FHASecure Guidelines Released

Thursday, September 6th, 2007 at 11:31 pm By Carl Pruitt

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On September 5, 2007, HUD released Mortgagee Letter 2007-11 giving guidance for lenders to implement the FHASecure initiative.

Here are the highlights of the eligibility requirements:

The mortgage being refinanced must be a non-FHA ARM that has reset.
The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments, i.e., the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.
If there is sufficient equity in the home, under additional eligibility instructions provided, FHA will insure mortgages that include missed mortgage payments.
Under certain conditions, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits.
Mortgagees must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

Maximum FHA loan to value ratios

The maximum loan to value limits are shown below and are applied to the appraisers estimate of value, exclusive of any upfront mortgage insurance premium.

For States with Average Closings Costs At or Below 2.1 Percent of Sales Price:

98.75 percent: For properties with appraised values equal to or less than $50,000.
97.65 percent: For properties with appraised values in excess of $50,000 up to $125,000.
97.15 percent: For properties with appraised values in excess of $125,000.

For states with Average Closings Costs Above 2.1 Percent of Sales Price

98.75 percent: For properties with appraised values equal to or less than $50,000
97.75 percent: For properties with appraised values in excess of $50,000

Calculating the Maximum FHA Mortgage Amount

The amount of the FHASecure mortgage may not exceed either the geographical maximum mortgage limits or the loan to value ratios shown above. FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount.

Subordinate Financing Under the FHASecure Initiative

If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate lien may exceed the applicable FHA loan to value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Borrowers need not yet have missed any mortgage payments to be eligible for this type of subordinate financing.

More information tomorrow on the specifics of qualifying the borrower.