Fairfax, VA – With the increased role FHA has taken in the lending world since 2007, FHA has experienced an increase of foreclosures which caused FHA to tighten lending guidelines, increase down payment requirements and institute minimum credit score requirements to qualify for an FHA loan.  Here are some changes that have been made or are on the horizon.

Credit Scores – A minimum credit score of 500 is required.  Borrowers with credit scores below 580 would have to put at least a 10% down payment on the property.  Although FHA has minimum scores of 500 and 580, most lenders have score requirements of at least 620 or higher.

Underwriting – Underwriting is a tool lenders use to document information about the property (value) and the borrower (income, credit score, debt).  The underwriting process is used to assess whether the borrower is likely to repay the loan.  Most lenders today use an automated underwriting system (LP - Freddie Mac or DO/DU – Fannie Mae) to get approval of the loan.   If the automated system flags the loan, a more in-depth manual underwriting procedure would take place to ensure the borrower qualifies for the loan.  The underwriter could require additional funds for cash reserves equal to one mortgage payment or explanations or documentation to further clarify certain aspects of loan file. 

Cash-out Refinancing – Is when a homeowner removes equity from the home in the form of a higher loan amount than before the refinance.  Currently a borrower can take up to 85% of the home’s current value.  Previously, this amount was 95% of the home value.  In order to be eligible for a cash-out, you must have excellent credit and have at least 15%  equity after the refinance. (Example: Value $100,000, Owe: $50,000, Equity available is $35,000 less any applicable closing costs.

Seller Concessions – This is a big one.  A seller concession is an amount that is negotiated in the sales contract that the seller will pay towards the buyers closing costs.  The FHA wants to slash allowable seller concessions in half, from 6% to 3%.  Some buyers want to roll in their closing costs, appraisals, etc. into the loan amount. This is not allowed with FHA loans. But this doesn’t ban concessions of over 3%.  What the new guidelines require is a dollar for dollar reduction in the home’s sale price and reduce the amount of the allowable loan.

Short Refinancing – If a borrower has no equity in their home,  they would be allowed to refinance into an FHA loan.  This is on the first loan only.  If there is a second mortgage, the two loans combined cannot exceed the current value of the home by more than 15% once the first loan is refinanced. Not every lender will allow a short refinance since the current service could be losing money by reducing the loan amount.

90-Day Seasoning Waiver Expanded

Fairfax, Virginia: This update from FHA Virginia Loans was released on Friday January 15th, 2010, as an excerpt from the CFR (Code of Federal Regulations) without a corresponding Mortgagee Letter and contains information about FHA’s policies regarding the waiver of the 90-day seasoning required for sellers.

Here are the 6 things you need to know about these changes:

1. Waiver takes effect February 1st, 2010 for a period of one year unless extended.
2. Investors are now exempt from the 90-day seasoning rule.
3. All transactions must me arms-length.
4. No identity of interest can exist between buyer and seller.
5. If sale price is 20% or more of the seller’s acquisition cost, the lender must:

            a. provide supporting documentation and/or a second appraisal and
            b. order an inspection of the property and provide it to the buyer.

6.  The waiver is limited to forward mortgages only. 

To read the text of this waiver and specific details: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

This is going to help a lot of home buyers get into a home. The seasoning rule was essentially locking people of bidding for certain homes. The next item that must be addresses is sellers and listing agents from eliminating all government loans (FHA, VA and UDSA loans) from submitting purchase bids.

Fairfax, Virginia: The Treasury Department released guidelines and updated forms on November 30, 2009 for its new Home Affordable Foreclosure Alternatives Program (HAFA) for homeowners in Fairfax, Virginia and Alexandria, Virginia area. The HAFA program is supposed to compliment the HAMP program and applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac. The intent of the HAFA program is to assist additional homeowners that are in distress while setting out clear guidelines for mortgage servicers and mortgage holders. The HAFA program also provides incentives to servicers.  The HAFA program is for homeowners in connection with the following situations:

1. A short sale
2. A deed-in-lieu of foreclosure (DIL) used to avoid foreclosure on a loan eligible for modification under the HAMP program.
3. Servicers participating in HAMP are also required to comply with HAFA when working with homeowners in the Fairfax, Virginia and Alexandria, Virginia areas.

The Governments home affordability plan has some new changes for loans not currently serviced by Fannie Mae or Freddie Mac.

Link to HAMP participating servicers: MakingHomeAffordable.gov.

Link to the website: www.hmpadmin.com

Link to the 43 page guidelines that could help homeowners the Fairfax, Virginia and Alexandria, Virginia areas: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

The supplemental directive 09-09, is effective April 5, 2010, but participating servicers may elect to implement HAFA prior to April 5, 2010, in accordance with the supplemental directive guidelines.

• Program offers eligible homeowners viable alternatives to avoid foreclosure;
• Preventing servicers from attempting to reduce real estate commissions established in the listing agreement as a condition for short sale approval;
• Releasing borrowers from future liability for the debt; and
• Providing financial incentives to borrowers, servicers and investors.
• Provides a viable alternative for homeowners who are HAMP eligible but cannot keep their home.
• Allows the use of financial information and forms already in the system in connection with a loan modification.
• Enables the homeowner to seek pre-approved short sales terms before listing the property.
• Requires borrowers in the Fairfax, Virginia and Alexandria, Virginia areas to be fully released from future liability for the first mortgage debt. At this time I am not sure how this applies release of second mortgages or HELOCs liability. (No cash contribution, promissory note, or deficiency judgment is allowed).
• Provides a standardized time frame and process for handling alternatives;
• Financial incentives:
  • $1,500 for borrower relocation assistance
  • $1,000 for servicers to cover administrative and processing costs
  • Up to $1,000 for investors for allowing a total of up to $3,000 in short sale proceeds to be distributed to subordinate lien holders (on a one-for-three matching basis).