Blog of the Mortgage

FHA Spot Approvals Here until: Until February 1st

December 23rd, 2009 8:10 AM

For Months now HUD & FHA have been trying to figure out what to do with the the last remaining "Hot Potato" in the housing industry.
Condominiums.

No one likes to lend on them, FNMA stopped issuing project approvals 3+ years ago. FHLMC was never really that well positioned to underwrite them either.
Most of the MI Companies today won't insure a Condo at all.
FHA has had the spot approval process because many builders in many states didn't bother with project approval as the loan limits for FHA were too low for their projects.
Simply Put Condo's are tough to finance today.
Considering how many of them were built in many of the worst states for housing, I suppose its no surprise that this has happened.
Now however Condo's have fallen so far in price that there are truly deals to be had for first time buyers.
Low maintenance, typically lower priced, close to Urban Centers and transportation etc.
About the only thing wrong with Condo's is that there is a huge supply of empty units.
Many of you have figured out that gaining an FHA spot approval is a great tool to close a handful of additional loans per year.
Many are afraid of this process and my Company is one of the few out there that offers them (only up to $417k Base Loan amount).
The limiting factors have always been:
Minimum 5 units required (to meet 20% rule).
All of this is Changing coming February 1st.
We've seen now the third and final extension of the Spot Approval process by FHA for Condos.
Here are some of the changes posted in the ML (links posted below):

Condominium Changes ML 09-46B (09-46A waivers and extensions)

Lenders can alternate between HRAP and DELRAP

Spot condos are not eliminated until end of January 2010

Increased FHA concentration levels to 50% and 100% in well-established projects (over 1 yr. from construction).

Pre-sale reqmts for new construction lowered (from 51% to 50%)

Owner-occupancy reqmt lowered (from 51% to 50%): Vacant or tenant occupied REO may be removed from the calculation!

Florida projects still require HUD processing

Reserves study requirement eliminated provided certain reqmts are met

All the currently approved projects will migrate to the new approval list and have an extended re-cert time line.

So what does this mean for you and your chosen lenders?
To the First point on this list (from the ML):
I. Approval Processing Options (HRAP vs. DELRAP):
A. Lenders will have two condominium project approval processing options. The applicable documentation requirements will be the same for each option:
1. HUD Review and Approval Process (HRAP).
2. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.
Under DELRAP, lenders must provide the condominium approval or denial documents to FHA within five (5) business days of final disposition.

This means that any mortgage Banker currently offering spot approvals under investor guides will likely stop offering SPOT approvals all together (My company included).
The reason for that is the assumption of risk on a project by the investor that completes the DELRAP process.

You will find CITI, BofA, Wells and some others all offering Spot approvals to their customers.
The rest of us will only continue to lend ONLY in currently HUD approved projects.
Specifically here's the verbiage that will deter almost every banker away from this business:
I. Mortgagee Liability
Mortgagees who issue condominium project approvals using the DELRAP process are responsible for material deficiencies associated with the project approval and any loan they originate and/or underwrite using the applicable project approval.
Mortgagees who rely upon a condominium project approval issued by another mortgagee are responsible for the loan level certification (Attachment C). With this certification, the lender is confirming that the company has no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent. The lender is also certifying that it has reviewed and verified the condominium project's continued compliance with the initial approval requirements regarding investor ownership, percentage of owners in arrears for condominium association fees, owner-occupancy rate and FHA loan concentration rate, and it certifies that the condominium project continues to comply with FHA requirements.

Some Highlights for Project approval:

V. Project Eligibility Requirements
1. Minimum number of units: Projects must consist of two or more units
4. Commercial Space: No more than 25 percent of the property's total floor area in a project can be used for commercial purposes.
6. Delinquent Home Owners Association (HOA) Dues: No more than 15 percent of the total units can be in arrears

VI. Insurance Requirements
HO-6 Coverage: In cases where the master policy does not include interior unit coverage, including replacement of interior improvements and betterment coverage to insure improvements that the borrower may have made to the unit, the borrower must obtain a "walls-in" coverage policy (HO-6 policy).

V. FHA-to-FHA Transactions
Project Approval is not required for:
a. FHA-to-FHA streamline refinance transactions

At the end of the day, HUD in attempting to relieve themselves of the burden of risk is going to make it much harder for a borrower to obtain a Brokered FHA Condo loan.
I can see local bricks and mortar operations (Wells/Citi/Chase) setting up specialty retails shops dedicated to Condo financing in high concentration areas.
For us in Wholesale though, unless HUD had already approved the project we will not be writing to many more of these loans after February.

Have a great week

Posted by Raoul Badde on December 23rd, 2009 8:10 AMPost a Comment (0)

FHA Delays HVCC for its Appraisals until: February 15th, 2010

December 23rd, 2009 8:30 AM

Back in Mid-September, when we were all getting back in gear after the Summer, HUD came along and Dropped another BOMB on our business.
They had decided to begin the implementation of HVCC (or at least their version of it) Starting with any case numbers assigned as January 1st, 2010.

We all know how wonderfully crappy HVCC has been to our business and how our customers have had increased costs with lower quality work and stubborn appraisers.
There was a collective *GROAN* in our business as we thought about the importance of FHA appraisal work in a transaction and then about the process of getting repairs handled and having an HVCC paid appraiser jump on the work to get completed by COE.
This 21 day escrow environment will have to go to 30-45 days per contract or NO ONE will close on time.

