Upcoming Changes to FHA Mortgages

In a recent press release, HUD has announced several changes coming soon to FHA mortgages. FHA mortgages are popular with home buyers because they allow for lower down payments (currently as low as 3.5%) and FHA mortgages tend to be more flexible with credit scoring and debt-to-income ratios. Another reason why home buyers may lean towards is an FHA mortgage in the greater Seattle area is because the allowed loan amount for a single family dwelling is $567,500 compared to $506,000 with a conforming mortgage.

Upcoming changes to FHA mortgages include:

  • FHA annual mortgage insurance (paid in the monthly mortgage payment) will increase by 10 basis points on FHA loans. FHA jumbos (loan amounts of $417,001 to $567,500 in King County) will see an increase of 5 basis points. This is effective with case numbers issued April 1, 2013 and later. 
  • FHA mortgage insurance to be permanent.  FHA mortgage insurance on loans with case numbers issued April 1, 2013 or later will have mortgage insurance on the life of the loan. FHA mortgage insurance on loans with case numbers issued prior to June 3, 2013 will still have their mortgage insurance terminate once it meets 78% loan to value and 60 payments have been made.
  • FHA annual mortgage insurance on 15 year amortized mortgages to be 45 basis points effective with case numbers issued June 3, 2013 and later.  Currently FHA mortgages with 15 year terms do not have annual mortgage insurance.
  • Manual underwriting for borrowers with credit scores below 620 and debt to income ratios exceeding 43%. This basically means that even if the automated underwriting system issues an approval – a borrower meeting this criteria will still need to have a human underwriter review the complete application and decide if she wants to sign their name to it.  I believe at our company, our lowest credit score we will accept for an FHA loan is 640.  This goes into effect with case numbers issued April 1, 2013 and later.
  • Minimum down payment to increase on FHA Jumbo mortgages to 5%.  Currently FHA jumbos have a minimum down payment requirement of 3.5%. In King, Snohomish and Pierce Counties, FHA loan amounts between $417,001 and $567,500 are considered to be FHA Jumbo. A mortgagee letter has not been issued yet (as of the publishing of this post) as to when this will happen.

The increases to FHA annual mortgage insurance premiums will not impact FHA streamlined refinances IF the existing underlying FHA mortgage was endorsed by HUD prior to June 1, 2009.   These lucky home owners still qualify for reduced FHA mortgage insurance premiums.

These changes are in effort to help bolster FHA’s capital reserves.  From HUD’s press release:

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs” said Galante.  “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

If you have been considering buying or refinancing using an FHA insured mortgage and have the ability to beat the April 1, 2013 date when many of the changes are taking place, I encourage you to do so!  FHA case numbers are issued after a bona fide application is in place. If you are in an FHA transaction during the April 1 date, you will want to confirm with your mortgage professional that you have an FHA case number.


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. 

More Upcoming Changes to Underwriting

Fannie Mae issued Announcement 09-19 amending some very basic underwriting guidelines that will not only impact conventional financing; it will apply to FHA insured loans that are underwriting using Fannie Mae’s DU.   You can read the entire announcement by clicking  here.

Here are some of the changes:

  • Credit documents will be valid for 90 days instead of the current 120 for existing construction.   The age of the document is measured from the date of the document to the date the Note is signed.
  • IRS Forms 4506 or 4506-T is required at application and at closing.  This is due to fraud (misrepresentation of income).
  • Age of appraisal is reduced from 6 months to 4 months.
  • Trailing Secondary Wage Earner Income is eliminated.   Now with a relocation, only the income of the spouse with actual employment may be considered.  Previously, it was possible to use the relocating spouse’s income from their employment prior to the relo without having an actual job.
  • Verbal Verification of Employment required within 10 days of signing the Note for employment income and within 30 days for self-employed income.  (Our company has always performed a verbal VOE prior to funding).
  • Stocks, bonds and mutual funds now valued at 70% instead of 100% to be used as reserves.   Due to market volatility, Fannie Mae is devaluing your portfolio.   This means that if you provide your mortgage originator with a stock, bond or mutual fund statement showing an ending balance of $10,000; the figure used for qualifying and on the application will be $7,000 (70% of the value).   Stock options and non-vested restricted stocks are no longer eligible to use as reserves.
  • Retirement accounts valued at 60% instead of 70% to be used as reserves.  

