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Fha Presentation 2009

FHA for Real Estate Agents

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Fha Presentation 2009

  1. 1. Growing Your Business with FHA Dispelling The Myths Setting Expectations for Smooth Transactions January 14 & 15 2009
  2. 2. Introduction Agenda – Growing Your Business With FHA <ul><li>I. Introduction to Growing Your Business With FHA </li></ul><ul><li>II. FHA Program Basics </li></ul><ul><ul><li>FHA Terminology and Resources </li></ul></ul><ul><ul><li>Why Choose FHA </li></ul></ul><ul><ul><li>FHA Borrower Profile </li></ul></ul><ul><ul><li>FHA Key Parameters </li></ul></ul><ul><ul><ul><li>FHA Loan Programs </li></ul></ul></ul><ul><ul><ul><li>FHA Financing Options </li></ul></ul></ul><ul><ul><ul><li>FHA Statutory Loan Limits </li></ul></ul></ul><ul><ul><ul><li>FHA Mortgage Insurance </li></ul></ul></ul><ul><ul><ul><li>Borrower Eligibility </li></ul></ul></ul><ul><li>FHA Reform: Dispelling The Myths </li></ul><ul><li>A. Appraisals </li></ul><ul><li>B. Seller Fees </li></ul><ul><li>C. Flexible Credit Parameters </li></ul><ul><li>IV. FHA Housing Bill </li></ul><ul><li>V. High Balance FHA </li></ul><ul><li>VI. Selling The Contract </li></ul><ul><li>VII. Writing The Contract </li></ul><ul><li>Setting The Expectations </li></ul><ul><li>FHA Reverse </li></ul><ul><li>X. Q & A </li></ul>
  3. 3. It’s Competitive Out There <ul><li>As the home-financing specialist on the team, we understand the challenges we’re facing together in today’s market: </li></ul><ul><ul><li>Elevated inventory levels </li></ul></ul><ul><ul><li>Extended days on market for listings </li></ul></ul><ul><ul><li>Fewer qualified buyers in the marketplace </li></ul></ul><ul><ul><li>Sellers and buyers may have unrealistic expectations </li></ul></ul><ul><ul><li>Price reductions are tough to get and further deteriorate the market </li></ul></ul>
  4. 4. Overview <ul><li>Review recent events in the mortgage market </li></ul><ul><ul><li>Growing importance of FHA in today’s marketplace </li></ul></ul><ul><li>Examine key elements of the FHA program </li></ul><ul><ul><li>FHA has made significant process improvements </li></ul></ul><ul><li>Discuss FHA changes on the horizon </li></ul><ul><ul><li>“FHA Modernization” legislation </li></ul></ul><ul><li>Summarize opportunities in FHA lending going forward </li></ul>
  5. 5. What happened to the mortgage industry? <ul><li>Investors lost confidence in the quality of mortgages that they were buying </li></ul><ul><li>Causes? </li></ul><ul><ul><li>Poor performance of subprime mortgages </li></ul></ul><ul><ul><li>Spillover to Alt-A and prime mortgages </li></ul></ul><ul><ul><ul><li>Poor performance of prime loans w/ “piggybacks” </li></ul></ul></ul><ul><ul><ul><li>American Home’s bankruptcy </li></ul></ul></ul><ul><li>Result: Private securities market for mortgages stopped functioning in late July and still is not working TODAY – more than a year later </li></ul>
  6. 6. Current Status <ul><li>Roller coaster ride for financial markets </li></ul><ul><ul><li>Market volatility will continue until events stabilize </li></ul></ul><ul><ul><li>Must stop “negative” surprises </li></ul></ul><ul><li>Nontraditional lending has virtually stopped </li></ul><ul><ul><li>Option ARMs & Interest only </li></ul></ul><ul><ul><li>Stated income/piggybacks (80/20)/100% financing </li></ul></ul><ul><li>Prices are also rising and credit standards have tightened for “conventional” borrowers </li></ul>
  7. 7. Impact of Fannie Mae & Freddie Mac Pricing Changes <ul><li>“ Surcharge” – going to 1/2 point – all loans </li></ul><ul><li>Credit scores – Above 85% LTV – 30 year </li></ul><ul><ul><li>680 – 719: + .25 points ($1,000 on $400,000) </li></ul></ul><ul><ul><li>660 – 679: + 1 point ($4,000 on $400,000) </li></ul></ul><ul><ul><li>640 – 659: + 1.50 points ($6,000 on $400,000) </li></ul></ul><ul><ul><li>620 – 639: + 2.25 points ($9,000 on $400,000) </li></ul></ul><ul><ul><li>Below 620: + 2.75 points ($11,000 on $400,000) </li></ul></ul><ul><li>75-85% LTV – Higher fees for many credit scores below 720 </li></ul><ul><li>Lenders can not quote a rate on a conventional loan until they the credit score and the LTV. </li></ul>
  8. 8. What this means for you and your clients? <ul><li>This is not a temporary phenomenon </li></ul><ul><ul><li>Credit standards will remain tight for alt-A and subprime products </li></ul></ul><ul><ul><li>Regulatory (and possibly legislative tightening) will “institutionalize” market tightening underway </li></ul></ul><ul><ul><li>Products designed for “sophisticated”; cannot be used to qualify first-time and middle and lower income buyers </li></ul></ul><ul><li>Pre-approval process has heightened importance </li></ul><ul><ul><li>Credit, income & asset verification w/ AUS </li></ul></ul><ul><ul><li>No more “credit score & close” </li></ul></ul><ul><li>Lender reputation/knowledge are important (again) </li></ul>
  9. 9. Back to the Future <ul><li>Loans are being made </li></ul><ul><ul><li>Going back to the mortgage products available 20-30 years ago </li></ul></ul><ul><ul><ul><li>Conventional (Fannie Mae & Freddie Mac) </li></ul></ul></ul><ul><ul><ul><li>High quality jumbo loans </li></ul></ul></ul><ul><li>FHA (& VA) lending is back! </li></ul>