HUD had this to say in it's ML 09-28 about the importance of Appraiser independence:

FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices. In this mortgagee letter, FHA reiterates the importance of appraiser independence:
In order to help appraisers avoid conflicts or the appearance of conflicts, no members of a lender's loan production staff or any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender not independent of the loan production staff and process, shall have substantive communications with an appraiser relating to or having an impact on valuation, including ordering or managing an appraisal assignment.

Good Grief!
Well, Yesterday, HUD delayed the HVCC roll out until February 15th, 2010 (case numbers assigned).
here's the Body of the Mail:

Delayed Implementation Date for New Requirements in ML 2009-28

Enactment of ML 2009-28, Appraiser Independence, will be delayed until February 15, 2010. ML09-28 (originally planned for a January 1, 2010 implementation) has two parts: a) prohibition of mortgage brokers and commission-based lender staff from the appraisal process, and b) appraiser selection in FHA Connection. The effective date for both sections of this guidance will now take effect for all case numbers assigned on or after February 15, 2010. This extension will provide FHA and lenders additional time to adjust systems to accommodate the changes.

Detailed instructions on changes to FHA Connection will be issued in a new mortgagee letter. However, lenders should be aware that the requirement for inputting the appraiser ID and the appraisal assignment date in the FHA Connection case number assignment screen will be removed. Instead, lenders will be required to enter all appraisal data, including the appraiser ID, in the Appraisal Update Screen once the completed appraisal is received by the lender and prior to closing the loan.

Delayed Implementation Date for ML 2009-51

ML 2009-51, Adoption of the Appraisal Update and/or Completion Report, states an effective date of January 1, 2010. The effective date is being extended and will now apply to all case numbers assigned on or after February 15, 2010. This extension will provide additional time needed by FHA and lenders to adjust their systems to accommodate use of the form.

So... Merry Christmas to you from HUD! Get those case #'s registered STAT and enjoy the rest of your Holiday week.

Have a great week!

*********************

Have a great Winter Selling season.

Posted by Raoul Badde on December 23rd, 2009 8:30 AMPost a Comment (0)

Tax Credit/Mortgage Limits for 2010 & FHA Changes Licensing Rules???

December 23rd, 2009 8:08 AM

As you now know, or as of this E-mail you now Know:
The President signed into law the Extension of the Tax Credit for First Time Home Buyers, it now includes Move-up buyers as well (a Major Update). The loan limits we've had for the last 2 years are extended as well until the end of 2010.. one more year of much better priced quasi-jumbo loans.
The good thing of course is that home prices keep falling so more and more "high-end" properties will fit into this "Jumbo Conforming/High Balance" Product bucket then ever before especially in tandem with the possibility for $6500 refunded toward closing costs. A .60% to 1.5% Credit of loan amount isn't a bad offset under ANY circumstance.
Let's do some BIG LOANS next year. :)

Of course there are always two sides to the story so here's a link to what the I-Banks think about tax credits and Home Prices over the long term. Click Here:

Here's the update from our Potomac Partners:
Tax Credit
The President signed the unemployment extension bill today which includes the extension and expansion of the tax credit. Attached are FAQs prepared by NAR on important operational questions.
The tax credit provision remains the same.

First-time home-buyers will continue at $8,000

Tax credit for "move up" purchasers will be up to $6,500

Must have used previous home as a principal residence for 5 consecutive years of the previous 8.

Income limits increased and are the same for first-time and "move up" purchasers: $125,000 for single filers/$225,000 for joint filers

Limitation on eligible home prices has been increased to $800,000

Time Frame: December 1, 2009 to April 30, 2010 plus 60 day extension if binding contract is in place by April 30, 2010

Anti-fraud measures have been added

Here's the Link to the Unemployment Bill: Click Here:

BIG CHANGES COMING ON FHA LICENSING:

Here's some news that you may or may not have been aware of coming down the pipe...

HUD/FHA under Secretary Steven's Guidance is making some pretty radical changes in their style an underwriting guidance. We're seeing some of that with the New Streamline requirements limiting loan amounts and requiring income/asset documentation.

There is more to follow in that realm to be sure.

The BIG news though is that HUD is very close to eliminating entirely the need for FHA Licensing and Audits for ALL Mini-Eagle (brokers, small correspondents funding under on a Captive Line etc.) Licencees.

THIS will really open the door to FHA origination across the board, although personally I don't know how much of a good thing this is for our business.
It's been hard enough for most to even obtain their FHA Approval up to now and then maintaining it beyond that.

HUD Maintains that their rule for the $63.5k minimum networth requirement is too low in today's environment.
There's not Enough "Skin in the Game". HUD would also like to expand the opportunities for consumers and feels that there are not enough options available for consumers today in total. We'll see what happens in the coming month or so.

Here's more from our Potomac Partnerson this process/rule change.

FHA Mortgagee Approval Changes - The proposed rule eliminating FHA approval of mortgage brokers has cleared OMB and now will be sent to Congress for the formal 15 day review prior to publication.

The rule may become public while in the Congressional review process since documents are frequently leaked during this review process.

The rule could be published in the Federal Register by the end of November. The rule will likely have a 30-60 day comment period which means it could not be finalized until February 2010 at the earliest. We do believe that FHA will consider comments before making a final decision.

Have a great week!

Posted by Raoul Badde on December 23rd, 2009 8:08 AMPost a Comment (0)