FHA VA Blog

HUD issued an updated mortgagee letter - to hopefully, clarify certain points that were surrounded with confusion.  If any of you had tried to refinance using FHA Secure, and were unable, it may be worth revisiting.  As always, call or e-mail your questions and we'll do all we can to help you out!

Theresa

Update 6/23/2008 (replaces previous)

HUD Mortgagee Letter

In Mortgagee Letter 2007-11, the Federal Housing Administration announced FHASecure, a temporary initiative to permit lenders to refinance delinquent adjustable rate mortgages (ARMs) and/or to offer new subordinate financing where the combined loan-to-value ratio exceeds the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. The Department has decided to expand FHASecure as follows:

· To include borrowers delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than two 30-day or one 60-day late payment in the 12 months prior to the rate reset or extenuating circumstance that caused the delinquency; or

· To include borrowers delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than one 90-day late payment or no more than three 30-day late payments prior to the rate reset or extenuating circumstance that caused the delinquency provided the loan-to-value on the FHA insured first mortgages does not exceed 90 percent.

· Borrowers delinquent on their interest-only and/or payment option ARMs are not eligible for this expansion: borrowers with these types of mortgages must demonstrate that a rate reset caused the delinquency and that they were making the monthly mortgage payments within the month due during the 6 months prior to the rate reset.

· For borrowers refinancing delinquent non-FHA ARMs the Up-front mortgage insurance premium (UFMIP) is set at 2.25 percent of the base loan amount (loan amount excluding UFMIP) regardless of the loan-to-value (LTV) ratio. For LTV ratios greater than 95 percent (excluding UFMIP) the Annual premium (collected monthly) is set at .55 percent.

This mortgagee letter replaces the specific guidance regarding FHASecure issued in Mortgagee Letter 2007-11 and is effective for case numbers assigned on or after July 14, 2008. FHA is implementing the policies in this letter simultaneously with the implementation of risk-based pricing through notice in the Federal Register May 13, 2008. Mortgagees are reminded that the eligibility criteria for delinquent borrowers and new subordinate financing under the FHASecure

initiative are temporary and require that the loan application be signed no later than December 31, 2008. Mortgagees are also reminded that FHA has not changed its underwriting guidelines, but rather its eligibility criteria. Existing policies are still applicable, such as those involving bankruptcy. This mortgagee letter also clarifies guidance issued in Mortgagee Letter 2005-43 regarding cash-out refinance transactions.

I. FHASecure Eligibility Criteria

All conventional-to-FHA rate and term refinances are considered FHASecure, regardless of whether the borrower is delinquent or current. Cash-out refinance transactions are not acceptable under this initiative. The following items are the eligibility criteria for originating mortgages under FHASecure.

Borrowers Current on Their Mortgages

· The mortgage being refinanced must be a non-FHA fixed rate or adjustable rate mortgage.

· Mortgagees are reminded that they need to verify the borrower’s mortgage payment history through the mortgage servicer or through cancelled checks to determine if it is acceptable under FHA’s standard underwriting guidelines.

· If there is insufficient equity in the home, FHA will insure first mortgages where there is a:

1) Write Down. The existing note holder(s) writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage (a short pay-off); or

2) New Subordinate Financing. The FHA-approved lender making the new mortgage, the existing note holder or other interested party may take back a second lien by the amount which the payoff is short, including closing costs, arrearages, other reasonable and customary costs that are standard servicing practices and are included in all payoff statements or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits; and/or

3) Re-subordination/Modification. The note holder(s) of existing subordinate financing must re-subordinate or modify the existing subordinate lien(s) and re-execute at closing if the lien is to remain in effect after closing; and/or

4) Other options. State/local programs or “Rescue Funds” administered by nonprofit organizations.

· Mortgagees must determine that the borrower has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage as well as pay other recurring obligations.