  10. 10. FHA Program Basics <ul><li>Federal Housing Administration (FHA) is an agency within the Department of Housing and Urban Development (HUD) </li></ul><ul><li>FHA does not lend money or construct housing – it insures loans that meet specific criteria, thus decreasing risk for lenders </li></ul><ul><li>Your Loan Officer is your primary source for FHA loans – they can provide you with policies, procedures, guidelines and requirements to help you sell more homes </li></ul>Terminology And Resources
  11. 11. Why Choose FHA? <ul><li>#1 Reason - FHA is primarily a purchase-based program whose guidelines and appraisal enhancements have made this program the dominant financing mechanism in today’s tough market. </li></ul><ul><li>Prime program with competitive prime rates on fixed rate or adjustable loans </li></ul><ul><li>Lower down payment (3.5%) </li></ul><ul><li>The most flexible credit terms </li></ul><ul><li>Expanded ratios to increase purchasing power </li></ul><ul><li>New, higher loan limits make FHA a viable option in high-cost areas </li></ul>FHA Program Basics *Down payment changes to 3.5 01/01/09
  12. 12. <ul><li>1-4 unit properties, HUD Approved Condos*, Manufactured Homes that meet FHA Standards </li></ul><ul><li>100% of the down payment and closing costs may come from a gift or if offered from a state/county municipality as a non-profit organizations not requiring a donation or contribution </li></ul><ul><li>FHA allows non-traditional credit </li></ul><ul><li>The seller and/or lender may contribute up to 6% of the purchase price to cover closing cost </li></ul><ul><li>No negative amortization </li></ul><ul><li>ARMs </li></ul><ul><ul><li>low margin </li></ul></ul><ul><ul><li>lowest annual and lifetime caps </li></ul></ul><ul><li>Available to non-citizens </li></ul>FHA Program Basics Why Choose FHA? Con’t *Changing with FHA Housing Reform Bill
  13. 13. FHA Program Basics <ul><li>FHA loans are fully assumable </li></ul><ul><li>No prepayment penalties </li></ul><ul><li>Upfront mortgage insurance (MIP) may be financed </li></ul><ul><li>Borrower may be eligible for a “Streamlined refinance” to reduce rate and payment on FHA to FHA owner-occupied and non-owner occupied loans </li></ul><ul><li>Property may be eligible for financing renovations prior to work being done </li></ul>Why Choose FHA? Con’t
  14. 14. Borrower Profile <ul><li>First time and repeat homebuyers </li></ul><ul><ul><li>No first-time homebuyer education requirements </li></ul></ul><ul><ul><li>No limits on the borrowers’ income </li></ul></ul><ul><li>Borrowers with little money for down payment </li></ul><ul><li>Borrowers with some previous credit challenges but can demonstrate a willingness and ability to repay </li></ul><ul><li>Limited or no traditional credit </li></ul><ul><li>Borrowers looking for flexible income, debt, and credit requirements </li></ul><ul><li>May need assistance from a non-occupant co-borrower </li></ul><ul><li>Refinances – 95% Cash-Out, Streamline, Rate and Term </li></ul>FHA Program Basics
  15. 15. FHA Loan Programs <ul><li>203b “Regular” - most commonly used </li></ul><ul><ul><li>1 to 4 unit properties, Planned Unit Developments (PUD) and manufactured homes (not condominiums) </li></ul></ul><ul><ul><li>Upfront and annual Mortgage Insurance (MI) </li></ul></ul><ul><ul><li>Fixed and adjustable rates </li></ul></ul><ul><li>234c “Condominium” </li></ul><ul><ul><li>Condominiums ONLY (not PUDs) </li></ul></ul><ul><ul><li>Must be a HUD approved project </li></ul></ul><ul><ul><ul><li>spot approvals MAY be available </li></ul></ul></ul><ul><ul><li>Upfront and annual Mortgage Insurance </li></ul></ul><ul><ul><li>Fixed and adjustable rates </li></ul></ul>FHA Program Basics Key Parameters <ul><li>203K “Renovation” Loan </li></ul><ul><li>All work completed after closing </li></ul><ul><li>1-4 unit properties </li></ul><ul><li>Borrow up to 110% of after improved value </li></ul><ul><li>Cosmetic as well as structural renovations can be made </li></ul>
  16. 16. FHA Financing Options <ul><li>15 and 30 year fixed rate loans </li></ul><ul><li>3/1 and 5/1 Hybrid ARMs </li></ul><ul><li>Temporary buydowns through our FLEX/FIXED  program (30-year fixed-rate only) </li></ul>FHA Program Basics Key Parameters
  17. 17. Statutory Loan Limits <ul><li>Set by FHA - varies by county and municipality throughout the country </li></ul><ul><li>Subject to change at any time </li></ul><ul><li>Higher for multi-family dwellings </li></ul><ul><li>Maximum FHA loan limits are tied to the Freddie Mac conforming loan limits and average home prices </li></ul><ul><ul><li>FHA “Floor Limits” – 65% or $271,050 </li></ul></ul><ul><ul><li>FHA “Ceiling Limits” - 175% or $729,750 </li></ul></ul><ul><ul><li>The FHA loan limit in Baltimore Metro Area is $494,500 – Effective January 1 st , 2009. </li></ul></ul><ul><ul><li>The new FHA loan limit for Baltimore Metro Area including Howard County will be $494,500. </li></ul></ul>FHA Program Basics Key Parameters Click on for a list of statutory loan limits.
