The FHA Solution

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The FHA Solution

• New Loan Limits Reform
• For 2008

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Todays Topics

• Credit Crunch
• Current Lending Landscape
• Historical Perspective
• The 2008 Economic Stimulus Package I II
• New Loan Limits
• FHA Modernization
• Differences between FNMA and FHA
• FHA Loan Types
• Eligible Properties/Condo Issues
• Property Considerations and FHA lending
• Property Inspections and FHA Lending
• Writing the Contract with FHA Lending

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Housing Meltdown Why home prices could drop 25
more on average before the market finally hits
bottom BusinessWeek January 31st, 2008
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The 2008 Lending Landscape

• Jumbo Secondary Market Seized up
• Declining Values-Reduced LTVs
• FNMA FHLMC Charging New Fees
• Private Mortgage Insurance More Expensive
• Stated Income No More
• ALT A Subprime Lending Halted
• Seconds vanishing
• 100 Financing almost Non-Existent

SIMPLY PUT Buyers must qualify and have a down
payment.
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Historical Perspective

• In the 1930s, mortgages in default reached 50,
  after a period of prosperity and easy lending,
  IOs, short term balloons, the assumption of
  rising house prices and the firm belief in easy
  refis sound familiar?
• Three institutional creations of the 1930s,
  involving government guarantees, helped stabilize
  the market then, and the expanded use of each
  will aid in this turn around as well.
• They are
• FHA (The governments own subprime mortgage
  credit provider)
• Fannie Mae (originally created to buy FHA
  loans-but since expanded)
• Federal Home Loan Banks-Providing large loans to
  financial institutions-Recently 50 billion to
  WAMU, 50 billion to Countrywide and 100 billion
  to Citigroup

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Congressional help is on the way with The 2008
Economic Stimulus I and The Omnibus Housing
Bill Bring your Passion to this Opportunity!
FHA
Calling all Heroes!
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Economic Stimulus I

• Get Money circulating
• Tax Refunds
• Temporary lift on Conforming loan limits
• Temporary lift on FHA loans

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How high did they go?

• FNMA, FHLMC and FHA to 125 of Area Median to a
  max of 729,750 in High Cost Areas.

New Economic Stimulus I Loan Limits
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Omnibus Housing BillEconomic Stimulus II

• FHA Modernization
• Higher FNMA/FHLMC/VA to 625,500 permanently
• Tax Credit of 7,500 for first time buyers
• Foreclosure rescue program (300 billion in loan
  guarantees for troubled loans)
• GSE Reform (New regulators for Fannie Freddie)
• Liability protection for servicers making loan
  modifications
• 12 month moratorium on FHA risk based premiums

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FHA Modernization

• Permanent limit to 115 of median to 625,500
  kicks in January 01, 2009
• 3.5 Cash Investment-loans
• Seller-funded DPA to end 10/1/2008
• Easier Condo approvals
• HECMs OK for purchases for seniors

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Why FHA vs. FNMA/FLMC?

• Fannie Freddie

• FHA

• 3 Down
• Max Financing OK-Declining Value Areas
• 6 seller contribution
• Gift OK for 100 of down payment
• Non-Occupant Co-Borrowers OK with true blend of
  income/debt
• Scores down to 620 no adjustment to rate
• Non Traditional Credit OK
• 2 years from Discharge of Ch 7 BK, 1 yr Chapter
  13, and 3 years on foreclosure

• 10 Down
• LTV restrictions-Declining Value Areas
• 3 gt 90 LTV
• Gift for 100 not OK until 20 down
• Not Allowed at higher loan to values occupant
  must nearly qualify
• Scores below 720 charged higher rates/Higher PMI
  lt660
• Not Allowed
• 5 years from Discharge of BK and 7 years on
  foreclosure

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Not your Fathers FHA

• Old FHA

• New FHA

• As is appraisals allowed for minor property
  defects
• Industry standard appraisal requirements
• Termite, well and septic inspections no longer
  mandatory
• All closing costs can be paid by buyer
• New FHA Total AU engine allows higher ratios

• All structures on the property had to be termite
  cleared
• VC Sheets (appraisal conditions)
• Were always required on every structure on
  property
• Many closing costs could not be paid by borrower
• Qualifying Ratios 31/43

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Available FHA Programs203b for Single Family
234c for Condos

• 30 15 year fixed
• 1 year Adjustable with 1/5 caps, 2.25 margin,
  qualify at 1 over start loan gt 95
• 3 5 year Hybrid Arm with 1/5 caps, qualifies at
  start rate
• 7 10 year Hybrid Arm with 2/6 caps, qualifies
  at start rate
• Buydowns are available-Qual at Note rate
• No Stated Income and No Interest Only options
• No First Time Home Buyer requirement
• No Income Limits

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Maximum LTVs in California

• For SP lt 50,000 98.75 LTV
• For SP gt 50,000 up to 125,000 97.65 LTV
• For SP gt 125,000 97.15 LTV

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Mortgage Insurance prior to 7/14/2008

• UFMIP (one time)

• Annual MIP (paid monthly)

• 1.5 of the Base Loan Amount
• Can be financed in the loan amount
• Percentage Refundable for up to 3 years if buyer
  refis into another FHA loan

• .5 monthly based on base loan amount on 30 year
  loans
• Required at all LTVs regardless of amount of down
• Automatically drops when loan reaches 78 of
  original purchase price 5 year payment history

