“The investigations,” said HUD, “are in response to 22 complaints the National Community Reinvestment Coalition (NCRC) filed with HUD alleging that the loan activities of the mortgage originators showed that their home lending practices deny FHA- insured loans to African Americans and Latinos with credit scores as high as 640. Federal Housing Administration (FHA) guidelines allow mortgages to borrowers with credit scores above 580, provided the borrowers have down payments equaling 3.5 percent of the loan amount, or above 500, provided the borrowers have down payments equaling 10 percent of the loan amount.”

In the usual case lenders can set whatever terms they want to underwrite a loan. However, the FHA loan program is an important exception. Here’s why:

“This decision is arbitrary,” says John Taylor, president & CEO of the National Community Reinvestment Coalition, “because the loans are 100% guaranteed, whether the borrower’s credit score is 580 or 780. That means the loans with lower credit scores don’t pose additional risk to the company, so there’s no legitimate business defense for this across-the-board practice.”

To its credit, at least one lender — Quicken — has said it would stick with FHA credit score standards. Quicken was not among the 22 lenders named by the NCRC in its layering study.

“In an effort to make homeownership possible and more affordable for families across the country, Quicken Loans Inc, the nation’s largest online retail mortgage lender, announced they have eased the minimum credit score necessary to qualify for an FHA loan to 580. This change allows more consumers to qualify for an FHA loan, as previous guidelines required a minimum credit score of 620.”

Quicken also makes a good point regarding credit scores in general.

“There are folks who have steady incomes, and a solid payment history but were temporarily affected by the economy or a life event in some way. These challenges can lower their credit score significantly. We believe that a credit score, on its own, is not the sole arbiter of a person’s credit worthiness,” said Bob Walters, Quicken’s chief economist. “This change will open up credit to a significant group of people and allow them to again have access to purchase or refinance a home.”

Tight Credit Standards

With all the complaining about allegedly-tight loan standards — much of which is nonsense — there is simply no justification for FHA layering. FHA mortgages must conform to standards set by HUD, not artificial and arbitrary standards above and beyond what HUD requires. Lenders who simply follow HUD guidelines can be rewarded with originations, profits and 100-percent loan guarantees.

That’s not a bad deal for lenders, borrowers or the FHA. The evidence? For the third quarter of 2011 the Mortgage Bankers Association reports that the general foreclosure rate was 4.43 percent — but the foreclosure rate for FHA loans was 3.27 percent.

So do FHA mortgage borrowers still face credit score layering? The betting here is no. Expect the results of the HUD investigation in about a month.

Do FHA Mortgage Borrowers Still Face Credit Score Layering? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Think of it as a back-door tax increase. While the public was watching the payroll debate in Washington Congress was actually increasing the cost to finance or refinance a home.

The Temporary Payroll Tax Cut Continuation Act of 2011 was widely applauded because it prevented the Social Security withholding from increasing to 6.2 percent from 4.2 percent of wages. However, the extension is only for two months and is set to end as of February 29, 2012. In other words, the payroll tax debate will be renewed once Congress returns from the mid-winter recess.

New Borrower Costs

Buried in the payroll compromise are new costs for borrowers. Specifically, these new costs come in two forms.

First, Congress has directed Fannie Mae and Freddie Mac to increase the fees lenders pay by ten basis points or .10 percent. This new cost — called the g-fee — will begin April 1, 2012.

This increase is substantial. According to Market Watch, lender fees now amount to .26 percent of the loan amount. The congressional increase will cost borrowers with a $200,000 mortgage an additional $5,400 over a 30-year loan term.

Second, Congress has directed the FHA to increase its annual mortgage insurance premium or MIP by .10 percent.

The FHA, which is an insurance program, has two borrower charges.

• There is an up-front mortgage insurance premium which is now equal to 1 percent of the mortgage amount.
• There’s also an annual mortgage insurance premium which in 2011 was increased to 1.15 percent for most borrowers. It will now rise to 1.25 percent.

The annual MIP increase will be costly to borrowers. The expense of a $200,000 mortgage will grow by about $4,200 over the life of the loan.

Taken together, the two increases created in the payroll tax bill will raise the cost of a $200,000 mortgage by roughly $9,600 over the life of the loan.

Impact

The result of the congressionally-mandated increases is that FHA loans will be artificially less attractive.

So is the MIP increase necessary?