  18. 18. 2009 FHA Loan Limits $559,500 $450,200 $372,450 $290,950 MD 99999 Kent County $597,100 $480,450 $397,500 $310,500 MD 36180 Worcester County $667,900 $537,400 $444,600 $347,300 MD 30500 St. Mary's County $729,800 $587,250 $485,800 $379,500 MD 37980 Cecil County $736,450 $592,600 $490,250 $382,950 MD 20660 Talbot County $950,950 $765,200 $633,050 $494,500 MD 12580 Baltimore city $950,950 $765,200 $633,050 $494,500 MD 12580 Queen Anne's County $950,950 $765,200 $633,050 $494,500 MD 12580 Howard County $950,950 $765,200 $633,050 $494,500 MD 12580 Harford County $950,950 $765,200 $633,050 $494,500 MD 12580 Carroll County $950,950 $765,200 $633,050 $494,500 MD 12580 Baltimore County $950,950 $765,200 $633,050 $494,500 MD 12580 Anne Arundel County
  19. 19. FHA Mortgage Insurance (UFMIP or MIP) <ul><li>Upfront Mortgage Insurance Premium (UFMIP or MIP) is required for all </li></ul><ul><li>FHA loans. Details include: </li></ul><ul><li>May be financed OR paid in cash - may NOT be partially financed </li></ul><ul><li>The premium varies between 1.75% for all purchase mortgages and full refinances, and 1.5% for streamline refinances </li></ul><ul><li>Upfront Mortgage Insurance (UFMIP) is added to Base Loan Amount (BLA) to equal Total Loan Amount (TLA) </li></ul>FHA Program Basics Key Parameters
  20. 20. FHA Mortgage Insurance con’t <ul><li>Annual Mortgage Insurance is required for all FHA loans* </li></ul><ul><li>The annual premium varies between .50% to .55% based on credit score and LTV for a 30-year mortgage, while 15-year premiums remain at 025%. </li></ul><ul><li>Paid monthly (annual amount ÷ 12) </li></ul><ul><li>May be cancelled later - based on LTV </li></ul><ul><li>Not required for loans with a 15 year term and an LTV of 89.99% or less </li></ul>FHA Program Basics Key Parameters *Changing with FHA Housing Reform Bill
  21. 21. Canceling Annual Mortgage Insurance - Loan terms greater than 15 years <ul><li>Annual Mortgage Insurance is required regardless of initial LTV for: </li></ul><ul><ul><li>Minimum of 5 years – and – </li></ul></ul><ul><ul><li>Until amortized LTV reaches 78% - based on lower of the sales price or appraised value at origination </li></ul></ul><ul><li>78% threshold is calculated on loan amount excluding Upfront Mortgage Insurance (UFMIP) </li></ul><ul><li>New appraised values will not be considered </li></ul>FHA Program Basics Key Parameters
  22. 22. <ul><li>LTVs 90% or greater are cancelled when the LTV reaches 78% </li></ul><ul><li>No 5 year minimum </li></ul><ul><li>LTVs 89.99% or less will not be charged annual mortgage insurance premiums </li></ul>FHA Program Basics Key Parameters Canceling Annual Mortgage Insurance – Loan terms less than 15 years
  23. 23. Borrower Eligibility: How many FHA loans can a borrower finance? <ul><li>Loan Limitation: FHA will not insure more than one mortgage for any borrower </li></ul><ul><li>Exceptions may be made on a case-by-case basis subject to underwriter discretion </li></ul><ul><ul><li>Borrower is relocating to another area not within a reasonable commute of the current principal residence </li></ul></ul><ul><ul><li>Family size has significantly increased and the current residence no longer meets family housing requirements </li></ul></ul><ul><ul><li>Borrower has vacated a jointly owned property and residence will remain occupied by a co-mortgager </li></ul></ul><ul><ul><li>Borrower is a non-occupying co-borrower on a purchase with a family member </li></ul></ul>FHA Program Basics Key Parameters
  24. 24. Eligible Borrowers <ul><li>United States Citizens - Identification of borrowers can be verified by a government issued photo ID </li></ul><ul><li>Lawful Permanent Resident Aliens - acceptable if documented (Green Card) </li></ul><ul><li>Non-Permanent Resident Aliens - acceptable if: </li></ul><ul><ul><li>Property is or will be principal residence of borrower </li></ul></ul><ul><ul><li>Valid social security number </li></ul></ul><ul><ul><li>Evidence of work status - “Employment Authorization Document” (EAD) issued by the United States Citizenship and Immigration Service </li></ul></ul>FHA Program Basics Key Parameters
  25. 25. Identity of Interest: Non-Arms Length Transaction <ul><li>Identity-of-Interest is defined by FHA as a transaction between : </li></ul><ul><ul><li>Family members </li></ul></ul><ul><ul><li>Business partners or other business affiliates </li></ul></ul><ul><li>Usually restricted to an 85% LTV. However maximum financing is permissible under any of the following circumstances: </li></ul><ul><ul><li>Family member is purchasing another family member’s principal residence </li></ul></ul><ul><ul><li>Current tenant is purchasing a property they rented at least six (6) months predating the sales contract </li></ul></ul><ul><ul><li>Employee of a builder is buying one of the builder's new or model homes as a principal residence </li></ul></ul><ul><ul><li>Sales by corporations that transfer employees out of an area, then purchase the transferred employee’s home, and then resell it to another employee </li></ul></ul>FHA Program Basics Key Parameters
  26. 26. <ul><li>Thoroughly examine all names on purchase contract and compare with names on other documents in file: </li></ul><ul><ul><li>Do the seller and buyer have the same last name? </li></ul></ul><ul><ul><li>Is the appraiser's last name the same as the borrower or agent? </li></ul></ul><ul><ul><li>Does the builder's name match the borrower's employer on the application (LO)? </li></ul></ul><ul><ul><li>If the seller and buyer have different last names and the file contains a gift letter, does the gift donor have the same last name as the seller? </li></ul></ul>Identity of Interest: Non-Arms Length Transaction con’t FHA Program Basics Key Parameters
  27. 27. Non-Occupant Co-Borrowers Also referred to as a “kiddie condo” <ul><li>There may be a 75% LTV limit if one borrower will not be occupying a property. Exceptions are possible on 1-unit properties when: </li></ul><ul><ul><li>Borrowers are related by blood </li></ul></ul><ul><ul><li>Unrelated individuals can document a long-term, family-type relationship </li></ul></ul>FHA Program Basics Key Parameters <ul><li>Be certain that the intent of adding a non-occupying co-borrower to </li></ul><ul><li>the loan is not to circumvent FHA restrictions </li></ul><ul><li>Occupant borrower must qualify on their own if they do not have a credit score. </li></ul>
  28. 28. Non-Purchasing Spouse <ul><li>Non-purchasing spouse may be required to either: </li></ul><ul><ul><li>Sign a security instrument – or – </li></ul></ul><ul><ul><li>Provide documentation evidencing that he or she is relinquishing all rights to the property </li></ul></ul><ul><li>If non-purchasing spouse executes the security instrument they are not considered a borrower for FHA purposes and do not need to sign the loan application </li></ul><ul><li>In all other cases the non-purchasing spouse would not appear on the security instrument but would be on the title to the property </li></ul>FHA Program Basics Key Parameters
  29. 29. FHA DEPARTING RESIDENCE HUD Mtge Letter 2008-25 <ul><li>For FHA loans written after Sept 19, 2008 the following guidelines apply when a borrower is not selling their current home: </li></ul><ul><li>If the existing home is pending sale but not closed , buyer must qualify carrying both mortgages . </li></ul><ul><li>If the existing home will become a second or vacation home , the buyer must qualify to carry both mortgage payments . </li></ul><ul><li>Existing property will become a rental and at least 25% equity in current home, rental income must be documented with a fully executed lease agreement . Underwriting my require a copy of cancelled security deposit check from tenant . </li></ul><ul><li>Existing property will become a rental and 25% equity can not be documented , the buyer must qualify to carry both mortgage payments. </li></ul>
  30. 30. Community Property States <ul><li>If a borrower resides in a community property state or the property to be insured is located in community property state, the following conditions apply: </li></ul><ul><ul><li>Debts of the non-purchasing spouse must be considered in the qualifying ratios </li></ul></ul><ul><ul><li>Joint credit report is sufficient </li></ul></ul><ul><ul><li>Only consider the debts; credit worthiness is not a requirement </li></ul></ul><ul><ul><li>The only exceptions are obligations specifically excluded by state law </li></ul></ul>FHA Program Basics Key Parameters Note: In non-community property states it is not necessary to obtain a credit report on a non-purchasing spouse if the spouse will not be on the title.
