lender is responsible for ensuring that the repair cost is reasonable and customary for the area in which the property is located
• No preparation of architectural exhibits (as required in HUD Handbook 4240.4 REV-2, Paragraph 3 – 2) is necessary
• Streamline 203k helps address the repair issues that are often delaying or preventing sales and refinancing

Obviously there will be some differences between regular FHA and streamline 203k when the time comes to calculate the maximum mortgage amount.

Here is how the maximum Streamline 203k mortgage amount is calculated:

The lesser of:

A. The maximum (statutory) mortgage limit for area
B. The “As is” value (usually the purchase price or outstanding debt in case of a
refinance transaction) plus cost of rehabilitation
C. 110% of “After Improved” value; Condominiums are limited to 100% of “After Improved” value.
D. If the borrower has owned the property for less than one year, the acquisition cost is the maximum.

Only a handful of lenders are taking in loans under the full FHA 203k guidelines, but many FHA lenders are offering the streamline version.

In Streamline 203K FHA Loans - The Basics Part 2 we’ll cover some of the specific repairs that are allowed (or not allowed) in order to qualify for the FHA Streamline 203k program.