2012 Conforming and FHA Loan Limits for King County

The 2012 Conforming and FHA loan limits for King, Pierce and Snohomish Counties have been announced… ready for a little twist?  Conforming loan limits will remain the same as they currently are and FHA loan limits will be restored to the higher “temporary” loan limits that were available prior to October 1, 2011.

For a single unit residential property in King, Snohomish and Pierce County, the 2012 loan limits are:

  • $506,000 Conforming
  • $567,500 FHA – NOTE: FHA loan limits are effective as of November 18, 2011.

Yep… for the first time (I’m guessing ever) FHA loan limits are higher than conforming!  I’m reading in the blogo-sphere that the higher FHA loan limits are available – HOWEVER, I am not seeing this from HUD (on their loan limit site or a Mortgagee Letter) or from any of the lenders I work with.  Until I see something from HUD or a wholesale lender saying they’re accepting the higher FHA loan limits, then my assumption is that $506,000 is the loan limit through the end of this year.  If I learn otherwise, I’ll let you know!

UPDATE December 5, 2011:  HUD published a mortgage letter Friday and updated their website this morning (or in the wee hours last night) with the higher loan limits.

19 Washington State Lenders Lose FHA Approval

Today HUD released it’s Administrative Actions from the Mortgagee Review Board. Read the Federal Register PDF here.  There were 905 lenders that failed to meet requirements for HUD’s annual recertification for FHA approval.  The Mortgagee Review Board voted to immediately withdraw FHA approval for a period of one year for each of the 905 lenders.  “The Board took this action because the lenders were not in compliance with the Department’s annual recertification requirements.”

Granted, some of the lenders on this list are no longer in business such as MILA or were taken over by other banks like Washington Mutual. Yet 905 is quite a high number and some of the names on the list surprised me. Out of the 905 here are the banks, lenders, or brokers from Washington State:

Bank of Clark County, Vancouver
Callycorp Financial, Vancouver
Capstone, Inc., Vancouver
Compass Mortgage, Edmonds
First Independent Bank, Vancouver
Full Circle Financial, Kent
JD Myers Financial, Lake Stevens
MILA, Mountlake Terrace
Mortgage Broker Associates, Lynnwood
NHI Home Mortgage, Federal Way
Park Place Financial, Redmond
Pierce Mortgage, Tacoma
Puget Sound Mortgage, Edmonds
Response Mortgage, Bellevue
RTL Financial, Bellevue
Top Mortgage Bankers, Bellingham
View Point Lending, Marysville
Washington Mutual
Western States, Bellevue

To check on the current default rate of your favorite FHA lender, check out the Neighborhood Watch website.

FHA 30 day “public comment” period

For the next 30 days, HUD is seeking public comment on the following policy changes, each of which are designed to mitigate risk to the Mutual Mortgage Insurance Fund while promoting sustainable homeownership for FHA borrowers:

1) Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

2) Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to three percent will bring FHA into conformity with industry standards.

3) Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.

All of the above is a quote from the HUD.Gov site linked in the first sentence. Anyone who understands what these new measures will or will not do for the public at large should take a few moments to respond to the Government’s request for “public comment”. I know I will. This is a topic that not many fully understand, so it is very important for those who do to respond from the standpoint of “public good” vs self-interest.

We’ve Come a Long Way Baby

VirginiaSlimsThe other day, I received an email from someone who wanted to verify some surprising things he had heard about the “old days” of mortgage underwriting.   Before I go on any further about the details of the discussion, I feel the need to to give a “Surgeon Generals” type warning:  in no way do I nor Mortgage Master condone the outdated underwriting guidelines used in the “old days”.   It is interesting to see how much lending practices have changed over the years…for the better.

From Curious George:

“Heard some interesting historical information from a long time veteran of the real estate industry today.  I seems that at one time, for a woman’s income to be considered when she and her husband were purchasing a home, she needed a note from her doctor stating that she either had a hysterectomy or was going through menopause.  Apparently the fear was that if she became pregnant and couldn’t work for some time, they would not be able to pay their mortgage.  Then with the development and legalization of the birth control pill, the banks reconsidered and allowed 50% of her income to be used.   Eventually banks agreed to 100% of a womans income to be used.

Seriously though, I thought this was interesting.   Maybe you can confirm this.   It would be interesting to see how all of that affected home prices.  I’ll bet with people being to qualify for larger loans, prices got driven up.”

I’ve been trying to find information about this on-line and although I can find plenty about racial discrimination, I’m having a challenging time digging up on how women’s incomes were considered “back in the day”.   HUD and FHA’s websites glorify how their part in rescuring the American Dream during the Great Depression…I’m hard pressed to find early underwriting guidelines.