The purpose of the MIP is to collect money from FHA borrowers which is placed in a reserve called the Mutual Mortgage Insurance Fund. This fund is supposed to equal 2 percent of the FHA loans outstanding but is now below the required level.

However, HUD has reported to Congress that under the current MIP structure the reserve fund will grow to the required 2 percent by 2014.

Moreover, the policies and programs which created problems for the FHA loan system — policies and programs and put in place by the Bush Administration prior to 2009 — have been changed. For instance, the required down payment has been raised, the mortgage insurance premium schedule has been changed, “seller-funded downpayment assistance loans” have been eliminated and lender standards have been tightened. The results are plainly visible when looking at the FHA’s book of business

Lenders will pass through the new charges, raising home financing costs nationwide at a time when the housing market remains stalled. Higher mortgage costs mean borrowers will qualify for less financing so they will have less ability to pay higher prices. Home sellers will thus feel part of the fee increase in the form of less buyer demand and reduced pressure to raise prices.

The net result of the congressional action is that borrowers will needlessly pay more for FHA financing and home sales will suffer. Various politicians will no doubt explain how the legislation made the FHA reserve fund “more secure” when, in fact, it was becoming more secure without a further increase in borrower costs.

FHA Mortgage Insurance Premium To Rise In 2012 is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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At first it might seem as though higher premiums are in order given that the FHA reserve fund — the Mutual Mortgage Insurance Fund or MMI — is well below the 2 percent required reserve. While that may be true, one must also look at trends and directions.

HUD Secretary Shaun Donovan says his department is now looking at five potential changes in the FHA program — including higher mortgage loan premiums.

According to Donovan, the “FHA is constantly evaluating the appropriate level of premiums given the potential risks to the MMI Fund, and any action regarding premiums will be considered in the context of balancing access to credit in today’s economic environment with the need for added revenue generation to protect the Fund.”

The reserve fund gets its money from the up-front and annual mortgage insurance premiums (MIP) paid by FHA borrowers. The fund is reduced each time there’s a foreclosure claim — and given today’s market there have been a lot of lost homes.

Donovan points out that “FHA’s current premium levels are the highest they have ever been in the agency’s history” so can they really go higher?

That said, you have to wonder if there is any need for higher premiums to increase the MMI fund.

HUD says that without a premium increase the reserve fund will reach 2 percent (1.99 percent) by fiscal year 2014 — we are now in fiscal year 2012.

One of the central results of higher FHA premiums is that they will drive away prospective borrowers. Higher premiums will make the FHA program less attractive and less competitive.

The Mortgage Insurance Companies of America (MICA) — the trade association that represents the private mortgage insurance industry in Washington — says the “FHA should increase its premiums, raise its minimum borrower down payment to 5 percent, and change the way FHA area loan limits are calculated.”

One by-product of such proposals is that the FHA program will become more expensive and thus less attractive to borrowers.

The truth is that the FHA program has changed substantially during the past three years.

For instance, the Mortgage Bankers Association points out that “in 2008, Congress passed the Housing and Economic Recovery Act. That legislation terminated the failed seller-funded downpayment assistance programs that were responsible for a disproportionate level of FHA’s defaults.”

In addition, the down payment requirement has been increased to 3.5 percent and insurance premiums have grown.

Because the FHA program has changed under the Obama Administration the huge risks and losses run up from 2000 through 2008 have been replaced with a more stable and financially-positive system. There’s no need to raise premiums, no need to make the FHA program less attractive and no need to help special interests.

Why FHA Premiums Should Not Be Raised is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Does this change make a lot of sense? No. Is this change the law of the land? Yes.

Let’s see what happened.

Mortgage loan limits were raised substantially in 2008. It was thought that higher limits will would help revive high-cost real estate markets in big cities and along the cost. After three years it became obvious that higher loan limits helped few but created additional risk for lenders and mortgage insurance programs, such as the FHA.

To solve the risk problem, Congress agreed to lower mortgage loan rates as of October 1, 2011. The rates were lowered and the world did not collapse. Indeed, the National Association of Realtors reported that in October existing home sales ROSE despite the lower loan limits.

With everything working well Congress naturally decided to raise FHA and conventional loan limits back to the pre-October 2011 levels. The new legislation passed with huge majorities in the Senate (60-39) and the House (298-121).

