Given the need for the Federal Housing Administration (FHA) to assure solvency of their insurance fund, they are continuing to publish changes that are designed to protect FHA. Although some of these updates seem a bit extreme and may affect our ability to do some loans, most of the changes are based on good reasoning. Since the majority of loans being done today are FHA loans, we as an industry want to make sure that the FHA does what they need to do to make sure the program doesn’t collapse. I would say just about every financial crisis in history is preceded by a period of deregulation and then followed by a period of high regulation. These measures will hopefully make us a stronger industry and give us the ability to offer FHA financing well into the future. This article contains the pertinent changes to Appraisal Ordering, Lender Eligibility and Streamline Refinancing guides as outlined in Mortgage Letters 2009-28, 29, 30, 31 and 32.
Here are the five things you need to know about changes regarding ordering appraisals:
1. Appraiser changes are effective as of Jan. 1, 2010.
2. Mortgage brokers and commission-based lender staffers will be prohibited from selecting the FHA appraiser.
3. Lenders are not required to use appraisal management companies (AMCs), but may do so.
4. When a borrower switches to another lender, FHA prohibits the second lender from ordering additional appraisals to obtain a higher value, unless:
a. The Direct Endorsement (DE) Underwriter determines the first appraisal is deficient;
b. The appraiser of first appraisal is on second lender's exclusionary list; or
c. The first lender delayed the appraisal transfer to the second lender so as to cause harm to the borrower (e.g. missing a closing date or expiration of a rate lock).
5. Appraisals are now valid for only 120 days for all existing, proposed or under-construction properties.
Here are the three things you need to know about changes regarding Lender Eligibility:
1. Changes are effective as May 20, 2009 in accordance with the Helping Families Save Their Homes Act of 2009.
2. A lender or mortgagee applying for FHA approval may not currently employ anyone who is currently suspended, debarred, under indictment, under investigation by HUD, or was convicted or pled guilty to a felony related to the real estate or mortgage industries during the seven-year period prior to the date of the application or any time if felony involved fraud, dishonesty, breach of trust, or money laundering.
3. FHA lenders must use their U.S. Department of Housing & Urban Development (HUD)-registered name in all advertisements and promotional materials and keep copies of all materials for two years from date of use.
Streamline Refinance update
This update contains the pertinent changes to Streamline Refinance guides as outlined in Mortgage Letter 2009-32 and are effective on Nov. 17, 2009. Here are the 11 things you need to know about these changes to the Streamline Refinance:
1. Current loan must have six months seasoning.
2. Current loans with six-12 months seasoning, no 30-day late payments are allowed.
3. Current loans with 12-month seasoning or greater there is a maximum of one 30-day late payment in the last 12 months.
4. Refinance must reduce principal, interest, taxes and insurance (PITI) by five percent or take them from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (the fixed-rate cannot be more than two percent higher). For hybrids, new fixed-rate cannot increase more than 20 percent), or take them from a fixed-rate to an ARM (the ARM must be two percent less than the fixed-rate).
5. If a borrower is reducing the term, it must be processed as a rate and term refinance.
6. Investment properties and second homes are no longer eligible to refinance to ARMs with the Streamline Refinance Program.
7. The lender must include a signed and dated letter on their letterhead, that the borrower is employed and has current income.
8. The maximum combined loan-to-value (CLTV) ratio is 125 percent of the new value or the original value if the loan is processed without an appraisal.
9. Lenders should not use TOTAL on streamlines unless they want to process the loan as a regular rate and term refinance.
10. Lenders may no longer use the short Uniform Residential Loan Application (URLA or the 1003).
11. Payoff statement of current mortgage cannot include delinquent interest, late charges or escrow shortages.
There are a lot of changes, and I recommend you have an office meeting regarding them to make sure that all your operations and origination staff are on the same page. The last thing you want occurring is to have dozens of borrowers’ loans end up in process that won’t be able to close because you weren’t up on the changes. Most FHA updates create an opportunity for loan officers to be a resource of FHA information for their referral partners. If creating the marketing pieces to present the updates is too overwhelming for you, then do what our members have done and subscribe to The FHA Originator, our monthly newsletter that provides you with tools to brand your image as an FHA expert. For more information and to get a free sample, log on to MortgageSeminars.com.
Jeff Mifsud founded Southfield, Mich.-based Mortgage Seminars LLC in 2004, has been an FHA originator for 12 years, is a contributor to LoanToolbox.com and is a former FHA underwriter. Jeff may be reached at (877) 342-9100.