  31. 31. FHA Modernization Bill <ul><li>Streamline condominium project requirements </li></ul><ul><ul><li>Publish letter in 30 days – effective 30-60 days later </li></ul></ul><ul><li>Cash investment increased from 3.0% to 3.5% </li></ul><ul><ul><ul><li>Loan amount cannot exceed 100% of sales price/value </li></ul></ul></ul><ul><ul><ul><li>Upfront MIP included in loan amount </li></ul></ul></ul><ul><ul><ul><li>Other calculations eliminated (LTV & closing costs) </li></ul></ul></ul><ul><ul><li>Implementation </li></ul></ul><ul><ul><ul><li>Mortgagee Letter: 30-60 days </li></ul></ul></ul><ul><ul><ul><li>Effective date: January 1 st </li></ul></ul></ul><ul><ul><ul><ul><li>Case numbers assigned </li></ul></ul></ul></ul>
  32. 32. Example: Cash Investment Calculation <ul><li>What the law says: </li></ul><ul><ul><li>Maximum loan amount: 100% - MIP in loan amount </li></ul></ul><ul><ul><li>Cash investment – 3.5% ($3,500 on $100,000) </li></ul></ul><ul><li>Example </li></ul><ul><ul><li>Value/sales price: $100,000 </li></ul></ul><ul><ul><li>Upfront MIP: 1.75% (October 1 st ) </li></ul></ul><ul><ul><li>Sales price & cc’s: $103,000 </li></ul></ul><ul><ul><li>Base loan amount - $98,250 ($100,000 – MIP) </li></ul></ul><ul><ul><li>Funds to close: $4,750 </li></ul></ul><ul><ul><li>Law requires borrower to have $3,500 or gift </li></ul></ul>
  33. 33. FHA Modernization Bill <ul><li>Downpayment assistance programs (DPAs) </li></ul><ul><ul><li>Terminate seller participation – October 1 st </li></ul></ul><ul><li>Mortgage insurance premiums </li></ul><ul><ul><li>HUD must stop risk-based pricing – October 1 st </li></ul></ul><ul><ul><li>Case numbers assigned prior to 7/14 – 1.5% upfront </li></ul></ul><ul><ul><li>Case numbers 7/14 – 9/30 – risk-based pricing </li></ul></ul><ul><ul><li>Case numbers on or after 10/1/08 – TBD </li></ul></ul><ul><li>Wildcard: Possible legislation – late September; this did not happen. </li></ul>
  34. 34. Tax Credit <ul><li>Interest free loan </li></ul><ul><ul><li>Must be paid back – 6.67% per year starting in 2 nd Year </li></ul></ul><ul><li>Tax credit - $7,500 for family </li></ul><ul><ul><li>$3,750 for individual </li></ul></ul><ul><li>First-time homebuyer – principal residence </li></ul><ul><li>Max income : $75,000 per individual: $150,000 </li></ul><ul><li>Eligibility: April 9, 2008 – June 30, 2009 </li></ul>
  35. 35. <ul><li>Appraisal requirements closely mirror conventional guidelines </li></ul><ul><li>Fee reform eliminates need for seller to pay buyer fees </li></ul><ul><li>Processing has been greatly streamlined </li></ul><ul><li>Automated underwriting has been standardized </li></ul><ul><li>Allows for less-than-perfect credit </li></ul>FHA Reform: Dispelling the Myths NEW & IMPROVED!
  36. 36. FHA Reform: Dispelling the Myths Appraisal Requirements Greatly Relaxed VALUE CONDITION SHEETS ARE NO LONGER REQUIRED!!! A Huge Win!!!
  37. 37. FHA Reform: Dispelling the Myths Appraisal Enhancements <ul><li>Examples of minor repairs that no longer require automatic repair for existing properties include, but are not limited to: </li></ul><ul><li>Missing handrails </li></ul><ul><li>Cracked or damaged exit doors that are otherwise operable </li></ul><ul><li>Cracked window glass </li></ul><ul><li>Defective paint surfaces in homes constructed 1978 and after </li></ul><ul><li>Minor plumbing leaks, such as leaky faucets </li></ul><ul><li>Rotten or warped counter tops </li></ul><ul><li>Crawl space and debris and trash </li></ul><ul><li>Lack of all-weather driveway surface </li></ul><ul><li>Defective floor finish or covering (worn through finish, badly soiled carpeting) </li></ul><ul><li>Evidence of previous (non-active) wood destroying insect organism </li></ul><ul><li>Damaged plaster, sheetrock or other wall and ceiling materials in homes constructed post-1978 </li></ul><ul><li>Poor workmanship </li></ul><ul><li>Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting) </li></ul>
  39. 39. FHA Reform: Dispelling the Myths Seller Fees <ul><li>Historically, your sellers have </li></ul><ul><li>been required to pay buyer unallowable closing costs for accepting an FHA offer. </li></ul>
  40. 40. FHA Reform: Dispelling the Myths Seller Fees <ul><li>What Closing Costs is the Seller required to pay NOW when accepting an FHA Offer ? </li></ul>NONE!!!
