New FHA LENDER REQUIREMENTS Announced
Wednesday, August 13th, 2008 Subscribe To Our Feed
FHA lending requirements have been relaxed as part of the Federal government’s Housing and Economic Recovery Act, 2008. The purpose of the act is to provide some relief for home owners affected by the housing finance crisis, and to help stabilise the property market overall.
Relaxing the FHA lending requirements will allow more FHA insured loans to be issued, and in some parts of the country, will allow FHA loans to be issued for higher value properties than was previously premitted.
The Housing and Economic Recovery Act of 2008
This legislation strengthens and modernizes the regulation of the housing government-sponsored enterprises involved with FHA loans – Fannie Mae and Freddie Mac (the enterprises) and the Federal Home Loan Banks (FHLBs or Banks). In addition, it creates a new program at FHA (Hope For home Owners) that will help at least 400,000 families save their homes from foreclosure by providing for new FHA loans after lenders take deep discounts.
Summary of the HOPE for Homeowners Act of 2008
The “HOPE for Homeowners Act of 2008″ creates a new, temporary, voluntary program within FHA to back FHA-insured mortgages to borrowers at fisk of foreclosure. The new mortgages offered by FHA-approved lenders will refinance non-performing loans at a significant discount for owner-occupants at risk of losing their homes to foreclosure. In exchange, homeowners will share future appreciation in the value of their home with FHA.
Basic Principles
1. Long-term affordability. New loans will be based on a family’s ability to repay the loan, rather than the value of hhe home, ensuring affordability and sustainable homeownership. Of course, the original lender will be the loser in this deal, as the original mortgage was based on the value of the home.
2. No investor or lender bailout - wouldn’t that put the cat among the political pidgeons! Only owner-occupiers may apply. Of course some investors are holding non-performing mortgages, but investors and/or lenders will have to take significant losses in order to benefit at all from any proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure, so it is likely that some investors - and many lenders - will agree to the scheme in order to avoid the foreclosure process.
3. No windfall for borrowers. If you suddenly write down a $400,000 mortgage to $200,000, because that is all the borrower can afford, that is effectively handing $200,000 to the borrower. To offset this consequence, borrowers will share their new equity and future appreciation equally with FHA. Borrowers will also pay for the FHA insurance.
4. Voluntary participation. Because of the massive losses these refinancing deals will cause for mortgage holders, this can only be be a voluntary program. No lenders, servicers, or investors will be compelled to participate. Otherwise, there would be rioting on Wall Street!
If you are suffering from mortgage stress, you should see whether the new FHA lending requirements will allow you to qualify for an FHA insured mortgage.
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