However, when the legislation got into a conference committee — representatives from both houses who are supposed to work out any conflicts in the two pieces of legislation — a strange thing happened: FHA conforming loan limits went up for two years and conventional loan limits remained stuck.

Always Smaller

It used to be FHA loans were always smaller than conventional loans for a very simple reason: FHA loans could be no larger than 87 percent of the conventional loan limit. So, if the conventional loan limit was $300,000 the largest FHA mortgage could only be $261,000 in the lower 48 states.

Now we have a situation where FHA mortgages can be bigger in high-cost areas than conventional loans. This is remarkable given how some lenders have worried that the FHA program will be over-utilized or that it allegedly will need billions of dollars in taxpayer bailout money. (See: Will The FHA Go Bankrupt?)

Also, some conservatives object to the FHA because it sells mortgage insurance, something the private sector also sells.

So, where do we stand with loan limits as of November 19, 2011? Here we go:

How Mortgage Limits Vary

There are several types of mortgage loan limits. Generally, most borrowers need to look at the limits for conventional, FHA and VA loans to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.

Conventional Loans

As of October 1, 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, loan limits depend on; one, whether the property is in a general or high cost area; two, whether the property is within the lower 48 states; and, three, whether the property located in Alaska, Hawaii, Guam and the U.S Virgin Islands.

In general terms, the October 2011 loan limits for a single-family home range from $417,000 to $625,500 in the 48 continental states. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

VA Loans

After October 1, 2011 the Department of Veterans Affairs (VA) will use the same loan limits as before. There are no changes. As the VA explains:

“The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.”

Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2011 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets, active-duty personnel, and members of the National Guard and Reserve:

• Qualified individuals can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.
• Individuals on active duty have strong protections preventing foreclosure under the Servicemembers Civil Relief Act (SCRA).

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or you reside in Alaska, Guam, Hawaii, and the Virgin Islands.

As of November 18, 2011 and through 2013 the FHA 203(b) loan limits look like this:

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the FHA Loan Limits Page

Also, HUD has a list of Areas at Ceilings and Above and Areas Between Floor and Ceiling.

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) will remain at $625,500. HUD, in 2010, introduced the HECM Saver program as an alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.

A Brief History

Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.

The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.

Until September 30, 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extended the maximum loan limits first established in 2008.

On November 18, 2011 the President signed H.R. 2112: The Consolidated and Further Continuing Appropriations Act, 2012. This legislation increased the FHA loan limit.

A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.

Copyright 2011 OurBroker.com. All Rights Reserved

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FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The paper, written by Joseph Gyourko, a professor of real estate and finance at the Wharton School of Business at the University of Pennsylvania, says that while the FHA has not required a taxpayer bailout for more than 75 years it’s “highly likely” that public funds will now be needed.

The report, Is FHA the Next Housing Bailout? was commissioned by the conservative American Enterprise Institute. The study explains that the FHA is required to keep a reserve equal to 2 percent of its outstanding loans but that the federal program is now far below that level.

The FHA, says Gyourko, “presently is in violation of this capital guideline, as there were $879.875 billion in outstanding insured mortgage balances at the end of fiscal year 2010, so that the capital ratio was only 0.59% of outstanding insurance-in-force.”

What Professor Gyourko has documented is not the breakdown of the FHA but rather the failure to adequately regulate the mortgage marketplace. Let me explain why:

To start, the latest annual report from HUD says the FHA’s reserve — the Mutual Mortgage Insurance (MMI) Fund — could do better but it’s actually increasing in size.

“FHA’s total liquid assets (cash plus investments) grew by $800 million since last year, to $33.7 billion,” says the government. “That amount is $1.9 billion higher than at the end of FY 2009, and is also $7.7 billion higher than was predicted last year by the independent actuaries.”

Politics

The debate over the FHA’s financial status is curious. The Wall Street Journal shows the story under the category of “politics” and that’s right.

Something which is also right is the reaction of the Mortgage Bankers Association.

“It is clear,” says MBA Chairman Michael W. Young, “that the persistent troubles in the economy and real estate markets are continuing to impact FHA’s financial reserves, and given FHA’s mission of providing access to mortgage credit to lower income and first time homebuyers, it should be of little surprise that its reserves are being stressed.”

Housing Realities

In other words, it’s not the FHA program which is faulty, it’s the fact that the FHA program reflects the housing market.