I decided to use my walking encyclopedia of all things mortgage to check the facts of this “almost unbelievable” depiction of lending history:  my 85 year old father-in-law who spent sixty years in local real estate, Bob Porter.   The first six years (fresh out of the Navy in 1945) selling real estate in North Seattle for Mutual Realty, Broadmor Realty and McPhersons while attending Seattle College (now named Seattle University).  The next twenty-two years were spent as a broker/owner of Southend Brokers with several branches in King County.  His resume continued as President of Pacific West Mortgage headquartered out of Burien and most recently as Chairman of Mortgage Master in Kent until his retirement in 2005.  Now that you know some of Bob’s background, here’s his response to “Curious George”:

“That’s right.  The industry led by FHA and VA would consider a wife’s income for short term debt such as car payments.  Professional women, teachers, lawyers, doctors and business owners income could qualify for mortgage payments on a case by case basis without a letter from their doctor.  Taking loan applications took a lot of diplomacy.  We would be sued for discrimination if we asked a woman for a doctors letter today.”

It’s hard to believe that underwriting guidelines were impacted by various forms of birth control and the progression of women’s rights.

It’s Official: FHA Upfront Mortgage Insurance to Increase in April

Yesterday at The Mortgage Porter, I wrote about changes that HUD had confirmed via a press release for FHA insured loans.   Seasoned mortgage professionals know that the HUD lady hasn’t sang until a Mortgagee Letter is issued and this morning, HUD did just that with ML 2010-02.

Effective on FHA insured loans with case numbers assigned April 5, 2010 or later, the upfront mortgage insurance premium will increase.  Typically the FHA upfront mortgage insurance premium is financed, however it can be paid as a closing cost  (which is how the 2010 GFE discloses the premium). 

FHA insured mortgages for purchases and non-streamline refinances will increase from 1.75% of the base loan amount to 2.25% and streamlined FHA refinances (refinancing an FHA underlying mortgage) will increase from 1.5% to 2.25%.

According this Mortgagee Letter, HUD states that the “annual premiums will not change at this time“.   The annual premiums are what consumers pay in the monthly mortgage payment…and I do believe we will see risk based pricing utilizing credit scores impact FHA’s monthly (annual) mortgage insurance premiums in just a matter of time.

According to HUD’s Press Release yesterday, the following changes should take place with FHA insured loans in early summer:

  • Seller contributions towards allowable closing costs reduced from 6% to 3%.
  • Increasing the down payment requirements for lower credit scores (risk based underwriting).   The Press Release states that those with a 580 score would need a minimum of 10% down payment.   Lenders all ready have underwriting “overlays” which will not permit this scenario so this “toughening” of the guidelines is a bit lost…unless things are loosey goosey again this summer (I’ll eat two shoes).  

HUD’s press release also stated they will “implement a series of significant measures aimed at increasing lender enforcement”.

The upfront mortgage insurance premium increase will go into effect just 25 days before a home buyer needs to be “in contract” to qualify for the home buyer tax credit.

FHA to Adopt HVCC-ish Guidelines effective January 1, 2010…Correction: February 15, 2010

HUD recently announced in Mortgagee Letter 2009-28 dated September 18, 2009 that they are implementing “Appraiser Independence” which is very similar to HVCC. 

Prohibition of mortgage brokers and commission based lender staff from the appraisal process…. To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who were selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan….

FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but does recognize that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence.

Mortgagee Letter 2009-28 goes on to “affirm existing requirements” with regards to preventing improper influencing of appraisers.  And states that:

“A lender must not assume, simply because an appraiser is state-certified that the appraiser is qualifed and knowledgeable in a specific market area.  It is incumbent upon the lender to determine whether an appraisers’ quaifications, as evidenced by educational training and actual field experience are sufficient to enable the appraiser to competently perform appraisals before assigning an appraisal to them.”

AMCs (and the banks who own them) will have extra reason to party-on this New Year’s Eve.  This new requirement goes into effect on all FHA case numbers assigned on or after January 1, 2010 February 15, 2010. [Update:  HUD has extended the time period before the new guidelines in the above referenced mortgagee letter goes into effect…I corrected the title of this post too!]

FHA Suspends Taylor, Bean & Whitaker

I feel like I’m one of the few mortgage originators who have never worked with mortgage giant TBW…many mortgage brokers and lenders do.   FHA’s Press release states:

“TBW is the third largest direct endorsement lender of FHA-insured loans and the eighth largest issuer of Ginnie Mae mortgage-backed securities.”

They are a significant mortgage company and this will impact those brokers and lenders who rely on TBW for FHA financing.   This suspension is temporary “pending the completion of an investigation by HUD’s Office of Inspector General, an ongoing review by the Department’s Office of Housing, and any legal proceedings that may ensue.”

From HUD’s News Release today:

FHA and Ginnie Mae are imposing these actions because TBW failed to submit a required annual financial report and misrepresented that there were no unresolved issues with its independent auditor even though the auditor ceased its financial examination after discovering certain irregular transactions that raised concerns of fraud. FHA’s suspension is also based on TBW’s failure to disclose, and its false certifications concealing, that it was the subject of two examinations into its business practices in the past year.

“Today, we suspend one company but there is a very clear message that should be heard throughout the FHA lending world – operate within our standards or we won’t do business with you,” said HUD Secretary Shaun Donovan.

TBW has the right to appeal, however HUD is not delaying their actions.  In addition, HUD debarment of two top executives at TBW. 

This must be leaving many borrowers and mortgage brokers scrambling for other sources to send their FHA transactions in process. 

