MORTGAGE$: What post-recovery act changes to FHA will most affect you?

By William Kugel

Prior to the sub-prime mortgage crisis, when conventional lending sources such as Fannie Mae and Freddie Mac dominated the mortgage market, FHA loan programs played a relatively minor role. Long before the mortgage meltdown, FHA lending was considered slow, bureaucratic, non-competitive, over-regulated, and overloaded with unnecessary red tape. For more than a decade, amidst public outcries for reform, FHA lending has undergone something of a transformation. Interest rates can, at times, rival and even beat conventional pricing. Minimum down payments required are now less than conventional lending requirements. Processing and underwriting functions for government programs have joined the electronic age with comparable automatic underwriting making loan pre-approvals as "instant" as any other loan.In 2008, amidst the cataclysmic meltdown most affecting Fannie Mae and Freddie Mac, conventional lending volume shrank by roughly half. At the same time, FHA lending virtually tripled. However, while this amazing inversion has taken place at light speed, the public's awareness and knowledge of how FHA mortgage programs work, their benefits, their often-unique procedures, and somewhat different guidelines have barely progressed. With the depth, variety, and complexity of FHA-insured mortgage programs available today, even staying current is a formidable task for both consumers and industry professionals.With the needed housing recovery weighing so heavily on the shoulders of the new administration, FHA lending is certain to play a vital role in the next few years. There is recent evidence that a great deal of new emphasis on education and public awareness is part of Obama's "Making Home Affordable" plan. New information is appearing daily on the FHA.gov Web site. For example, check out their new presentation "My Money, My Home, My Future". In addition, not only is there more activity on the FHA Web site, FHA is now making an appearance on Facebook.com with links back to their main website. Their notes there state optimistically, Two weeks after the President unveiled his plan to help promote homeowner affordability, we are moving forward today with these guidelines to implement that plan," HUD Secretary Shaun Donovan said. "This step forward represents a tremendous coordinated effort between major government and regulatory agencies to help bring relief to America's housing market and homeowners. This plan will help make home ownership more affordable for nine million American families and in doing so, help to stop the damaging impact that declining home prices have on all Americans."Another development that also has a substantial impact has to do with recent changes in FHA guidelines on credit score requirements. Far less publicized is the fact that lenders in recent weeks have one by one been raising the minimum acceptable credit score to 620. Clearly, the industry has made it tougher for credit-blemished borrowers to get financing. To put things in perspective, automated underwriting at one point seemed to be allowing approvals where credit scores were as low as the mid-500's. Even with this higher standard, FHA minimum scores are still below what conventional loans require in the same circumstances. Thus, FHA loans still provide a pathway to homeownership or refinancing for some that would otherwise find none.To be properly acquainted with all the ins and outs of FHA lending it will take time, effort, and experience. The sheer number of programs under the FHA umbrella is staggering and expanding all the time. For example, did you know that FHA has introduced a streamlined version of its old rehab program? The new FHA 204ks, which allows you to purchase a property and make repairs at the same time, is far more user-friendly. Did you know that FHA is now the primary provider of reverse mortgages? In addition, did you know that as of January 2009 the lending and benefit limits for reverse mortgages increased from $417,000 to $625,000? Furthermore, did you know that starting this year, a senior not can only refinance the home they are in with a reverse mortgage; they can now choose a new and different property to be their primary residence and purchase it with a reverse mortgage? I find many people surprised to learn FHA will refinance a non-FHA homeowner. Some do not realize that they can refinance mortgages well beyond the 80 percent or 90 percent conventional limits. Many do not know what the new loan limits are. Many do not know about the FHA energy-efficient programs; or that FHA will finance condominiums. The list of FHA programs and their ins and outs is extensive. So much so, that is intimidating. There is not space in this article to cover a fraction of the information. My advice: Do not let that stop you from finding out as much as you can. The key is finding mortgage professionals that have been doing FHA loans for years and are staying current on all the changes and new undertakings. The column MORTGAGE$ has been in continuous publication for 19 years. William Kugel is a mortgage banker at RMS Mortgage and a Mount Washington Valley resident. You may contact him at (603) 356-3496, send e-mail to wkugel@rmsmortgage.com, or write him c/o The Conway Daily Sun. All Rights Reserved. 2009 W. H. Kugel.