Fannie Mae’s effective dates are to follow…if the loan is manually underwritten, this applies to applications dated on or after September 1, 2009.   However, expect to see lenders and banks to adopt these guidelines early.

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.

2009 FHA Loan Limits for Seattle-Bellevue and Beyond

King, Snohomish and Pierce Counties loan limits effective January 1, 2009 are:

  • Single Family: $506,000
  • Two Family:  $647,750
  • Three Family:  $783,000
  • Four Family:  $973,100

The new loan limit is lower than the current FHA Jumbo limit of $567,500 and is happens to be the same as the jumbo-conforming (aka high-balance) loan limits for our area for 2009.

Credit Scores for the Ages

It’s funny how sometimes a post will take on a life of it’s own within the comments…such is the case with my recent interview of Jillayne Schlicke.  My intentions were to call out to Washington State LOs to make sure they’re up to speed with the new year approaching…the comments have turned into a discussion of credit scores.  Most likely because of Jillayne’s prediction:

“I expect that underwriting guidelines will continue to go up as banks and conforming paper sold to Fannie and Freddie will raise minimum credit score requirements to 800 and require 20% down.  Everyone else will be pushed to FHA.”

Ardell offered stats from 2005 on credit scores and age so I thought I’d share credit score information from credit reports I’ve provided since the start of 2008.  Not all of the subjects obtained a mortgage loan.

  • Age 18 – 29: average credit score = 697.   Don’t let age fool ya, this group had a high score of 807 and a low of 513.  (This group = 12% of the demographic).
  • Age 30 – 39: average credit score = 735.  High score of 811 and the low at 614. (36% of demographic).
  • Age 40 – 49: average credit score = 739.  High score of 819 and a low of 592. (31% of demographic).
  • Age 50 – 59: average credit score = 759.  High score of 820 and the low at 680. (15% of the demographic).
  • Age 60 – 69: average credit score = 714.  High score of 813 and a low at 589.  (4% of the demographic).
  • Age 70 plus: average credit score = 805. High and low score: 805. (1% of the demographic).

The average mid scores, year to date credit reports I’ve ran is 732 for the borrower and 720 for the co-borrower.  This means that if they are considering locking, the rate would be based on the lower of the two mid scores.  I’m also pleased to see that the credit score criteria that I use (credit scores from 720-739) seems to be appropriate for when I’m post.

From the same interview with Jillayne post, Ardell asks:

“What good is it to say interest rates are at 5.875%, if only people 70 plus can get that rate? False advertising…no? If the average person buying a home can only get a rate of 6.5%, then we have to stop encouraging people to think their rate is going to be something that is unlikely”

Using the credit score data above, it’s very likely that the younger group would be FHA candidates.  Not just because of having an average credit score of 697, most are still working on building their savings and do not have 20% down payment.  Combine a 697 mid score with a 90% loan to value and (now costly) private mortgage insurance and FHA may be the better option.  The key is to investigate all available options if someone decides they should buy a home at this stage of their life.  

The next two groups, 30-49 year olds, would fit the rates that I quote at RCG since the credit score criteria I use is based on 720-739.  Based on Friday’s rates, their rate would be 5.875% at 1 point (total shown in lines 801, 802 and 808 of the Good Faith Estimate or HUD).   This combined group is 67% of the applications with credit reports that I have worked with year to date.

Credit scores 740 and above qualify for a slightly better rate.  Based on Friday’s scenario, they would have 0.25% improvement to fee–so 5.875% would be at 0.75% points (using the above example).  Or depending on how rates were, they could possibly obtain an 0.125% better rate.

The slight dip in average credit score to 714 for ages 60-69 I think just reflects that “life happens”.  Maybe something medical has taken place or you were on vacation and thought you paid that credit card or you’re helping your kids with college or you have an unknown parking ticket or an overdue library book turned into a collection.   I’ve seen many surprised people over the years where they had no idea their credit score dropped.   This is in no way a reflection on this age group, it’s just how the stats came in for this report based on my data.

FHA credit scores (where the credit report was ran and FHA was the identified loan program, the loan may be closed or just prequalified) averaged 680.  FHA is not as credit score sensitive as Fannie/Freddie.  FHA is looking for clean credit (no lates) in the past 12 months.