FHA Condo Approval Process – MAJOR Guideline Changes

condo construction buildingThere are major changes on the way for developers of condo projects and existing condo owners who want to get approved for FHA financing. These changes are set to take place October 1st, 2009. But the ramifications are going to start being felt right away. The details are outlined in the Mortgagee Letter 2009-19 that was issued on June 12th by HUD. In this latest Mortgagee Letter FHA is announcing dramatic changes to their Condo Approval Process and the ELIMINATION of the Spot Approval Process. While these changes reduce the documentation and requirements for Full Condo Approval, it will place a lot more work and responsibility on Lenders.

The Lender will have 2 options:

  1. HUD Review and Approval Process (HRAP).
  2. Direct Endorsement Lender Review and Approval Process (DELRAP), outlined in this Mortgagee Letter. This option is only available to lenders who have unconditional Direct Endorsement authority and staff with knowledge and expertise in reviewing and approving condominium projects.

The processing options stated above will be applicable to condominium developments that are:

  1. Proposed/Under Construction;
  2. Existing Construction; or
  3. Conversions.

Certain types of projects will be ineligible. They are:

  1. Condominium Hotel or “Condotels

The First Time Home Buyer Tax Credit Advance May NOT Be Used Towards the 3.5% Down Payment…UNLESS…

Update 6/10/2009 11:20 am:  Please read the comments 1-21 (especially Aubrey Cohen’s comments).   Apparently according to a HUD representative, the tax credit can be used for down payment if it’s received through State Housing Finance Agencies.   (I called the FHA help line twice this morning and both FHA representatives say this is not the case).  The representative from HUD apologizes for the confusion and will make sure the Homeownership Centers understand… I apologize for the confusion too!

I feel like shouting “THE TAX CREDIT ADVANCE IS NOT DOWN PAYMENT ASSISTANCE!” up and down the streets of Seattle.  Home buyers utilizing FHA loans still need to come up with a minimum of 3.5% for their downpayment (see the update above).   Per HUD’s Mortgagee Letter 2009-15 dated May 29, 2009:

“The proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity tha tis reimbursed, directly or indirectly…may not be used to meet the 3.5% minimum down payment, but may be used as additional downpayment, buying down the interest rate, or other closing costs.”

Jane and John are buying a home using FHA for financing with a sales price of $300,000.   FHA requires they invest a minimum of 3.5% of the sales price into the transaction.   Jane and John need to have $10,500 of their own funds (which can be gifted or loaned from a family member) invested into this transaction.   Assuming they qualify for the First Time Home Buyer Tax Credit and the IRS figures out how to resolve the issues of how to pay the FTHB Tax Credit Advances, they could use the $8000 towards closing costs, prepaids and any extra funds (after paying closing costs and prepaids AND after they invest $10,500) could go towards downpayment.  (Unless…see the update above).

This is not a zero down program and this is not like the ol’ DPAs (Nehemiah, etc.).   This is (if the details are ever worked out in time) an advance or loan against your tax credit.

Haaa… I feel a little better now.  🙂  One of the benefits of blogging… venting!

When is a Second Appraisal required on FHA Jumbos?

The last few FHA High Balance (aka FHA Jumbo) purchases that I’ve closed, the buyers and agents thought a second appraisal was automatically required.  FHA did adopt conforming appraisal guidelines for declining markets at the beginning of this month, but that does not guarantee a second appraisal.

What triggers a second appraisal for FHA?

  • base loan amount over $417,000; and
  • loan to value equals or exceeds 95%; and
  • the appraisal indicates it’s a declining market; and/or
  • if the wholesale lender/bank decides the area is in a declining market.  

Per Mortgagee Letter 2009-09, FHA defines a declining market as:

“…any neighborhood, market area or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times.”

Appraisers are having to determine overall trends for market areas including analyzing the current supply and demand, days on market, absorption rate and the prevalence seller concessions.    For FHA and conventional loans, this is documented on Fannie Mae Form 1004MC which FHA adopted effective April 1, 2009.








Please note that conventional, FHA  and VA appraisals require this new form.   FHA does have additional requirements:

  • At least two of the three recent sales (comparables aka comps) must be within the last 90 days of the effective date of the appraisal.  Plus,
  • A minimum of two active listings or pending sales.   The appraiser must insure the active listings and pending sales have “reasonable market exposure to avoid use of overpriced properties as comparables”.

If  a home buyer is using a FHA mortgage with a base loan amount over $417,000, they may want to consider saving up for that extra 1.51% down so that they are at a 94.99% loan to value and therefore (currently) avoid the potential second appraisal issue and make sure that the lender you’re working with does not have underwriting “overlays” that will impact you.   FHA’s second mortgage requirements can be found on Mortgagee Letter 2009-09.

Regardless of what type of financing you’re doing, know that the underwriter is going over the appraisal with a fine tooth comb.  It’s quite possible that if they don’t require a second appraisal, they may request additional information or comps from the appraiser which could take more time for your transaction to close.   Since this post is based on FHA transactions–we won’t even venture into HVCC here…that’s a whole other can of worms.