August 8th, 2008 1:29 PM

First I'm going to let you know about a likely HUD Mortgage Letter (ML) coming in the very near future. After FNMA issued their letter on the Lateral Mover (08-16) requiring 30% equity and 6 months of combined PITI etc. We all knew that under FHA rules this was not required.
A number of my competitors have adopted these FNMA requirements for the FHA loans right now. Franklin American HAS NOT.
It looks very likely that HUD will be issuing a similar letter on these Lateral Mover's (FNMA is calling them effectively "Buy & Bail"). Just a heads up.

From Potomac Partners:

Latest Information

· FHA hopes to publish the Notice announcing the new premium structure next week for loans w/ case numbers assigned on or after October 1st. They confirmed that loans in process will follow premium structure in place when case number was assigned.
· FHA hopes to publish the mortgagee letter on the new cash investment requirement (3.5%) in the next 30-60 days. FHA expects the new cash investment requirement to be effective on January 1st. FHA did not say what would be the trigger (i.e. case numbers, sales contracts, etc.).

• FHA confirmed that the LTV/closing cost calculations in the existing law are eliminated.
• FHA will use the lesser of appraised value/sales price to determine the maximum loan amount.
• FHA expects to publish a new mortgagee letter on “buy and bail” loans in the next couple of weeks.
• FHA’s instructions will place underwriting restrictions on the purchase of properties using FHA financing w/ the intention of renting out the existing home.

HUD has provided Frequently Asked Questions (FAQs) about the legislation on the www.fha.gov website.

They have also provided a fact sheet for the “Hope for Homeowners” program (i.e. foreclosure avoidance) at the following link.http://www.hud.gov/fha/home080730.cfm

Below is information that we provided last week that has been updated based on the latest information.

· Down payment calculation & minimum cash investment

The loan-to-value (LTV) ratio value will be capped at 100% of the lesser of appraised value/sales price. The mortgage insurance premium must now be included in the 100%. (Previously the MIP was added to the maximum loan amount.) The borrower must have a 3.5% investment from cash or an acceptable gift. The combined LTV (CLTV) can exceed 100% for state and local financing programs.

For example, on a property with a $100,000 appraised value (lesser of appraised value or sales price), the borrower would be required to have $3,500 in cash or an acceptable alternative (gift or government financing). As long as the borrower meets the cash investment requirement, there is flexibility on the source of other funds needed to close. For example, the seller (subject to the 6% seller contribution requirement) could pay closing costs and fees or closing costs or fees could be financed in a premium rate.

Implementation:

FHA plans to have a mortgagee letter published in 30 -60 days w/ implementation on January 1st. They have not yet indicated what the implementation trigger will be (i.e. case numbers assigned, borrowers approved, etc.)

· Seller funded down payment assistance programs
FHA said “due to legal restrictions”, there will be “no policy guidance” on this subject. It will be mid-late September before we know whether the proposed legislation continuing the seller funded down payment assistance programs will be enacted. This legislation, while possible, faces an uphill struggle.

Implementation:

The seller or interested third party cannot participate in a downpayment assistance programs unless the borrower is approved prior to October 1st. FHA confirmed the definition of “borrower approved”. For cases run through the Scorecard, eligibility will be determined by the “date of the last scoring event”. For manually underwritten cases, eligibility will be determined by the date of underwriter signature on the MCAW or the Loan Transmittal form.

· Risk-based Pricing Moratorium

FHA confirmed that a new “across the board” premium structure will be implemented for case numbers assigned on or after October 1st. They indicated that they are still in “negotiations” w/ OMB over the amount of the new premium. Delinquent FHASecure loans will have a separate premium structure. FHA expects to publish a Notice early next week.

Implementation:

FHA hopes to have a Notice with the premium structure and instructions “ASAP”. However, FHA confirmed that case number assignment is the determinant for the premium structure.

• For case numbers assigned prior to July 14th, use the old structure (i.e. 1.5% upfront – .50 annually/monthly)
• For case numbers assigned on or after July 14th but prior to October 1st, use the risk-based premium structure HUD implemented on July 14th
• For case numbers assigned on or after October 1st, use the new premium structure (to be determined)
• HUD hopes to publish the Notice w/ the premium structure next week.

· Mortgage Limit Increase

As we have discussed, the mortgage limits will be lowered in high cost areas to 115% of area median sales price up to a maximum of $625,500 when the Stimulus bill expires on December 31st. Since the annual update will be occurring in November, it is difficult to determine what the new limits will be. On the HECM limits, there is considerable confusion over the limits in the bill. HUD is still trying to determine whether it is $417,000 across the board, $417,000 “floor” and higher limits in high cost areas or $625,000 across the board. We will keep you apprised.

Implementation

With regard to the December 31st trigger for the termination of the higher limits in the Stimulus bill, FHA has confirmed again they will use the same standard of “borrower approved” as was mentioned above for seller funded downpayment assistance loans. For cases run through the Scorecard, eligibility will be determined by the “date of the last scoring event”. For manually underwritten cases, eligibility will be determined by the date of underwriter signature on the MCAW or the Loan Transmittal form.

· Condominiums

FHA will develop a hybrid approach. FHA will still process project approvals, the lender could process the project approval or the lender could loans on a “spot basis”.

We also expect HUD to permit manufactured housing condominium projects and to also implement a streamlined process for “site condominiums”.

Implementation

FHA hopes to have a mortgagee letter published in 60 days w/ implementation no later than January 1st if not sooner.


Be sure you prepare your borrower's and especially your Realtor Partners for these changes if Conventional/Conforming is your bag. We do a ton of this business in our Office and I know you would all want to be prepared before you send your loans into us.

I look forward to your continued business and support.

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