Hud announced new Risk Based Premiums implemented
7/14/2008
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Congress says Hold it! 12 month moratorium on
Risk Based Premiums, effective 10/01/2008. New
Bill says HUD cannot base premiums on credit
score. They can, however, base premiums on
product type or LTV. FHA will announce a new
across the board premium structure to be
implemented on or after October 1st, details yet
to be announced.
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Investor loans

• Generally HUD does not insure Investor loans
• Makes exceptions on HUD REOs
• Allows Investors to assume FHA loans on HUD REO
  properties
• Allows streamline refinancing of a loan
  originally purchased as owner-occupied, but
  presently used as a rental

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Allowable Property Types

• Single Family Residence
• 2-4 Multi Family as primary residence
• Town Homes/PUDs
• Condominiums-Require HUD project approval-can do
  Condo Spot Approvals with the following
• 51 Owner Occupied
• 90 project presold
• No Litigation
• No more than 10 already HUD insured project gt 30
  units and 20 project lt 30 units
• Cannot have been previously approved/rejected by
  HUD

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FHA Disclosures with the Contract
AMENDATORY CLAUSE
It is expressly agreed that notwithstanding any
other provisions of this contract, the purchaser
shall not be obligated to complete the purchase
of the property described herein or to incur any
penalty by forfeiture of earnest money deposits
or otherwise unless the purchaser has been given
in accordance with HUD/FHA or VA requirements a
written statement by the Federal Housing
Commissioner, Department of Veterans Affairs, or
a Direct Endorsement lender setting forth the
appraised value of the property of not less than
__________________. The purchaser shall have
the privilege and option of proceeding with
consummation of the contract without regard to
the amount of the appraised valuation. The
appraised valuation is arrived at to determine
the maximum mortgage the Department of Housing
and Urban Development will insure. HUD does not
warrant the value nor the condition of the
property. The purchaser should satisfy
himself/herself that the price and condition of
the property are acceptable.
REAL ESTATE CERTIFICATION We, the borrower,
seller, and the selling real estate agent or
broker involved in the sales transaction certify
by our signatures below that the terms and
conditions of the sales contract are true to the
best of our knowledge and belief, and that any
other agreement entered into by any of these
parties in connection with this real estate
transaction is part of, or attached to, the sales
agreement. Borrower Date_________________________
_______ Borrower Date____________________________
____ Seller Date_________________________________
__ Seller Date___________________________________
Listing Agent __________________________________
Selling Agent__________________________________
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Property ConsiderationsRepair Inspection
Requirements
FHA has shifted from its historical emphasis on
the repair of minor property deficiencies and now
requires repairs for those property conditions
that rise above the level of cosmetic defects or
normal wear and tear. Repair Requirements FHA
now permits an as is appraisal for existing
properties when minor property deficiencies,
which result from deferred maintenance and normal
wear and tear, do not affect the safety of the
occupants or soundness of the property.
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• Examples of minor property conditions that
• no longer require automatic repair
• Missing handrails
• Cracked or damaged exit doors that are otherwise
  operable
• Cracked window glass
• Defective paint surfaces in homes constructed
  post 1978
• Minor plumbing leaks (such as leaky faucets)
• Defective floor finish/covering (worn through the
  finish, badly soiled carpeting)
• Evidence of previous (non-active) termites where
  no evidence of unrepaired structural damage
  exists
• Rotten or worn-out countertops
• Damaged plaster, sheetrock or other wall and
  ceiling materials in homes constructed post 1978
• Poor workmanship
• Trip hazards (cracked or partially heaving
  sidewalks, poorly installed carpeting)
• Crawl space with debris and trash
• Lack of an all weather driveway surface

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• Examples of property conditions that may
  represent a risk to the health and safety of the
  occupants or the soundness of the property and
  will require automatic repair
• Inadequate access/egress from bedrooms to
  exterior of home
• Leaking or worn out roofs (if 3 or more layers of
  shingles on leaking or worn-out roof, all
  existing shingles must be removed before
  re-roofing)
• Evidence of structural problems (such as
  foundation damage caused by excessive settlement
• Defective paint surfaces in homes pre-1978
• Defective exterior paint surfaces in homes
  constructed post-1978 where the finish is
  otherwise unprotected

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Inspection Requirements

• FHA no longer mandates automatic inspections for
  the following items
• Termites inspection required only if evidence of
  active infestation
• Well test required if mandated by state or local
  jurisdiction, within ¼ mile of coal mining, dry
  cleaning, landfill, factory, etc. Or, water has
  objectionable taste or smell (if feasible to
  connect to public-Hud requires-3 of value)
• Septic test if evidence of system failure or
  mandated by local jurisdiction
• Flat and/or unobservable roof
• Examples of conditions requiring automatic
  inspection
• Standing water against the foundation
• Hazardous materials on the site
• Faulty or defective mechanical systems
  (electrical, plumbing or heating)
• Evidence of possible structural failure
  (settlement or bulging foundation wall)

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Other Contract Considerations

• No additional time needed for close of escrow due
  to FHA financing-however bank owned properties
  can take longer
• Seller or Buyer can pay any of the closing costs
• Seller can contribute up to 6 toward recurring
  or non-recurring closing costs-cannot exceed
  actual
• All sales concessions, gifts, down payment
  assistance, should be noted on contract and all
  financing data reported to the appraiser

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We started the year playing Musical Chairs..
And now, we are in the third quarter of
Survivor! Team up with a good HUD approved
Mortgage Broker in 2008!
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Loan Approved!