Transferring employees have felt the impact of the real estate market decline since 2008, and those who are asked to relocate may look for alternatives to conventional financing in order to afford a home in the destination location.
Stricter mortgage lending regulations stemming from the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 have turned homeowners to the Federal Housing Administration, or FHA, to obtain financing. With lower down payment requirements and more liberal restrictions (such as considerations for homeowners with lower credit scores), FHA mortgages are a means for relocating employees to afford loans not otherwise attainable through conventional financing.
The FHA, however, has been hit hard by defaults from housing bubble-era loans made from 2005 through 2008, with future losses estimated at $70 billion for loans made in 2007, 2008 and 2009 alone. The agency reported a $16.3 billion deficit in a report to Congress in November, causing concern that FHA will require a taxpayer bailout next year for the first time in its 78-year history.
The U.S. Department of Housing and Urban Development (HUD), of which FHA is a part, issued a series of changes to their mortgage programs designed to bolster the agency’s capital reserves in the hopes of avoiding a taxpayer bailout:
- As of April 1, 2013, FHA's full draw down reverse mortgage program, the Standard Fixed Rate HECM (Home Equity Conversion Mortgages), will no longer be available to borrowers who seek a fixed interest rate mortgage. Such borrowers will only have access to the HECM Fixed Rate Saver, which "will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the (FHA's) Mutual Mortgage Insurance Fund," the agency said. The vast majority of HECM borrowers currently choose the Standard option.
- FHA will raise the annual mortgage insurance premium paid by borrowers on most new FHA loans by 10 basis points, or 0.1 percent, which the agency expects will add $13 a month to the average borrower's monthly payments. FHA will also increase premiums on jumbo mortgages (those $625,500 or bigger) by 5 basis points or 0.05 percent, to 155 basis points -- the maximum currently allowed by law. Certain streamline refinance transactions will be excluded from the premium increases, the agency said.
- FHA will reverse a policy that automatically canceled required premium payments after loans reached 78 percent of their original value. Most FHA borrowers will now have to continue paying annual premiums based on the unpaid principal balance for the life of their mortgage loan. The agency estimates it lost billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this cancellation policy.
- Borrowers with FICO credit scores below 620 and a total debt-to-income ratio of more than 43 percent will not be eligible for processing through FHA's automated underwriting system, TOTAL Scorecard. Such will have to be processed manually, with lenders documenting compensating factors such as a larger down payment or a higher level of reserves.
- FHA will propose an increased minimum down payment on loans between $625,500 to $729,000 to 5 percent from 3.5 percent. "This change, coupled with the statutory maximum premiums charged for these loans, will help protect FHA and further facilitate its efforts to encourage higher levels of private market participation in the housing finance market," the agency said.
- FHA will crack down on lenders that advertise under the false counseling initiative that would apply to a number of borrower classifications, including borrowers with previous foreclosures, the agency said.
The agency has until Sept. 30 to decide whether it will need a cash subsidy from the U.S. Treasury.
Source: Inman News