Borrowers Delinquent on Their Mortgages

· The mortgage being refinanced must be a non-FHA adjustable rate mortgage.

· When refinancing a delinquent mortgage where the delinquency was caused by a rate reset[1] or the occurrence of an extenuating circumstance[2] the borrower’s payment history must show that:

1. The borrower was making the monthly mortgage payments within the month due during the 6 months prior to the rate reset or extenuating circumstance; OR

2. In the 12 months prior to the rate reset or extenuating circumstance the borrower’s payment history shows no more than one 60-day late payment or two 30-day late payments. Borrowers with less than a full 12 months payment history (i.e., 7-11 months payment history) must show that they have made their monthly mortgage payments within the month due during the 6 months prior to the rate reset or occurrence of the extenuating circumstance; OR

3. If the borrower is unable to meet the payment history requirements specified above, the lender may still proceed with the refinance transaction provided that the loan-to-value ratio on the new FHA-insured mortgage does not exceed 90 percent and the borrower has no more than one 90-day late or no more than three 30-day late payments over the 12 month period prior to the rate reset or extenuating circumstance.

· Mortgagees must determine that the rate reset or extenuating circumstance that caused the delinquency does not affect the borrower’s overall capacity to repay the new FHA-insured mortgage.

· Borrowers delinquent on their interest only and/or payment option ARMs must demonstrate that the delinquency was caused by a rate reset and that they were making their monthly mortgage payments within the month due during the 6 months prior to the rate reset.

· If there is insufficient equity in the home, FHA will insure first mortgages where there is a:

1) Write Down. The existing note holder(s) writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage (a short pay-off); or

2) New Subordinate Financing. The FHA-approved lender making the new mortgage, the existing note holder or other interested party may take back a second lien by the amount which the payoff is short, including closing costs, arrearages, other reasonable and customary costs that are standard servicing practices and are included in all payoff statements or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits; and/or

3) Re-subordination/Modification. The note holder(s) of existing subordinate financing must re-subordinate or modify the existing subordinate lien(s) and re-execute at closing if the lien is to remain in effect after closing; and/or

4) Other options. State/local programs or “Rescue Funds” administered by nonprofit organizations.

• Mortgagees must determine that the borrower has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage as well as pay other recurring obligations.
  
  
• In most of the FHA insurance programs, there is an Up-Front Mortgage Insurance Premium (UFMIP) and an Annual premium. For borrowers refinancing delinquent non-FHA loans the UFMIP is set at 2.25 percent of the base loan amount (loan amount excluding Up-front MIP) regardless of the loan-to-value (LTV) ratio. For LTV ratios greater than 95 percent (excluding UFMIP) the Annual premium (collected monthly) is set at .55 percent. These premiums reflect the relative risk associated with new borrowers under the FHASecure expansion, within the limits applicable law places upon FHA’s premium-setting authority.

Effective with new FHA case number assignments on or after July 14, 2008, FHA will implement risk-based premiums on one- to four-unit single family mortgages. The premium matrix is shown below, replacing the premium matrix in Mortgagee Letter 00-38, which identifies the current mortgage insurance premiums for FHA’s single family programs.

Highlights Regarding FHA’s Risk-Based Premiums

· UFMIP will range from 1.25 percent of the loan amount for lower-risk borrowers to 2.25 percent for riskier borrowers.

· No borrower who qualifies for a FHA-insured mortgage will pay more than 2.25 percent on the upfront mortgage insurance premium (UFMIP) and 55 basis points for the annual premium.

· Borrowers with credit bureau scores must be risk-classified by FHA’s TOTAL Mortgage Scorecard.

· Those in risk categories without a premium shown are not eligible for FHA-insured mortgage financing.

· Borrowers without credit bureau scores will need to be manually underwritten and deemed as eligible based on criteria described in Mortgagee Letter 2008-11; the mortgage insurance premium will be determined by the loan-to-value ratio for the non-traditional column in the premium schedule.