  41. 41. FHA Reform: Dispelling the Myths Flexible Credit Parameters <ul><li>No minimum credit scores </li></ul><ul><li>Non Traditional credit may be used. </li></ul><ul><li>For Foreclosures: </li></ul><ul><ul><li>3 years from date Claim was paid </li></ul></ul><ul><li>For bankruptcies: </li></ul><ul><ul><li>2 years from discharge date (Chapter 7) </li></ul></ul><ul><ul><li>1 year under extenuating circumstance </li></ul></ul><ul><ul><li>Customers currently in Chapter 13 bankruptcy or Debt Repayment Plans (Consumer Credit Counseling) could be eligible after 1 year of on-time payments (Consumer Credit Counseling-same guideline) </li></ul></ul><ul><li>In many circumstances, collections are not required to be paid off prior to closing </li></ul>
  42. 42. FHA Reform: Dispelling the Myths FHA Flexible Credit Parameters Additional Features <ul><li>Comparison: </li></ul><ul><ul><li>FHA is 31/43 with a 3.5% total investment </li></ul></ul><ul><ul><li>Conventional is 28/36% with a 5% down payment plus closing costs </li></ul></ul><ul><li>100% gift allowed from “relative” or employer </li></ul><ul><li>Non-occupant co-mortgagors & co-signors allowed-occupant borrower need not have an income source </li></ul><ul><li>Deferred student loans may not impact qualifying if deferment can be proven to be for +12 months---Deferment not the same as forbearance </li></ul>
  43. 43. FHA Qualifying <ul><li>Ratios- published ratios 31/43 </li></ul><ul><li>Ratios are guidelines, not rules. </li></ul><ul><li>Ratios can be exceeded with compensating factors. </li></ul><ul><li>The following are compensating factors that may be used on an FHA Loan: </li></ul><ul><ul><li>Borrower’s current housing payment equal to or greater than proposed payment </li></ul></ul><ul><ul><li>Minimal increase in the borrower’s housing payment </li></ul></ul><ul><ul><li>Borrower has demonstrated ability to accumulate savings and has a conservative use of credit </li></ul></ul><ul><ul><li>Borrower receives documented compensation or income not used for qualifying, but directly affecting the ability to meet obligations. </li></ul></ul><ul><ul><li>Borrower has substantial documented cash reserves </li></ul></ul><ul><ul><li>Borrower has potential for salary increases as indicated by job training or education </li></ul></ul><ul><ul><li>Borrower has substantial non-taxable income </li></ul></ul>
  44. 44. Overview…loan amounts greater than $417,000 <ul><li>The Economic Stimulus Package signed Feb. 13 provides temporary loan limit increases for: </li></ul><ul><ul><li>Potentially all areas for FHA loans </li></ul></ul><ul><li>FHA: These limits are effective for mortgages endorsed for insurance on or after January 1 st , 2009 and remain in effect for those mortgages for which the mortgagee has issued credit for approval by the borrower on or before December 31, 2009. </li></ul><ul><li>Creates an excellent advantage to buyers and to sellers </li></ul><ul><li>Additional Qualifying parameters apply: </li></ul><ul><ul><li>No foreclosures or bankruptcy with last 7 years for cash-out refinances </li></ul></ul><ul><ul><li>Two appraisals may be required </li></ul></ul><ul><ul><li>Credit score may limit minimum down payment </li></ul></ul><ul><ul><li>NEED 620 for financing at 96.5% </li></ul></ul><ul><ul><li>NEED 600 for financing at 95% </li></ul></ul>High Balance FHA Loan Program Information is accurate as of the date of publication and is subject to change without notice. For WFHM Internal Use Only.
  45. 45. FHA Floors <ul><li>The following FHA floors for one-and two-unit properties were allowed on or after March 7, 2008 : </li></ul><ul><li>All standard requirements (e.g., credit policy, pricing, etc) for FHA apply </li></ul>Information is accurate as of the date of publication and is subject to change without notice. High Balance FHA Loan Program $347,000 Two-Unit $271,050 One-Unit
  46. 46. FHA Floors <ul><li>The following FHA floors were allowed on or after March 17, 2008 : </li></ul>High Balance FHA Loan Program Information is accurate as of the date of publication and is subject to change without notice. $521,250 Four-Unit $419,400 Three-Unit $347,000 Two-Unit $271,050 One-Unit
  47. 47. <ul><li>On March 17, 2008 , Prosperity began offering the temporary higher FHA loan limits </li></ul><ul><li>Loan limits are based on the median house price for homes in a specific area as determined by HUD </li></ul><ul><li>Not all areas are allowed up to the ceiling limit </li></ul>Information is accurate as of the date of publication and is subject to change without notice. High Balance FHA Loan Program High Balance FHA Loan Program Alaska and Hawaii Ceilings New Ceilings Property Type $1,403,400 $1,129,250 $934,200 $729,750 $2,105,100 Four-Unit $1,693,875 Three-Unit $1,401,300 Two-Unit $1,094,625 One-Unit
  48. 48. High Balance FHA Loan Program cont’d Information is accurate as of the date of publication and is subject to change without notice. High Balance FHA Loan Program <ul><li>30-year fixed </li></ul><ul><li>3/1 ARM* </li></ul><ul><li>5/1 ARM* </li></ul><ul><li>* Margin = 2.25 </li></ul><ul><li>15- 20- and 30-year fixed </li></ul><ul><li>3/1 and 5/1 ARM </li></ul>Eligible Products Manual calculation of Note rate +2% is required 3/1 and 5/1 ARM = Note rate ARM Qualification High Balance FHA Loan Program Standard FHA Loan Program
  49. 49. Housing & Economic Recovery Act of 2008 <ul><li>Changes as of October 1, 2008 </li></ul><ul><ul><li>Upfront Mortgage Insurance Premium increases to 1.75% for most transactions </li></ul></ul><ul><ul><li>Prohibits Seller – funded Down Payment Assistance Programs </li></ul></ul><ul><li>Changes as of January 1, 2008 </li></ul><ul><ul><li>3.5% down payment required </li></ul></ul><ul><ul><li>Revised loan limit calculations (Loan limits expected to be announced in November 2008) </li></ul></ul>
