What Mortgage Processors Should Know About FHA Reform

 


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First let me start by saying that if you do not currently know how to process a FHA loan, its time to get acquainted with the program. Why now? Well, take a few minutes out of your busy day to read on about the new proposed changes for FHA, and you will soon realize that to be current and in demand you will need to know how to process an FHA loan.

Let’s first talk about where we are with FHA lending. As the government’s largest mortgage program, the Federal Housing Administration (FHA) loan has been basically a low down payment source for first time homebuyers with issues with their credit, but who could fully document their income and assets.

In the last several years, the a role of real estate agent has changed into a role of a counselor in many cases, as they have steered clients away from FHA loans. The reasons for that were the strict rules and longer processing times of FHA loans. The property repairs and appraisal rules, and seller contribution requirements when it came to closing costs made the product more hassle than it was worth. Also, the increase in flexible loan products in the sub prime lending arena, were much easier to navigate. Therefore FHA lost its market share, and more borrowers than ever were getting a sub prime loan instead of a FHA loan.

In recent months the Federal Housing Administration has made some significant changes. According to FHA Commissioner Brain D. Montgomery, the agency has shifted from its historical emphasis on the repair of minor property deficiencies and now only requires repairs for those property conditions that rise above the level of cosmetic defects, minor defects or normal wear and tear.

During the last six months, FHA has launched an aggressive campaign to reinvent itself by trying to attract new loan volume. It has introduced new loan programs, streamlined its appraisal rules by adopting the use of the Fannie Mae forms instead of requiring an “FHA Appraisal”, and has tried to reach out to the real estate industry by easing property condition and repair standards, and raising mortgage limits in 2006.

Expanding American Homeownership Act of 2006 (H. R.5121) Legislation

By a 415-7 floor vote the House of Representatives sent the Expanding American Homeownership Act of 2006 (H. R.5121) to the Senate. This legislation, if passed in its entirety, would change the way we currently process FHA loans with the following changes:

* Eliminate current rules that inhibit down payments of less than 3%.

* FHA would be authorized to offer 1-2% down and even zero down payment options to homebuyers.

* Change FHA for the first time in its 72 year history to risk based pricing. This pricing is used in conventional lending today. An example of this would be the level pricing in Fannie Mae lending EAI etc. The bill is designed to charge the borrowers a different mortgage insurance premium cost based on the strength of their credit profile.

* Raise FHA mortgage limits to the median home price in each market, but not to exceed Fannie Mae and Freddie Mac’s conventional loan limits.

* Open the FHA lending program to more mortgage brokers, by allowing firms that might not otherwise be approved by FHA to post surety bonds to gain approval.

These proposed changes are significant, and is passed will change the way we view FHA lending.

© 2006 LoanStar Consulting and ProcessingCoach.com All Rights Reserved.

http://www.processingcoach.com

Kathy Donchak is a consultant, trainer, and coach in the specializing in mortgage loan processing and is the founder of ProcessingCoach.com. ProcessingCoach.com is the only online learning community dedicated to the needs of mortgage loan processor's.

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