May 22, 2013
The FHA loan program requires borrowers to find a participating lender, negotiate terms, and come to an agreement on an acceptable mortgage loan interest rate.
In general, the FHA and HUD do not set or regulate mortgage rates, except to require that such rates be “reasonable and customary” for the market. But the FHA has issued new guidance for mortgage rates as they apply to home loss mitigation/foreclosure avoidance programs as described in FHA Mortgagee Letter 2013-17.
“The purpose of this Mortgagee Letter is to provide guidance for determining the interest rates to use when implementing FHA’s Loss Mitigation Home Retention options,” the document states, adding that the new policies described in ML 2013-17, “are to be implemented by mortgagees for Trial Payment Plans offered on or after July 1, 2013.”
The new mortgagee letter clarifies terms related to mortgage loan rates used for Loss Mitigation/Home Retention programs. “This Mortgagee Letter amends the definition of “Market Rate”, and supersedes where there is conflict, the policies described in Mortgagee Letters 2012-22, 2011-28, and 2009-35.”
“For purposes of this Mortgagee Letter, the term “Market Rate” is now defined as a rate that is no more than 25 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) Rate for 30 year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date a Trial Payment Plan is offered to a borrower.”
While this might seem a bit complex to the borrower, for the lender, the instructions are clear–there is a definitive, FHA-directed definition for the calculation of mortgage rates for the FHA loss mitigation programs. Why is this important? Because of the direct instructions given to FHA lenders in this area:
“The Interest Rate for a Trial Payment Plan must not be greater than the aforementioned Market Rate.” Also, there is a direct instruction to the lender for permanent modification payment plans:
“A borrower’s monthly mortgage payment including principal, interest, taxes, and insurance (PITI) under a permanent modification must not be more than the borrower’s mortgage payment, (including PITI) under the Trial Payment Plan.”
For more information on this FHA mortgagee letter, contact the FHA at 1-800 CALL FHA or contact your lender to see how this may apply to you for future needs.
Do you have a question about FHA loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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