  50. 50. Selling the Contract FHA Financing Can Help You Benefit By: <ul><li>Helping Close the Sale </li></ul><ul><ul><li>Seller contributions are allowed up to 6% </li></ul></ul><ul><li>Driving More Buyers </li></ul><ul><ul><li>Differentiate your listed properties in a competitive market when you offer interest rate buy downs. </li></ul></ul><ul><li>FHA Financing is Assumable </li></ul><ul><ul><li>All FHA loans are fully assumable—built in financing for future sales </li></ul></ul><ul><li>Moving More Inventory </li></ul><ul><ul><li>Renovation and limited-repair programs can help move fixer-uppers </li></ul></ul>
  51. 51. Selling the Contract Our Commitment to Growing Your Business Seller Contributions <ul><li>Value of Seller Contributions vs. Price Reductions </li></ul>FHA can produce more qualified buyers <ul><li>To YOU : </li></ul><ul><li>Increased Earnings </li></ul><ul><li>Maintains neighborhood value/comparables </li></ul><ul><li>To the SELLER : </li></ul><ul><li>Expands the Buyer Pool </li></ul><ul><li>Increases Traffic </li></ul><ul><li>Reduces Time on the Market </li></ul>
  52. 52. Selling the Contract Our Commitment to Growing Your Business: Seller Contributions <ul><li>Value of Seller Contributions vs. Price Reductions </li></ul><ul><li>To the BUYER : </li></ul><ul><li>Lower permanent monthly payment on fixed and ARMs (consider it a permanent rate buydown </li></ul><ul><li>SIGNIFICANTLY lower initial payment (temporary buy-down) </li></ul>#104597 6/08
  53. 53. Selling the Contract Our Commitment to Growing Your Business Seller Contributions <ul><li>Value of seller contributions </li></ul><ul><li>versus price reductions </li></ul>Example $200,000 List Price $200,000 $200,000 Sales Price $190,000 $200,000 Net $190,000 $ 10,000 Seller Contributions $ 0 $190,000 $190,000
  54. 54. Selling the Contract Our Commitment to Growing Your Business FHA Financing is Assumable FHA Loans Are Fully Assumable! This means when your homeowner is ready to sell the property, a qualified buyer can assume responsibility for the home seller’s existing mortgage. It’s called an “assumption” How it works: Much like the process for a new borrower, the buyer has to receive approval by the lender. There is typically an assumption fee plus a fee for the credit report incurred during this approval process. Disadvantage: Additionally, if the house has appreciated and/or the mortgage has been paid down significantly since the loan was taken out, the buyer either has to pay cash or take out a second mortgage to cover the difference between the loan balance and the sales price. Advantage: If distressed financially or distressed, market buyer only needs to credit qualify, and pay closing costs, not escrows…Take over the payment including escrows. <ul><li>Buyer benefits: </li></ul><ul><li>Interest rate – lower if interest rate on assumed mortgage is lower than market rates at the time of purchase </li></ul><ul><li>Lower payments </li></ul><ul><li>Reduced mortgage term </li></ul><ul><li>Agent Benefits – Don’t underestimate the curb appeal!: </li></ul><ul><li>Builds in financing for your future listings </li></ul><ul><li>Increases the marketability </li></ul><ul><li>Differentiates the listings </li></ul>
  55. 55. <ul><li>What comes to mind when you see: </li></ul><ul><li>“Handyman Special” </li></ul><ul><li>“As Is” </li></ul><ul><li>“Fixer Upper” </li></ul><ul><li>“Needs TLC” </li></ul>Selling the Contract Our Commitment to Growing Your Business Renovation Loans
  56. 56. <ul><li>Make your current listing </li></ul><ul><li>a dream home with one </li></ul><ul><li>our FHA 203K programs </li></ul>Selling the Contract Our Commitment to Growing Your Business Renovation Loans
  57. 57. <ul><li>We can close on most properties in their existing condition </li></ul><ul><ul><li>The loan amount includes the costs of the repairs </li></ul></ul><ul><ul><ul><li>- Loan based on the Improved Value </li></ul></ul></ul><ul><ul><li>All work is completed AFTER CLOSING </li></ul></ul><ul><ul><li>1 to 4 units </li></ul></ul><ul><ul><li>Approximately the same out of pocket investment as a standard FHA </li></ul></ul>Selling the Contract Our Commitment to Growing Your Business Renovation Loans
  58. 58. <ul><ul><li>Streamline FHA 203 K allows for non-structural repairs up to a total renovation of $35,000 </li></ul></ul><ul><ul><ul><li>Can include floor coverings, appliances, kitchen, baths, roofing, plumbing & electric, painting & siding, basement refinishing, septic and well systems, windows </li></ul></ul></ul><ul><ul><ul><li>No minimum $ amount of repairs </li></ul></ul></ul><ul><ul><ul><li>Not Eligible - Any structural repair, landscaping or luxury items </li></ul></ul></ul><ul><ul><li>Most REOs (bank owned) properties are allowed </li></ul></ul><ul><ul><li>Contractor Validation Required </li></ul></ul><ul><ul><ul><li>- General Contractor or up to 3 sub-contractors can be used </li></ul></ul></ul>Selling the Contract Our Commitment to Growing Your Business Renovation Loans
  59. 59. Selling the Contract Our Commitment to Growing Your Business Renovation Loans <ul><li>Standard 203 K Program </li></ul><ul><li>Allows for structural / major repairs </li></ul><ul><li>10 -15% contingency reserve required for cost overruns </li></ul><ul><li>Total $ amount for repairs NOT capped at the $35,000 limit </li></ul><ul><li>6 month time frame for work to be completed </li></ul><ul><li>Allowed to finance up to 6 months of mortgage payments </li></ul><ul><li>General Contractor Required </li></ul><ul><li>Maximum of 5 draws to disburse funds </li></ul>