The FHA insures mortgages. With FHA insurance borrowers can put down less money. In return for insurance the FHA charges a premium — generally 1 percent up front at closing and 1.15 percent annually on the unpaid balance. The mortgage insurance premium (MIP) paid by borrowers goes into a reserve — the Mutual Mortgage Insurance (MMI) Fund

When there’s a claim — when someone is foreclosed — the FHA pays off the lender. The money to make the payment comes from the reserve fund.

Today claims are larger than in the past for a very simple reason: Home values are falling. The government says home values nationwide are down 19.1 percent below the April 2007 peak and roughly the same as the February 2004 index level. If home values were steady or rising, claims would be far smaller and many could actually be paid off by simply selling the properties with no financial loss to the FHA reserve fund.

Why are home prices down? Because millions of “nontraditional” loans such as option ARMs were made by private-sector lenders, mortgages which were often originated with little or nothing down, no-doc loan applications and terms which assured that payments would soar. Meanwhile, the FHA, VA, credit unions and community banks kept their standards in place and did right by their borrowers and investors.

Further Steps

The FHA has taken several steps to better its financial position. It has gotten rid of seller-assisted down payments, raised the required down payment and changed the insurance premium schedule.

But the FHA can’t change a housing market which remains polluted with toxic mortgages, robo-signed foreclosure affidavits and electronically-traded mortgage notes which can’t be found. If it turns out that the FHA does need taxpayer help, it will be another example of collateral damage, a by-product of the vast mortgage scams which have undermined the housing market and the economy.

Despite the financial assault on borrowers and taxpayers it may well turn out that the FHA reserves will continue to increase.

“Barring a further significant downturn in home prices,” reports the government, “the MMI Fund will start to rebuild capital in 2012, and return to a level of two percent by 2014.”

Will The FHA Go Bankrupt? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The answer as derived from the American Chopper TV show and public information is very simple: Both.

Let’s start with foreclosure. It’s plain that a foreclosure action was initiated by the lender, the GE Commercial Finance Business Property Corp.

The matter is openly discussed by Paul Sr. on the show. He raises such ideas as renting another facility, moving to another building he owns or building a new structure nearby. The local Times Herald-Record explains that loan payments of more than $100,000 had been missed as of June 1, 2010. (See: Orange County Choppers’ HQ faces foreclosure, Nov. 18, 2010)

Minutes from the Orange County Industrial Development Agency discuss the possibility of a smaller replacement building.

So if a property is foreclosed doesn’t that mean the borrower is soon tossed out?

Actually, no. Not always.

It’s in the interest of neither the lender nor the borrower to go through with a foreclosure, especially in many of today’s major foreclosure centers. The fact that a property has been “foreclosed” — that payments have been missed and foreclosure notices sent out — does not mean it will be lost.

There are a number of possible solutions to the foreclosure problem. For instance:

1. The lender and borrower can attempt to “cure” the loan. As one example, HUD reported that for fiscal 2009 the FHA had a “82.7 percent cure rate for properties 90 days or more delinquent.”
2. A cure can be created by bringing the loan current or moving unpaid money to the back of the mortgage; that is, making the loan term longer.
3. Another approach is to modify the loan by reducing the interest rate, forgiving principal, waiving penalties and fees or some combination of changes. Modifications have been used successfully by more than 720,000 residential borrowers under the government’s Making Home Affordable program.
4. If the lender will go along, the borrower can give up title — and then rent back the property. A deed-in-lieu of foreclosure with a rent-back allows the borrower to stay in place while generating income for the lender. This is the system behind Fannie Mae’s Deed for Lease progrtam. (When values are rising and foreclosure is not an issue, the better strategy is to sell the building and then rent it back — a sale and leaseback.)

Lenders would like to avoid foreclosures if possible because they can produce the most expensive outcome. To avoid that high-cost outcome lenders will sometimes agree to a short sale if the loss will be less than with a foreclosure.

For borrowers, foreclosure is a lousy choice, especially if the lender can go after not only the property but also your equipment and other assets. Credit will be damaged and the ability to get another loan will be impacted.

What happened between OCC and its lender is thus far a private matter. The objective fact is that something was worked out, maybe one of our options, maybe something else. (And, as I have mentioned elsewhere online, maybe there will be a lender theme bike to settle the matter…).

Meanwhile, at Paul Jr. Designs the approach is different. The property is rented.

