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Financial Flash Newsletter

Foreclosure Crisis Update: Making Home Affordable Program and FHA Regulatory Changes

Making Home Affordable Program saves homeowners over $2.2 billion

The Making Home Affordable Program was created to help millions of homeowners refinance or modify their mortgages at a level that is affordable now as well as in the future. According to the Making Home Affordable website, the program has already helped over 1 million homeowners start trial modifications. More than 940,000 homeowners currently have reduced monthly mortgage payments with a median savings of more than $500. That is an aggregate savings of more than $2.2 billion.

OnTrack is the local HUD housing counseling agency, helping homeowners in danger of losing their homes access the program. If you or someone you know may be among the millions of homeowners who will benefit from the program, click here to learn more about OnTrack's Foreclosure Prevention Program or call OnTrack at 828-255-5166 ext 3 or 1-800-737-5485 to determine your eligibility, access additional resources, and learn how to get the help you may need.

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FHA changes reduce agency risk, while maintaining its position as the largest source of financing for homeownership in underserved communities.

(Article summarized from MortgageNewsDaily.com; see full article here.)

The Federal Housing Administration announced changes to raise credit score requirements, reduce seller concessions, and increase up-front Mortgage Insurance Premium (MIP) fees in order to strengthen its capital reserves which were reported to be headed into dangerously low territory late last year.  The changes are designed to increase the FHA's income from customers while reducing its portfolio's risk.

Update the combination of FICO scores and down payments for new borrowers

  • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
  • This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

Reduce allowable seller concessions from 6% to 3%

  • The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.

MIP will be increased to build up capital reserves and bring back private lending

  • The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
  • If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
  • This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing .
  • The initial up-front increase is included in a Mortgage Letter to be released and will go into effect in the spring.

Increase enforcement on FHA lenders

  •  Publicly report lender performance rankings to complement currently available Neighborhood Watch data.
  • Enhance monitoring of lender performance and compliance with FHA guidelines and standards by implementing Credit Watch termination through lender underwriting ID in addition to originating ID.
  •  Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.
  • HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
    • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.
    • Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.

In addition to these changes, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

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