  60. 60. Selling the Contract Our Commitment to Growing Your Business Renovation Loans <ul><li>The Basic 203 K Process </li></ul><ul><li>Get Prequalified by a Prosperity Loan Officer </li></ul><ul><li>- No automated underwriting – strict 31 / 43 ratios </li></ul><ul><li>- Rate and points are higher then a “normal” FHA loan </li></ul><ul><li>Submitting sales contract </li></ul><ul><ul><li>Include that the buyer is obtaining 203K financing </li></ul></ul><ul><ul><li>Contingent upon an acceptable Feasibility Study and Appraisal </li></ul></ul><ul><li>Loan Application </li></ul><ul><li>Feasibility Study Performed </li></ul><ul><ul><li>Will need termite report and well and septic if applicable – prior to the study </li></ul></ul><ul><ul><li>The 203 K consultant will perform a work write up that defines what is required to renovate the property to meet the program guidelines and the customer’s needs </li></ul></ul><ul><li>Choose a Contractor </li></ul><ul><ul><li>Validation Required </li></ul></ul><ul><li>Appraisal ordered </li></ul><ul><li>Loan Approval </li></ul><ul><li>Settlement </li></ul><ul><ul><li>Normal settlement – except that an repair escrow is established </li></ul></ul><ul><li>Work starts </li></ul><ul><li>Draw Requests </li></ul>
  61. 61. What is a Temporary Buydown? <ul><li>A program that enables customers to start a mortgage at a lower interest rate during the initial buydown period, which can be from one to three years </li></ul><ul><li>During the buydown period, the rate adjusts on a fixed schedule, depending on the type of buydown selected </li></ul>Selling the Contract Our Commitment to Growing Your Business Interest Rate Buydown
  62. 62. When to use a Buydown Selling the Contract Our Commitment to Growing Your Business Temporary Buydown <ul><li>A buydown is a good solution when the housing market slows, and the gap between an adjustable rate and fixed rate narrows significantly which results in a flattened yield curve </li></ul><ul><li>Builders and sellers can use it increase traffic to their property </li></ul><ul><li>Lenders often use it to provide a competitive offer to the buyer </li></ul>
  63. 63. Which Borrowers are best suited for Buydown? <ul><li>Financially Savvy – homeowners who intend to, and actually do, put monthly payment reductions into other investments </li></ul><ul><li>Relocate, Move-up or Down-size – homebuyers who intend to move within 3 years </li></ul><ul><li>First-time Homebuyers – confident of their income growth, and expect to see continued home-value appreciation </li></ul><ul><li>Homebuyers in High-priced Housing Markets </li></ul>Selling the Contract Our Commitment to Growing Your Business Temporary Buydown
  64. 64. Primary Customer Benefits <ul><ul><li>Provides low monthly payments for the first year(s) of the loan </li></ul></ul><ul><ul><li>Enables borrowers to have predictable payments </li></ul></ul><ul><ul><li>Has numerous buydown options to choose from </li></ul></ul><ul><ul><li>Assists first-time homebuyers with the gradual transition from rental to monthly mortgage payments </li></ul></ul><ul><ul><li>Helps manage cash flow </li></ul></ul>Selling the Contract Our Commitment to Growing Your Business Temporary Buydown
  65. 65. Funding the Cost of a Buydown <ul><li>Seller/builder - frequently occurs in today’s market when they want to increase interest in their property </li></ul><ul><li>Borrower - occasionally happens when unique situations occur when they need a lower rate and are prepared for the future payment adjustments scheduled during the buydown period </li></ul><ul><li>Lender - often the case in a competitive market when lenders want to differentiate themselves with this offering </li></ul><ul><li>Or a combination of any of the above </li></ul>The Buydown program basically creates an account that supplements the borrower’s monthly payments during the temporary buydown period. This account can be funded in three ways: Selling the Contract Our Commitment to Growing Your Business Temporary Buydown
  66. 66. Writing the Contract <ul><li>Except for houses sold by FHA under its property disposition program, FHA is not a party to the sales agreement. </li></ul><ul><li>When a sales contract contains conditions that, if performed, would violate FHA’s requirements, lenders should obtain an addendum or modification to the sales agreement that would allow for conformance to those requirements. </li></ul><ul><li>FHA has specific requirements that the seller on the sales contract must be the owner-of-record </li></ul><ul><li>The sales contract for an FHA sale is not that different than a conventional sale: A few specific addendums are all you need: </li></ul><ul><ul><li>Amendatory Clause </li></ul></ul><ul><ul><li>For Your Protection: Get a Home Inspection </li></ul></ul>
  67. 67. Writing the Contract Amendatory Clause SALES PRICE
  68. 68. Writing the Contract Amendatory Clause
  69. 69. Writing the Contract Amendatory Clause <ul><li>The escape clause, also known as an Amendatory Clause must be part of the sales contract. </li></ul><ul><li>This clause states the purchaser can cancel the transaction, without a loss, if the value is less than the sales price. </li></ul><ul><li>The dollar amount to be inserted in the amendatory clause is the sales price as stated in the contract. </li></ul><ul><li>If the borrower and seller agree to adjust the sales price in response to an appraised value that is less than the sales price, a new amendatory clause is not required. </li></ul>
  70. 70. Writing the Contract For Your Protection: Get a Home Inspection <ul><li>For FHA transactions it is suggested that borrower(s) read the “For Your Protection Get A Home Inspection.” </li></ul>
  71. 71. Writing the Contract For Your Protection: Get a Home Inspection
