Articles Published in: July 2014

July 18, 2014

FHA Loans In Community Property States: A Reader Question

A reader asks, “We have applied for an FHA loan. We live in Texas and my husband has a qualifying score to be approved along with the income. My question is that I have prior to marriage collection accounts and my income along with my credit score cannot be used as my credit score isn’t high enough. Collection accounts are prior to marriage and we have no debt incurred during our marriage.” “We were married in October 2012. My loan officer has stated that my debt prior to marriage will not be included with my husband’s debt to income ratio as it violates Texas state law. TX is a community property state and debt is only to be split within the time of the marriage and not prior. Is it | more...

July 17, 2014

FHA No Cash-Out Refinances With Appraisal Required Part 2

By Joe Wallace

In our last blog post we discussed some of the basic rules for FHA no-cash out refinances with an appraisal required. Those guidelines include rules on how lenders are to deal with subordinate liens such as a home equity line of credit, and what can be done when a borrower needs to buy out an ex-spouse or co-borrower’s equity in the property. HUD 4155.1 covers these rules in Chapter Three. For subordinate liens, FHA loan rules for this type of refinancing are clear: “A subordinate lien, including a Home Equity Line of Credit (HELOC), regardless of when taken, may remain outstanding (but subordinate to the FHA-insured mortgage), provided the • FHA insured mortgage meets the eligibility criteria for mortgages with secondary financing outlined in HUD 4155.1 5.C, and • combined | more...

July 17, 2014

FHA Refinance Loan Types: No Cash-Out Refinances With Appraisal Required

By Joe Wallace

There’s a type of FHA refinance loan available under the FHA single-family program known as a No Cash-Out Refinance (appraisal required). FHA loan rules for this type of refinance loan include guidelines for the maximum loan amount, how to calculate the existing mortgage debt, and how to deal with subordinate liens such as a home equity line of credit or HELOC. What is the maximum loan amount for this type of FHA refinancing? According to HUD 4155.1 Chapter Three Section B, we learn the following: “The maximum mortgage for a no cash out refinance with an appraisal (credit qualifying) is the lesser of the • 97.75% Loan-To-Value (LTV) factor applied to the appraised value of the property, or • existing debt. The total FHA first mortgage is limited to 100% | more...

July 16, 2014

New FHA HECM Deferral Period Rules Take Effect August 4 2014

By Joe Wallace

Recently the FHA and HUD updated requirements to the FHA Home Equity Conversion Mortgage (HECM) program to include something known as a deferral period for surviving non-borrowing spouses of those with HECM loans. What does this mean? According to the FHA official site, “For any HECM with a case number issued after the effective date of this Mortgagee Letter, in order to be eligible for FHA insurance, the HECM must contain a provision deferring the due and payable status that occurs because of the death of the last surviving mortgagor, if a mortgagor was married at the time of closing and the Non-Borrowing Spouse was identified at the time of closing.” “Specifically, the HECM documents must contain a provision deferring due and payable status until the death of the last | more...

July 15, 2014

New FHA Loan Rules For Deed-in-Lieu and Pre-Foreclosure Sale Options

By Joe Wallace

The FHA and HUD recently updated the rules for “non-home retention options” for borrowers at risk of going into default and/or foreclosure on FHA mortgage loans. Two of those options are deed-in-lieu (DIL) of foreclosure and the pre-foreclosure sale (PFS). Under FHA loan rules, the borrower must be evaluated for eligibility for one or both of these options, as described in FHA Mortgagee Letter 2014-15: “If none of FHA’s loss mitigation home retention options are available or appropriate, the mortgagee must evaluate the borrower for a non-home retention option. The priority order of FHA’s Loss Mitigation non-home retention options requires that a mortgagor in default or at imminent risk of default be evaluated for a PFS transaction before being evaluated for a DIL transaction. Therefore, the mortgagee must first determine | more...

July 14, 2014

FHA and HUD Update Deed-In-Lieu and Pre-Foreclosure Sale Rules

By Joe Wallace

The FHA and HUD have issued a Mortgagee Letter updating the requirements for Deed-In-Lieu and Pre-Foreclosure sales for borrowers at risk of going into default on FHA home loans. Mortgagee Letter 2014-15, Updated Requirements for Pre-Foreclosure Sales (PFS) and Deeds in Lieu (DIL) of Foreclosure, completely updates and supersedes the previous FHA mortgagee letter in these areas. The new regulations could in some cases be implemented right away if participating lenders choose to do so, but FHA/HUD requirements state these rules will be in effect for all lenders as of October 1, 2014. The new guidelines include alterations or modifications of existing policy including the following as listed in the mortgagee letter: –Requirements for real estate agents and brokers participating in PFS transactions; –An initial listing period requirement for PFS | more...

July 11, 2014

FHA Loan Reader Questions: Deed-In-Lieu of Foreclosure Waiting Times

By Joe Wallace

A reader asks, “My wife and I completed our deed in lieu of foreclosure in May 2012. We’ve been renting since and saving a lot for a down payment on a future home. I’ve heard mixed statements from various institutions and real estate agents – exactly how long after we complete the deed in lieu, can we approach a bank for a pre-approval on a new loan?” In 2012, the Department of Housing and Urban Development held a webinar on FHA loan credit underwriting. HUD published notes from that webinar that were made available from HUD.gov as a downloadable PDF file which included a section that specifically addresses this type of reader question. According to the section titled,”Foreclosure/Deed in Lieu” we learn the following FHA stance on the waiting time | more...

July 10, 2014

FHA Loan Rules For Credit Management: A Reader Question

By Joe Wallace

A reader asks, “I am attempting to secure a FHA loan however, I voluntarily set up a debt management program (not Chapter 13, not required, not as a result of poor credit) after my divorce to manage payment of multiple credit cards. The underwriters are treating the program like a Chapter 13 and requiring a letter of permission and a 12 month payment history.” “I can, at any time, voluntary cancel the program and the company does not offer “letters of permission”. I have two months before I have one full year of payments to the program. Are there any specific rules regarding this type of program?” There are some details missing from the reader question that might shed some light on the issue, but the main question the reader | more...

July 9, 2014

FHA Reverse Mortgage Loan Rules For Occupancy: A Reader Question

By Joe Wallace

A reader asks, “My mother-in-law is sole owner of her home. she remarried and acquired a reverse mortgage. She is getting a divorce. unfortunately, she was force out of her house because of his violence. My question is how long can he live in the house if she is not there?” This situation calls for a lawyer–the laws of the reader’s state would definitely apply here. However, there is a very important FHA loan rule on HECM loans that borrowers need to be aware of and that definitely applies in this circumstance. FHA HECM loans require occupancy. A borrower who no longer occupies the home that secures an FHA HECM loan can and at some point definitely could have the entire loan declared due in full because failure to maintain | more...

July 8, 2014

FHA/HUD Announce Settlement In Discriminatory Ads Case

By Joe Wallace

The FHA and HUD have announced a settlement in a case involving discriminatory ads for housing. According to the press release found on the FHA/HUD official site, “The U.S. Department of Housing and Urban Development (HUD) announced today a Conciliation Agreement between the Connecticut Fair Housing Center (CFHC) and respondents Lil-1 Associates, AllPoints Realty and realtor Lillian Polak. The real estate companies will pay more than $24,000 to settle allegations that they published discriminatory listings and advertisements for condominiums specifying that children were not permitted.” Borrowers who want to buy a condo unit with FHA mortgage loans don’t always experience this type of illegal discrimination, but it’s good to know that if it does occur, FHA borrowers (or anyone looking to purchase a home or rent one) do have recourse | more...