Written By: Bonnie Wilt-Hild, Op-Ed Writer
2008 has been a busy year for FHA loan originations not to mention the U.S Department of Housing & Urban Development. FHA modernization took center stage this year as a result of the collapse of the national mortgage market in 2007 and improvements to the FHA program has been a priority this year. These improvements have not only been designed with the low to moderate income borrower in mind, but also those individuals who have suffered financial hardship due to the rash of sub prime lending over the past 5 years.
FHA Secure has been a great program for these individuals, it help to save thousands from foreclosure, and overall modernization of the program, even if not complete, has assisted not only homeowners and homebuyers in obtaining affordable mortgage but has also assisted lenders and the overall mortgage market where prudent and common sense underwriting principals are concerned.
As we are all aware, modernization of the FHA program is still in the works, however, we have all seen a number of changes to the program this year and wait for the overhaul to be complete. The result of these changes has been multiple mortgagee letters changing program guidelines for everything from Non-Traditional Credit guidelines to 2nd appraisal requirements in declining markets. Given the number of mortgagee letters being issued each month, I thought it might be a good idea to reiterate some of the recent few that have a large impact on how we are assessing our FHA applications.
Most importantly this year was the increased loan amounts under stimulus. Mortgagee Letter 2008-06 was the letter for these changes. I thought it important to remind everyone that per this mortgagee letter the increase in loan amounts are temporary and slated to be reduced again as of December 31, 2008. Additionally, I would like to also stress that on several occasions I have received Total Scorecard findings which have stated that either DU or LP is not aware of the maximum mortgage limit for a particular area and that it is the underwriters responsibility to determine that the loan amount meets HUD’s statutory loan limits, so please keep your eyes open. Maximum mortgage limits can be checked in FHA connection.
Next big one was ML 2008-09, which reduced the maximum LTV on cash out refinanced to 85% for loan amounts greater then 417000.00 and required second appraisals for properties located in declining markets where the loan amount would exceed 417000 and the LTV is greater then 95%. I am still running across individuals who are unaware of these guidelines including large lenders, so for those of you who were not aware, pull the mortgagee letter, it could have a large impact on your pipeline should you have anything like this in process.
ML 2008-11 was a big change where Non-traditional credit is concerned. Per this mortgagee letter there is now tiered consideration of alternative credit sources, placing the alternative credit into either Group 1 or Group 2 credit borrowers. Borrowers with no alternative credit acceptable under Group 1 alternative trades will now be placed as an insufficient credit borrower and further guidelines and restrictions now apply including maximum number of late payments to a creditor in a 12 month period, reserve requirements, requirements which will disallow non occupying co borrowers and further guidelines which require that ratio requirements of 31/43 be strictly adhered to. This is a big change, particularly the insufficient credit category restrictions so please make sure your staff is aware of the changes.
Lastly, I would say ML 2008-15 and most recently 2008-16 are big ones. ML 2008-15 discusses the retirement of the Mortgage Credit Analysis Worksheet and introduces the use of 92900-LT, the new FHA loan transmittal, which will replace the MCAW. This mortgagee letter also discusses the modifications to the 92900a, which will remain in use.
ML 2008-16 is the changes regarding the UFMIP and new requirements for risk based pricing for the UFMIP and Monthly MIP factors. This new policy will be in effect on July 14, 2008 so best to share it now. It will directly affect all loans closed after this date but also disclosure of the same beginning as recently as now. In addition, the letter also discusses underwriting rules and updates to Total Scorecard, so if you have not pulled it yet, maybe today is a good idea.
As we move forward, I am sure we can all expect multiple other changes where the FHA program is concerned particularly considering Reform and the changes that will be brought about as a result. Staying current with mortgagee letters and participating in FHA training is not a bad idea, I don’t think any underwriter would be happy noting a uninsured loans to their credit. Access of mortgagee letters can be completed on HUD’s website: Click Here>>.
Good luck and happy underwriting.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions as well as a Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".