  72. 73. Setting Expectations <ul><li>FHA programs have special requirements </li></ul><ul><ul><li>Knowledge & service matter </li></ul></ul><ul><ul><li>Cannot “flip a switch” & be a good government lender </li></ul></ul><ul><li>You have got to do business w/ lenders that understand FHA’s “rules” </li></ul><ul><ul><li>“Rules” can change on short notice </li></ul></ul><ul><ul><li>You do not want any “surprises” </li></ul></ul>
  73. 74. FHA Timeline <ul><li>FHA loans do take longer to process than conventional loans. </li></ul><ul><li>There are not any “no doc” FHA loans. </li></ul><ul><li>All FHA loans have to be manually underwritten by an FHA designated Direct Endorsement (DE) Underwriter. </li></ul><ul><li>While FHA loans can still be approved with a small down payment, limited credit and extended ratios, they are reviewed in depth. </li></ul><ul><li>Any last minute changes to the loan must go back to underwriting and be re approved by an FHA DE Underwriter. </li></ul><ul><li>Allow 30-45 days for FHA transactions. </li></ul><ul><li>Try not to close your sales after the 25 th of any month. </li></ul>
  74. 75. Interest Credit saves time & money <ul><li>Close an FHA sale the first seven days of a month and use an interest credit. </li></ul><ul><li>With an interest credit, the buyer does not pay any per diem interest at closing. </li></ul><ul><li>They actually get a credit back from the lender at closing. </li></ul><ul><li>The first mortgage payment is due the first of the following month. </li></ul><ul><li>Buyer does not “skip” first month’s mortgage payment. </li></ul><ul><li>At the end of the year the interest paid is the same. </li></ul><ul><li>Reduces actually cash needed the day of closing. </li></ul><ul><li>Avoids end of the month log jam at title companies and mortgage companies. </li></ul><ul><li>Makes for a smoother closing. </li></ul>
  75. 76. Summary: Mortgage Market <ul><li>Mortgage market has and will continue changing significantly </li></ul><ul><ul><li>Dramatic shifts in product availability & use </li></ul></ul><ul><ul><ul><li>Government (and conventional lending) are back </li></ul></ul></ul><ul><ul><ul><li>Alt-A and subprime curtailed sharply </li></ul></ul></ul><ul><li>Mortgage financing/approval cannot be “taken for granted” </li></ul><ul><ul><li>Pre-qualification process is important </li></ul></ul><ul><ul><li>Lender reputation & experience “mean something” </li></ul></ul><ul><li>Back to the Future! </li></ul>
  76. 77. FHA REVERSE MORTGAGES <ul><li>Also known as Home Equity Conversion Mortgage - HECM </li></ul><ul><li>A special loan for Senior Citizens 62 or older who wish to access the equity they have built up in their homes over time without the obligation of making monthly payments back to the bank. </li></ul>
  77. 78. Reverse Mortgages <ul><li>How are Reverse Mortgages different now? </li></ul><ul><li>No Shared appreciation </li></ul><ul><li>Lower Fees </li></ul><ul><li>Higher Nationwide Lending Limit </li></ul><ul><li>Consumer Safeguards: </li></ul><ul><ul><ul><li>4 NEVERS : </li></ul></ul></ul><ul><ul><ul><li>Never give up title to home </li></ul></ul></ul><ul><ul><ul><li>Never owe more than the home’s value </li></ul></ul></ul><ul><ul><ul><li>Never have to move </li></ul></ul></ul><ul><ul><ul><li>Never make a payment on principal or interest </li></ul></ul></ul>
  78. 79. How Cash is Distributed to Borrower <ul><li>Guaranteed Monthly Payments </li></ul><ul><li>Tenure (For Life) </li></ul><ul><li>Term </li></ul><ul><li>Growing Line of Credit </li></ul><ul><li>Lump Sum Payout </li></ul><ul><li>Reverse Mortgage Proceeds can be used to: </li></ul><ul><ul><li>Pay off current mortgage </li></ul></ul><ul><ul><li>Buy Second home </li></ul></ul><ul><ul><li>Help Children Purchase 1 st home </li></ul></ul><ul><ul><li>PURCHASE TANSACTION </li></ul></ul>
  79. 80. REVERSE MORTAGES / HECM <ul><li>Refinance and Purchase </li></ul><ul><li>Monthly or Annually adjustable rate </li></ul><ul><li>Fixed Rate </li></ul><ul><li>No limit on number of borrowers on a Reverse Loan </li></ul><ul><li>Based on Youngest Borrower’s Age-must be at least 62 </li></ul><ul><li>Lending Limit now $417,000 Nationwide </li></ul>
  80. 81. Reverse Mortgage for Purchase <ul><li>FHA now allows Senior borrowers to combine their down payment with money from a Reverse Mortgage to purchase a home and never make a mortgage payment . </li></ul>
  81. 82. The Formula: <ul><li>Appraisal – Reverse Lump Sum Cash = Down Payment </li></ul><ul><li>How much money is available? </li></ul><ul><ul><li>Age of youngest borrower on title </li></ul></ul><ul><ul><li>Home’s Appraised Value </li></ul></ul><ul><ul><li>Current Interest Rate </li></ul></ul><ul><ul><li>The purchase calculator: </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul>
  82. 83. Reverse Purchase Example <ul><li>Example of a Reverse Mortgage for Purchase Transaction </li></ul><ul><ul><li>$300,000 home value in Maryland </li></ul></ul><ul><ul><li>Senior 70 years old eligible for $190,000 </li></ul></ul><ul><ul><ul><li>Appraised value – Reverse Cash = down payment </li></ul></ul></ul><ul><ul><ul><li>$300,000- $190,000 = $110,000 down payment </li></ul></ul></ul><ul><ul><ul><li>The senior buys a $300,000 home and puts $110,000 down and lives in the home never having to make a monthly payment . </li></ul></ul></ul>
  83. 84. Reverse Mortgage for Purchase <ul><li>What does this mean to you as a Realtor? </li></ul><ul><li>Purchase money is now available that is not subject to income, employment, asset or credit verification! </li></ul><ul><li>Access to buyers that would not normally qualify for a mortgage. </li></ul><ul><li>Opportunity to Meet younger family members that buy and sell homes. </li></ul><ul><li>Possibility of two transactions! </li></ul>
  84. 85. Reverse Mortgage <ul><li>Questions? </li></ul>
  85. 86. Q&A <ul><li>Expert Panel: </li></ul><ul><li>FHA Underwriter </li></ul><ul><li>Title Attorney Partner </li></ul><ul><li>FHA Appraiser </li></ul>