This data is hardly scientific and is really just a reflection of the people I work with which is really pretty diverse.  I don’t advertise or do cold calling or try to “specialize” in a niche market…so I’d like to think that this group is a good “norm”.

My First House: Then and Now

“Cautious Buyer” asks this question on my post the other day when I referenced that my first house had a rate of 11% during the comments:

“Do you think a young couple with similar jobs could buy the same place in Tacoma today? How about 1 year ago today?”


My first house was a rambler in northeast Tacoma.  It’s a 3 bedroom with 1 bathroom and a galley kitchen. 

At barely 1000 square feet, it suited my boyfriend and I just fine.  We liked the 7,500 yard with fruit trees and two car garage with RV parking.  We purchased the home in the summer of 1988 for about $68,000 using minimum down FHA at 11%. 

  • 3% down = $2,040
  • Estimated mortgage payment (PITI) @ 11% = $765

At the time, we were both 21 years old.  I worked at in the title insurance industry as a “home equity title rep” and my boyfriend was a bagger/meat room cleaner for a large grocery store.   Our combined income at that time was about $34,000.

  • 34,000 /12 months = 2,833 monthly gross incomes x 28% = $793.  (We were barely below the recommend “front ratio”).  
  • 2,833 x 43% = 1218 less our mortgage payment of 765 = $453 for maximum allowed monthly debt.  

I didn’t have a company car yet and so I’m sure we were pretty close to using the maximum allowance when we qualified for this mortgage.  Plus, I began receiving offers for credit cards at 18 years old.  I think I was the first girl in school to get a Nordstroms card (I haven’t had a Nordie’s card in YEARS.   I was young and naive when it came to credit.  I managed to pay our bills on time but did learn the hard way…I digress).


Current guestimated value of my first house is around $220,000.  I verified this with ARDELL and it happens to be fairly close to what Zillow is zestimating as well (Zillow is a little higher).   This is assuming it has been updated along with the rest of the neighborhood.

  • 220,000 x 3% down payment = $6,600.  Assuming the seller is paying closing costs.
  • Base loan amount = $213,400 plus upfront mortgage insurance @ 1.75% = $217,134.
  • Interest rate of FHA 30 yr @ 6.500% (apr 7.191% per Friday’s rates) = $1,372.44.  Plus monthly mortgage insurance of 0.55% = 97.81.  2008 taxes = $2525/12 = $210.43.   Total payment (incl. estimated $40 per month home owners insurance) = $1,720.68.

I estimate incomes for both jobs at $67,000.  (I have close sources in both the title and grocery industries).

  • 67,000 /12 = $5,583 gross monthly income.  The total proposed payment of 1,720.68 divided by the monthly gross income = 31%.   This is an acceptable front ratio with FHA. 
  • $5583 x 43% = $2400.69.   2400 less the proposed payment of 1720 =  $680 of allowed monthly debt for FHA in order to stay within a 43% total debt ratio.

It’s been twenty years since I bought my first house.   The house has tripled in value while the incomes for our jobs have pretty much doubled.  I commuted 27 miles one way each day (not even factoring when I made calls on accounts, which at that time my territory was banks and credit unions in King County)…I was thankful once I was promoted to a real “title rep” and had a company car to clunk the miles onto instead of my personal one.  

The answer to your question, Cautious Buyer, is:  YES.  Someone could buy that home today with the same jobs that we had when we purchased it.  Last year’s value?  Since it’s in NE Tacoma, I would say that it hasn’t experienced the same degree of “appreciation” as the Seattle/Bellevue markets did.   According to Zillow, the home is worth 0.9% more now than a year ago and 0.4% less in the last 30 days…so we’re splitting hairs.  

What I wonder is how many first time home buyers would be willing to commute like I did or to buy a true starter home? 

Our agent for our first home did select our loan officer.  As I mentioned, we were 21 and were totally green.  Even though I had worked for a title company for a few years, it’s completely different to actually go through the process.  With our subsequent home purchases, we selected our loan officer first and then the home.