Was it better for Junior to rent or for Senior to own? It’s years too early to answer that question, but Paul Sr. has been smart to have a world headquarters building that could showcase his custom motorcycle business and TV show while Paul Jr. was right to start with a rental since he may need more space in the future for his bikes, trikes and designs.

American Chopper — Foreclosure Vs. No Foreclosure is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Until recently the daily mail would often include one or more “checks” to buy or refinance real estate. Such checks looked real with lots of “official” numbers and “genuine” markings. Most importantly, they included your name and a very big number, say $189,000.

But before you ever got to the check, the good part was the envelope. It sure looked authentic, somewhat like those brownish envelopes the IRS uses to send tax refunds, with a little window showing your name on something that clearly seemed check-like.

The checks with the big numbers were designed so that you would act now. Why not get a real check? Just call today….

Real Costs

Of course, the letter did not seem to say too much about such matters as mortgage rates, points, closing costs, prepayment penalties or a host of other issues. And despite claims in very big letters, there was always the requirement in micro-type that all offers were subject to approval.

The letters were nothing but ads and the end-result of the fine print was that recipients were assured nothing. If you qualified you could get a loan, whether the cost reflected current mortgage rates was unknown and perhaps unlikely.

But we no longer get such checks in the mail and here’s why:

First, the government ruled earlier this year that lenders could no longer use official logos, names or acronyms to create the sense that their products were government endorsed or approved. Among other things, this meant that ads with the FHA logo were out.

Second, the Federal Trade Commission came out with its Mortgage Acts and Practices rule in late summer. Under MAP an act or practice is deceptive if:

1. There’s a representation, omission of information, or practice that’s likely to mislead consumers acting reasonably under the circumstances; and
2. That the representation, omission, or practice is material to consumers.

One of the important points about the MAP rule is that it applies to “the source of an advertisement or other commercial communication.” This is significant because borrowers used to receive mail which looked like it was from their current lender but was actually from a competitor.

In fact, when our current lender contacted us about a year ago to refinance our existing loan to a lower rate and to pay all closing costs we were so dubious we called the lender, a major bank, and spoke with the head of the lending department to confirm the offer.

Why would a lender make such an offer? With good credit and a solid payment history we could refinance elsewhere and the lender would lose a good borrower. By making an attractive offer to refinance the lender created a new mortgage which could be re-sold — at a profit — on the secondary market. Everyone won, which is how it should be.

The big question raised by the HUD and FTC rules is very simple: What took so long? The practices prohibited under their new rules have been going on for years and devalued legitimate ads by legitimate lenders. And those borrowers who fell for gimmicky promotions and bogus “checks” likely paid far more than they should had they looked at the sensible options available in the marketplace.

Why Mortgage “Checks” Are Not In The Mail is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The answer may be surprising.

In general terms there has been considerable support for lower FHA loan limits for several reasons.

First, lower FHA limits mean more opportunities to sell private-sector loans.

Second, the FHA has long been considered a program for entry-level and middle-income borrowers. Huge mortgage amounts suggest that the program has evolved into a financing vehicle for the upper class, something which doesn’t quite pass the sniff test for a program that evolved from the Great Depression.

Third, it’s thought that the FHA should not be making big loans because such financing is inherently more risky than smaller loans.

The first two items are matters of opinion and preference, but what about the third? Are big loans really so risky?

We asked HUD to provide the latest delinquency and foreclosure figures by loan amount. As of mid-September 2011 the results were probably not what most people expect.

Risk

If we’re going to discuss “risk” we must ask how the term should be defined. The best approach is to look at different stakeholders.

Borrowers: Bigger loans for borrowers are only “more” risky than smaller mortgages if financial qualifications are missing. If Smith can comfortably afford a bigger loan there’s no problem. If Jones has a small loan but can’t pay, then that’s a concern.

Lenders: Lenders love the FHA program for a very simple reason: The loans are 100% guaranteed by the FHA. If a loan goes bad the lender knows it will get back its principal as well as other costs. Thus, on the matter of risk, you would have to say lenders have little to none.

The FHA: For the FHA loan size is not really an issue as long as the borrower is properly qualified. It’s true that a $600,000 FHA mortgage is a bigger loan than a $100,000 mortgage, but it is also true that the FHA will collect a bigger up-front mortgage insurance premium and a larger amount in terms of the annual mortgage insurance premium (MIP). In effect, there’s a balance between size and insurance premiums.

