Articles Published in: September 2013

September 30, 2013

FHA Loan Modification Trial Payment Plans-What If The Borrower Fails?

Recently the FHA changed some of its policies related to loss mitigation and foreclosure avoidance on FHA guaranteed home loans. In our last look at these changes, we examine what the latest guidance from the FHA and HUD has to say about borrowers in financial difficulty who cannot or do not successfully navigate a Trial Payment Plan. Borrowers and lenders are advised in Mortgagee Letter 13-32, “If a mortgagor fails to successfully complete a Trial Payment Plan under a Loan Modification or FHA-HAMP, pursuant to 24 C.F.R. § 203.355, mortgagees must still re-evaluate the mortgagor’s eligibility for other appropriate Loss Mitigation Options. If the mortgagor’s circumstances have not changed, the mortgagee must evaluate the mortgagor for FHA Loss Mitigation Home Disposition Options prior to initiating foreclosure.” While the Trial Payment | more...

September 27, 2013

FHA Loans, Credit Scores, and Your Repayment History

By Joe Wallace

One common type of question we’ve been asked as of late has to do with a borrower’s chances at getting an FHA loan approved in spite of bad credit, past financial difficulty, or a combination of both. There are many important things to understand about credit, but one of the most important for any borrower interested in an FHA should know about? The FHA’s attitude towards on-time bill payment, past financial difficulty, and related issues. The FHA loan rulebook, HUD 4155.1 says in Chapter Four, Section C, “Past credit performance is the most useful guide to • determining a borrower’s attitude toward credit obligations, and • predicting a borrower’s future actions.” That’s a basic general guideline, as is the next line from Chapter Four. “Borrowers who have made payments on | more...

September 26, 2013

FHA Loan Interest Rates

By Joe Wallace

Mortgage rates have, at the time of this writing, been moving lower for a variety of reasons. Given the up-and-down environment mortgage loan interest rates have experienced in the last six months, it’s easy to understand why some borrowers might be confused about how interest rates–and more importantly, interest rate locks on FHA mortgages–work. According to the FHA loan rulebook, HUD 4155.1, there is no provision for the government to set mortgage rates on an FHA mortgage. “Under all currently active FHA single family mortgage insurance programs, the borrower and the lender negotiate the interest rate and any discount points.” Borrowers might want to commit to a specific interest rate on a day when the rates seem particularly advantageous. But the loan won’t close until a later date in many | more...

September 26, 2013

FHA Loan Rules on Special Forbearance

By Joe Wallace

The FHA recently updated its rules associated with foreclosure avoidance and loss mitigation on FHA mortgages; borrowers who get into financial difficulty and may have trouble paying their FHA insured home loans should contact their loan officer immediately to discuss options for avoiding foreclosure. The newly updated FHA loan rules in this area include something known as Special Forbearance. Special Forbearance is described by the FHA as, “a written agreement between a mortgagee and mortgagor to reduce and/or suspend mortgage payments.” According to the most recent guidance from the FHA, “A Special Forbearance is available only to mortgagors who are unemployed. Special Forbearance agreements must provide for a minimum of 12 months for re-employment and require subsequent evaluation for a more permanent Loss Mitigation option to cure the default.” This | more...

September 25, 2013

FHA Loan Modification Rule Changes

By Joe Wallace

Borrowers who get into financial difficulty and have trouble making payments on their FHA home loans have some options with the FHA that can help the borrower avoid foreclosure. The FHA has updated its rules to home loan modifications and other foreclosure avoidance procedures–those updates are found in FHA Mortgagee Letter 13-32. We recently discussed some of the initial changes, which the FHA has given lenders until December 2013 to make. That recent update includes some instructions to the lender regarding loan forbearance. “Before a mortgagee considers a delinquent mortgagor for one of FHA’s Loss Mitigation Home Retention Options, the mortgagee must first evaluate the mortgagor for both Informal and Formal Forbearance Plans…Informal and Formal Forbearance Plans are the only options available for delinquent mortgagors without verifiable losses of income | more...

September 24, 2013

FHA Updates Foreclosure Prevention Program

By Joe Wallace

On Friday September 20, 2013, the FHA issued a Mortgagee Letter that updates its Loss Mitigation program options. The new Mortgagee letter, ML 2013-32, overrides a previous mortgagee letter issued in 2012. The changes are designed to, “help reduce the number of full claims against FHA’s Mutual Mortgage Insurance Fund by assisting a greater number of distressed mortgagors in retaining their homes; thus, Mortgagee Letter 2012-22 will remain effect until servicers are able to fully implement this Mortgagee Letter.” The Loss Mitigation Program was established by the FHA in 1996, “to ensure that distressed FHA mortgagors were afforded opportunities to retain their homes and to assist in minimizing losses to FHA’s Mutual Mortgage Insurance Fund”. The most recent changes include a variety of program modifications. Keep in mind that the | more...

September 23, 2013

FHA Loan Reader Questions: Credit Scores, Loan Limits and Mortgage Insurance

By Joe Wallace

A reader asks, “The insurance for fha does it include in your morgtage or you have to pay that together with the downpayment? Do you know before you pick the house the amount you qualify for? How hard is it after one year of bankruptcy? I was laid off and did not work for close to two years due to the economy. how hard is it to get a lender with a score of 580???? Can closing cost be included in mortgage? This is a lot of questions, but the first and most important question is the matter of FICO scores. The reader asks how difficult it is to get a lender when the borrower has a 580 credit score. We can’t speak for all lenders, but in general a | more...

September 20, 2013

FHA Loan Answers: Back To Work Guidelines

By Joe Wallace

Ever since the FHA published details of its new program “Back To Work” for borrowers who experienced economic hardship related to the recession, we’ve gotten a variety of questions and comments about the program. While this website cannot and does not speak for the FHA, we do publish its guidelines, its press releases and its revisions to the rules when appropriate. It seems there is some confusion about Back To Work–now is a good time to review some of the basics of this program. According to the FHA Mortgagee Letter 13-26, “Borrowers that may be otherwise ineligible for an FHA-insured mortgage due to FHA’s waiting period for bankruptcies, foreclosures, deeds-in-lieu, and short sales, as well as delinquencies and/or indications of derogatory credit, including collections and judgments, may be eligible for | more...

September 19, 2013

FHA Home Loan Debt To Income Ratio Rules: A Reader Question

By Joe Wallace

A reader asks, “I have significant student loans, but my parents make all payments on the loans because they had promised to provide my education as a gift (this was a commitment they made before I made the decision to pursue my education).” “They have made timely payments for three years, and they intend to continue to make payments until the loans are paid off. Can they guarantee future payments so that I can remove the loans from my debt-to-income ratio?” There are two basic factors at work when the lender is reviewing a borrower’s debt-to-income ratio. One is the borrower’s current debt load compared to the amount of income coming in. The other is how the new FHA loan payment would affect that debt load. Since the debts in | more...

September 18, 2013

FHA and HUD Announce Assistance for Colorado Storm Victims

By Joe Wallace

The FHA and HUD have issued a press release announcing help for victims of recent storms and flooding in Colorado. According to HUDNo.13-142, foreclosure relief, FHA home loans for disaster victims, and other forms of assistance are now available to those in Adams, Boulder, Larimer and Weld Counties. The press release says, “U.S. Housing and Urban Development Secretary Shaun Donovan today announced HUD will speed federal disaster assistance to the State of Colorado and provide support to homeowners and low-income renters forced from their homes due to severe storms, flooding, landslides and mudslides.” This type of assistance generally comes after the affected area has been declared a disaster zone by the president. “Families who may have been forced from their homes need to know that help is available to begin | more...