By the way, we did sell that house one year later.  There was a bit of a housing panic (at least I had one at the time) and we sold it for $90,000.  The proceeds was the down payment on our next home located in Federal Way’s “Affordable Street of Dreams“.  Yes, that’s how the new plat was marketed.  Affordable dreams (our “affordable dream” was $125k for 1500 square feet in 1990).   We were able to move just a little closer to family and jobs (and continued to do so with the next home we purchased together).   This photo is from our second home in Madrona Meadows.   We lived in my grandparent-in-laws (we were married at this point) basement for a few months until this home was finished since our first home sold in days with back up offers.

FHA Update: The "It Girl" of Mortgage

This morning I’ve been trying to update articles I’ve written on FHA in an attempt to have the information be accurate during this day and age of the ever-changing-loan-guidelines.  Please don’t rely 100% on information you find about mortgages on the web.  Programs and products are simply changing too often to keep up and information is becoming quickly outdated.  

This month, FHA loans have seen a few changes, many with the passage of HR 3221.   Let’s see if I can get us all caught up in one post. 🙂

Effective for FHA case numbers issued October 1, 2008 and later:

  • FHA mortgage insurance increaseFirst FHA mortgage insurance was going to have risked based pricing, then HR 3221 came along and put a moratorium in effect until September 30, 2009.   Until then, for a FHA purchase 30 year fixed mortgage, upfront mortgage insurance has increased to 1.75% and monthly mortgage insurance is 0.55% for loan amounts over 95% LTV and 0.50% for borrowers putting more than 5% down on their home. 
  • Down payment assistance programs.  Seller funded down payment assistance programs are currently not allowed.  However there is a bill in Congress (HR 6694) that if passed, would allow DPAs once again but only to borrowers within certain credit scores.   Home Buyers can still obtain a gift or loan from family members as long as it meets underwriting guidelines.
  • Rental income credit when buying a new home and renting the existing residence.  This actually became effective in mid September.   When converting a primary residence to a rental home, the rental income can only be used for qualifying if:(1) the borrower is relocating or (2) the new rental meets at least 25% equity (to be determined by an appraisal < 6 months old or the existing mortgage balance is 75% of the original sales price).   Both mortgage payments are factored for qualifying purposes.  HUD (and Fannie/Freddie) have cracked down on this due to home buyers purchasing a new (less expensive) home and “walking away” from their McMansion mortgage payment.

Effective January 1, 2009:

  • Minimum down payment increases to 3.5%.  Home Buyers have until the end of the year to purchase under the 3% down payment requirement.   Sellers can pay actual closing costs once the buyer meets the minimum down payment requirement (which can be gifted or loaned by a family member).
  • FHA Jumbo loan limits to change.   HUD is in the process of reevaluating median home prices and will announce new loan limits before the end of the year.  With the passage of HR 3221, the maximum loan amount for FHA Jumbo was reduced to 115% of the median home price (currently, the $567,500 limit is based on 125% of the median home price).   Should HUD determine that our home values are unchanged, then the new limit would be reduced to around $522,100.   However, many areas have not had their values reevaluated by HUD in many years…so for now, we really don’t know what the new “FHA jumbo” loan limit will be.

A few more reminders about FHA insured mortgages…

  • Not all lenders are approved to originate FHA loansCheck HUDs site to verifyif the mortgage company you work for is approved.   One clue I’ve noticed by LO’s who are trying to “fake it” is that they’re charging more than a 1% origination fee.   This is not allowed.
  • FHA does not have income limitations or geographic requirements.
  • FHA is not limited to first time home buyers.
  • FHA is not just for lower credit scores.

Sellers, you are reducing your exposure to more buyers if you are not considering those approved with FHA financing…especially with the higher loan limits.   A $700,000 sales price with 20% down is pretty close to the current limit.  Anything shy of 20% down would probably lean towards FHA jumbo.

Want more reasons to consider FHA financing?  Here’s how conventional compares:

  • Tighter guidelines.  And if you think DU 7.0’s been tough…wait until you get a load of version 7.1 which goes into effect in mid-December.
  • Risk based pricing on credit scores below 740. (FHA has risk based pricing starting at 620 and below).
  • More expensive private mortgage insurance for loans over 80% loan to value.

It’s easy to see why FHA has become very popular…you could say FHA is the “It Girl” of Mortgage.

How Long is a Preapproval Letter Good For?

