Blog of the Mortgage

More HUD Changes and New Loan Limits Coming

October 31st, 2008 7:45 AM

From our Valued Business Partners:
Potomac Partners:

This is a TON of Hugely Important Information.
Read it, Learn it & be Prepared.

We would like to update on the following:

-      FHFA(Fannie/Freddie regulator) expects 2009 mortgage limits to be published by November 7th
-      Upcoming Mortgagee Letters
-      Alternatives to Seller Funded Downpayment Assistance Programs
-      FHA Tolerance Policy on TOTAL Scorecard
-      IRS Bulletin

·         2009 Mortgage Limits

We would like to discuss two issues. They are:

1) 2009 mortgage limits (assuming no legislative changes occur prior to the end of the year)
2) The prospects for legislative changes in a "lame duck" session.

1.2009 Mortgage Limits (Assuming No Legislative Changes)

It now appears GSE and FHA mortgage limits for 2009 will be published sooner than had been previously expected. Last Friday, the Federal Housing Finance Agency (FHFA) announced that 2009 conforming loan limits for Fannie Mae and Freddie Mac should be published by November 7th. Since FHFA also indicated that it will use median home value data estimated by FHA for 2009, we should now have all 2009 mortgage limits including FHA by November 7th. FHA had previously stated that the 2009 limits would not be ready until late November.
This announcement also guarantees that FHA and the GSEs will have the same limits in high cost areas above $417,000. As a reminder, the maximum loan limit drops to $625,500 and the FHA limits in any area above $271,050 will decline in 2009 unless there is legislative action on mortgage limits in a "post election" ("lame duck") Congressional session. We will discuss the prospects for legislation separately below.

Below is a synopsis of the mortgage limits for 2009 based on current law.

·         The Housing and Economic Recovery Act (HERA) guarantees that the nationwide GSE (Fannie Mae & Freddie Mac) limit cannot decline below the current nationwide limit ---$417,000.
o        Impact of this provision:
-         FHA base limit will not decrease below $271,050 (65% of the GSE nationwide limit)
-         The maximum FHA, Fannie Mae and Freddie Mac mortgage ceiling in high cost areas will not be lower than $625,500 (150% of the GSE nationwide limit)
-         VA program had the Stimulus limits extended until December 31, 2011
·         VA guaranty amount may be 25% of the area median sales price x 125% up to a maximum guaranty amount of 25% of $729,750 (175% of the GSE nationwide limit)
·         The calculation factor for high cost areas (i.e. areas above $271,050 for FHA and $417,000 for the GSEs) will be 115% (instead of 125%) for both FHA and the GSEs.
o        Impact: Every area above the base limits ("floors") will experience a decrease in 2009 unless the area median sales price increases significantly
o        For FHA, any area w/ a median sales price above $235,695 is considered a high cost area (i.e. 115% x 235,695 = $271,050)
o        For Fannie Mae and Freddie Mac, any area w/ a median sales price above $362,608 is considered a high cost area (i.e. 115% x $362,608 = $417,000)
·         FHA data sources for median sales price data
o        FHA uses the county w/ the highest median sale price in metropolitan statistical areas (MSAs) to determine the maximum mortgage limits for the entire MSA
o        FHA uses multiple sources including:
-         a state-level nonmetropolitan house price index series produced by the Office of Federal Housing Enterprise Oversight.
·         Expiration of the Stimulus mortgage limits
o        The law imposes different cut-off criteria for FHA and GSE loans
-         For an FHA transaction, the borrower must be approved by December 31st to close a loan at the higher mortgage limits in the Stimulus bill.
·         The definition of "borrower approved" is the same as the one used for the cut-off on seller funded downpayment assistance loans (i.e. "last scoring event" in TOTAL or underwriter sign-off on a manually underwritten case).
-         For a GSE transaction, the loan must be closed by December 31st in order to use the higher limits in the Stimulus bill.

Unless the Stimulus bill is extended, mortgage limits are virtually guaranteed to decline in every high cost area in the country (i.e. areas currently above $271,050 for FHA and $417,000 for Fannie Mae and Freddie Mac. This decrease would be in addition to any declines caused by house price depreciation.
Prospects for Continuation of High Cost Area Limits
(in the Stimulus Bill)
We believe there is a real possibility that the Stimulus Bill mortgage limits could be extended for 2009. While it was unlikely in August, the jaw-dropping events of the last month have increased the likelihood of some action. Secretary Paulson has been emphatic that the economy cannot recover until the "bulk of the housing correction" is behind us. Moreover, the economy is obviously in far worse shape today than it was last February when the first Stimulus bill was passed.
Upcoming Mortgagee Letters

1.       FHA Cash Out Refinance Policy
As we have noted in recent updates, we expect FHA to lower the maximum loan-to-value ratio on cash out refinances from 95% to possibly 85% for all loan amounts. It could be implemented as early as this week and with an "immediate trigger" so case numbers should be assigned and borrowers approved as soon as possible for potentially affected loans in the pipeline.   FHA Neighborhood Watch data indicates the quality of refinance transactions is deteriorating.
2.       Definition of origination fee
As we have mentioned in previous updates, FHA is concerned about the fees being charged borrowers, particularly those which FHA believes are duplicative and should be included in the origination fee. These include application, processing and underwriting fees.
We believe HUD has given us a preview of this letter in ML 2008-29 implementing the Hope For Homeowners Program. In that letter, it is stated:

"Standard FHA policy regarding closing costs (outlined in Mortgagee Letter 2006-4) is applicable, including the 1 percent cap on origination fees. The origination fee compensates the lender for administrative costs in originating and closing the loan. The origination fee covers administrative costs for taking the loan application, evaluating, preparing and submitting a proposed mortgage loan. The origination fee cannot be supplemented by other fees to cover these administrative costs, such as "application or processing" fees or broker fees. The origination fee cannot exceed one percent of the original principal amount of the mortgage."

HUD Condominium Policy

The implementation date will likely be delayed until January 1st. We expect the program requirements to remain basically the same. The highlights are:

Two processing options
o   HUD processing
o   Direct Endorsement Lender Review and Approval
Site condominiums will not require project approval
Minimum required units in a project has been reduced to two units
Eliminate 1 year waiting period for conversions
Project requirements
o   51% Pre-sale
o   51% owner occupancy
o   Right of first refusal is permitted as long as fair housing requirements are not violated
o   Builder permit and final certificate of occupancy

You'll need the following links to download forms & see updates

Education Station
Government Loan Programs

Posted by Raoul Badde on October 31st, 2008 7:45 AMPost a Comment (0)