Where matters get dicey is when things go wrong. You can objectively lose a lot more dollars with a big loan. The catch is that the threat of loss does not exist in a vacuum, you also have to also look at marketplace results.

In other words, what’s the failure rate for FHA loans by mortgage size and what percentage of the FHA loan portfolio is represented by loans of a given size?

Real Numbers

A look at the chart shows that big loans are not a big deal in terms of FHA risk for two reasons:

First, big loans are a tiny percent of the overall FHA portfolio. Loans for $500,000 or more are just .75 percent of all FHA mortgages outstanding.

Second, few big loans fail. Only 1.32 percent of all loans above $500,000 have been foreclosed, compared with an overall average of 2.47 percent.

You see the same thing with bankruptcies: The percent of FHA borrowers in bankruptcy is 1.22 percent. The percent of big borrowers in bankruptcy is just .27 percent, about one-fourth the rate of other borrowers.

Why are there relatively so few foreclosed borrowers with big FHA loans? Most probably the answer is that borrowers with big loans have big incomes and presumably better savings and more assets than entry-level borrowers.

One question raised by the FHA figures is this: If big loans represent relatively little risk then why do lenders charge higher mortgage rates for “jumbo” mortgage products? Combine big loans with above-market rates and below-market risk and lenders have a sweet deal.

Are Big FHA Mortgages Really Risky? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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At first this may seem like an audacious idea, a violation somehow of the free market absolutism preferred by so many businesses and industries — at least until they need a special rule, tax break or handout from Uncle Sam.

In fact, it was not too long ago that Uncle Sam actually set mortgage rates for government-insured loans. For instance:

• Until November 30, 1983 HUD set interest rates for FHA mortgages. The practice ended with passage of the Housing and Rural Recovery Act of 1983.
• Under the Veterans Home Loan Program Amendments of 1992, the VA is allowed to set the maximum interest rate that can be charged for a VA loan as well as the maximum number of points. Today, the VA still has the right to set mortgage rates for vets but has elected not to do so.

Imagine what would happen if the government set daily mortgage rates for FHA and VA loans. Each day at 9 AM the daily rate would be made available online. Every borrower would have an opportunity to see the available rate for qualifying borrowers. Borrowers could compare the FHA and VA rates with rates for conventional financing — meaning there would be no need to set conventional interest levels, though if we wanted that could also by done through the Federal Housing Finance Agency.

The rates would be show at “par” — meaning with zero points — and with points so that borrowers could see a number of rate-and-point combinations. For instance, today a loan might be at:

• 3.75 percent and 1 point.
• 4 percent and 0 point (par pricing)
• 4.25 and -1 point (borrower gets a cash credit at closing or lender pays some or all closing costs).

In a marketplace filled with openness and clarity borrowers would have more of a chance of getting a fair deal.

Alternatively, we could go back to 2006.

The Wall Street Journal says in 2006 that 61 percent of all subprime loans originated that year went to borrowers who actually qualified for FHA, VA and conventional mortgages. Think how much borrowers could have saved if only they had known their real financial position. Think how many foreclosures could have been prevented. (See: Subprime Debacle Traps Even Very Credit-Worthy, The Wall Street Journal, December 3, 2007).

And while lenders might object to HUD and the VA setting rates for their insured loan products, they certainly have not complained with new rules which have benefitted mortgage companies.

For instance,  HUD limits on lender fees for FHA borrowers were ended in November 2008 — just two weeks after the presidential election. The Bush Administration said it decided to “remove the current specific limitations on the amounts mortgagees presently are allowed to charge borrowers directly for originating and closing an FHA loan.”

While many lenders have acted fairly and in good faith, some have not. That’s why better regulation is needed and that’s why the government should publish daily loan rates that anyone with Internet access can see.

Should Government Set Mortgage Rates? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Note: This material is now out of date. Please go to: FHA Loan Limits Rise, Conventional & VA Mortgage Limits Stick.

Before looking at the numbers let’s make three quick points:

First, the October 1st loan limits will continue only until December 31, 2011. As of January 1, 2012 it’s possible that we could have new loan limits or they might stay the same. At this moment there’s a political fight in Washington brewing over the issue.

Second, most borrowers need far less than the mortgage loan limits for FHA, VA and conventional mortgages. For instance, in a low cost area the maximum conventional loan amount will be $417,000. According to the National Association of Realtors the typical home sold for just $174,000 in July 2011.