I recently had a newly preapproved client ask me that question.  It’s quite a timely one!  Before this market, I would say that a preapproval letter used to be good for about 90 days assuming that none of the information on provided on the loan application has changed.  Now-a-days, you have to factor in guideline changes and interest rates.   You’re really not approved by the sales price or loan amount, it’s based on the total mortgage payment and funds for closing (down payment, closing costs, prepaids/reserves, etc.) along with any other conditions (such as having a certain amount in your savings account after closing).

Assuming that the loan program you’re preapproved with does not have guideline changes and still exists, before you write an offer on a home, I recommend that you contact your mortgage originator to make sure you’re still approved based on that home’s property taxes and current interest rates.  In fact, it wouldn’t hurt to get an updated Good Faith Estimate with current rates and actual property taxes.  If you’re asking the seller to pay closing costs, let your mortgage originator know so they can verify the amount will be allowed per guidelines.  If you’re offering less than you’re preapproved for, your real estate agent may want to have a preapproval letter that is written specifically for the offer (especially if you’re asking the seller to pay closing costs).

Program changes? Boy, we’ve had a few.  There are also changes with private mortgage insurance and various lender guidelines too.  I recommend that people who are in the market right now as “preapproved” buyers, check in with their mortgage originator on a weekly basis (if you’re actively looking) and before you present that offer to make sure it meets current guidelines and that you are still qualified based on the present rate.

Don’t be surprised if your mortgage originator requires you to provide your most recent paystubs and copies of your asset accounts (where your down payment is coming from) before providing an updated preapproval letter.

Last note: Be careful when searching blogs for information on mortgage programs and guidelines.  If the posts are even a few months old, the information may very well be outdated (if it was correct in the first place).

Note: I have modified this post.  I had incorrect data (kind of ironic).

The Housing Rescue Bill

Today President Bush signed a housing “rescue” bill HR 3221.  I’m really still absorbing all of this (I think it’s taking me a bit longer after my trip to Inman Connect).   Here are a few quick pointers:

The FHA risked base mortgage insurance pricing (which I’m in favor of) that was to be effective last week is now postponed until September 30, 2009.   FHA can now save some borrowers in trouble with their mortgage if their existing lender will forgive the underlying debt to 85% 90% of the current value of the home.   Gee…risked based MIP might be handy in these cases.

Also with FHA, Seller paid down payment assistance programs are will be gone and the minimum down payment for an FHA insured loan will be 3.5% (which is a very small increase) beginning October 1, 2008.

Jumbo FHA and Jumbo Conforming loan limits will be reduced from the current 125% of median home value to 115% of the median home value beginning January 1, 2009.   As I mentioned, your days of a loan amount of $567,500 are numbered.   The new conforming/FHA jumbo limit may be closer to $520,000.  

First time homebuyers (someone who has not had interested in a property for the past 3 years) are eligible to receive a tax credit…however, it’s really an interest free loan to be paid back over 15 years or from the proceeds when the home is sold (which ever comes first).  This is available only for homes purchased on or after April 9, 2008 and before July 1, 2009.  Income restrictions do apply.   For more information, check out this website.   

Last but not least (and I’m sure I’m missing stuff) Fannie and Freddie have a new regulator: The Federal Finance Housing Agency aka FHFA.   This from James B. Lockhart:

“Today President Bush signed the ‘Housing and Economic Recovery Act of 2008.’ I thank President Bush and Secretary Paulson for their leadership in making government sponsored enterprise (GSE) regulatory reform a reality.

The Act creates a world-class, empowered regulator, the Federal Housing Finance Agency (FHFA), with all the authorities necessary to oversee vital components of our country’s secondary mortgage markets — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — at a very challenging time.  As Director of the new agency I look forward to working with the combined Federal Housing Finance Board (FHFB), Office of Federal Housing Enterprise (OFHEO) and Housing and Urban Development (HUD) GSE Mission teams and with other regulators to ensure the safety and soundness of the 14 housing related GSEs and the stability of the nation’s housing finance system.

For more than two years as Director of OFHEO I have worked to help create FHFA so that this new GSE regulator has far greater authorities than its predecessors.  As Director of FHFA, I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to the mortgage market, support affordable housing and operate safely and soundly.”

Too much to write about in detail for one post…just wanted to throw you some bits.