Third, the new is the same as the old. The limits which started October 1, 2011 are the same limits we had in place before July 1, 2007.

How Mortgage Limits Vary

There are several types of mortgage loan limits. Generally, most borrowers need to look at the limits for conventional, FHA and VA loans to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to investors, the folks who buy mortgages.

As well, a “conventional” mortgage can be seen as loans originated from the private sector. FHA and VA mortgages are originated in the private sector but insured through government programs. For specifics, look at FHA and VA mortgage requirements.

Conventional Loans

As of October 1, 2011 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, loan limits depend on; one, whether the property is in a general or high cost area; two, whether the property is within the lower 48 states; and, three, whether the property located in Alaska, Hawaii, Guam and the U.S Virgin Islands.

In general terms, the October 2011 loan limits for a single-family home range from $417,000 to $625,500 in the 48 continental states. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

VA Loans

After October 1, 2011 the Department of Veterans Affairs (VA) will use the same loan limits as before. There are no changes. As the VA explains:

“The maximum guaranty for VA guaranteed loans closed October 1, 2011 through December 31, 2011 will remain unchanged. The Veterans’ Benefits Improvement Act of 2008 provided a temporary increase in VA loan limits for loans closed January 1, 2009 through December 31, 2011. Because of this legislation, VA loan limits will remain the same for the remainder of the calendar year. Please note that VA does not have a maximum loan amount. Loan limit refers to the maximum loan a lender could make and still receive a 25% guaranty from VA, assuming the veteran has full entitlement.

Official loan limits for specific areas range from $417,000 to as much as $1,094,625. To find the VA loan limit for a given area, please use the chart below:

2011 VA County Loan Limits for High-Cost Counties

Some important points about financing for vets, active-duty personnel, and members of the National Guard and Reserve:

• Qualified individuals can purchase homes with one to four units provided that they live in one unit. The veteran must certify as to occupancy.
• In the case of an active-duty veteran who cannot occupy because of his or her status as an active duty member of the armed forces, occupancy by the spouse can satisfy the occupancy requirement.
• Individuals on active duty have strong protections preventing foreclosure under the Servicemembers Civil Relief Act (SCRA).

FHA Loans

The FHA loan program has loan limits for owner-occupied homes under its 203(b) program, the most-common FHA option. The FHA loan limit varies according to whether you live in a typical real estate market, a “high cost” market or in Alaska, Guam, Hawaii, and the Virgin Islands.

As of October 1, 2011 the FHA 203(b) loan limits look like this:

To qualify for the FHA loans above, at least one unit must be owner occupied.

HUD has an online database which shows the latest FHA loan limits by state and county. The system can be reached by going to the FHA Loan Limits Page

Also, HUD has a list of Areas at Ceilings and Above and Areas Between Floor and Ceiling.

FHA-Insured Reverse Mortgages

The loan limits for FHA-insured reverse mortgages (also known as home equity conversion mortgages or HECMs) will remain at $625,500. HUD, in 2010, introduced the HECM Saver program as an alternative to its standard HECM plan. The difference? The Saver program has an up-front insurance fee which is less than the cost of take-out food for four but the amount you can borrow against equity has been reduced. For specifics, speak with attorneys who specialize in elder law and fee-only financial planners.

A Brief History

Loan limits used to be set annually and the same limit applied to all states and all counties in the lower 48 states. The limits were 50 percent higher outside the countinental U.S.

The real estate marketplace began withdrawing from the highs seen in April 2007 and price reductions continued into 2008. Given lower home values, conventional loan limits were supposed to be reduced for 2009. At this point the government stepped in and changed the rules with the Economic Stimulus Act of 2008 (ESA) and the Housing and Economic Recovery Act of 2008 (HERA). These laws gave us the loan limit system we have in place today.

Until September 30, 2011, the Department of State, Foreign Operations, and Related Programs Appropriations Act extended the maximum loan limits first established in 2008.

A CAUTION: Because maximum loan limits can change at anytime, visitors to OurBroker.com are advised to speak with local real estate brokers and lenders BEFORE entering the real estate marketplace for the latest mortgage information.

Copyright 2012 OurBroker.com. All Rights Reserved

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New FHA, VA and Conventional Mortgage Loan Limits is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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