FHA Changing in 2013 Washington DC Update
FHA Changing in 2013 Washington DC Update
Possible FHA changes in 2013 coming
The 2012 Annual Report to Congress by the U.S. Department of Housing and Urban Development (HUD) The FHA Mutual Mortgage Insurance (MMI) Fund shows a $16.3 billion deficit and failed for the 4th year to meet its 2% statutory reserve amount required to cover excess loss. The National Housing Act permits HUD to draw funds from the U.S. Treasury to meet its insurance claim obligations, but in the 78 years FHA has been in operation, it has never before had to access those funds.
FHA is a major partner in first-time home buyer funding, insuring approximately 15% of all US home loans today, a number that has increased substantially since 2006, when it insured approximately 5% of the nation's loans. Bad loans insured prior tp 2010 are the reason for FHA's financial woes, according to the report, particularly those insured between 2007 and 2009. According to Mortgage News Daily, more than 17% of FHA loans were delinquent by the end of September 2012.
The agency must raise premiums to avoid a bailout. A possible annual mortgage premium hike to 2.05% is being discussed. In 2013, HUD will again raise FHA MIP (Mortgage Insurance Premium) an additional 10 basis points, translating to an average $13. per month increase for FHA buyers. Annual Mortgage Insurance Premiums for early 2013 FHA buyers are likely to rise 1.35% of the loan balance as opposed to the current 1.25%. On loans above $625,500., in areas like Washington DC with higher costs, the annual premium is expected to rise to 1.6% from the current 1.5%.
But wait, there's more!
FHA Changing in 2013 Washington DC Update: Specific Proposals
HUD has announced it will make a series of changes designed to bolster the FHA program, some of which will not require approval from Congress. Among the initiatives are revisions to FHA's loss mitigation home-retention options to better assist delinquent borrowers, changes to streamline FHA short-sales, and/or innovations to property disposition practices. In addition, to raise revenues, expect HUD to revise its premium cancellation policy, such that mortgage insurance premiums will be required of mortgagors throughout the life of the loan, rather than ceasing once the outstanding UPB drops below 78%. State-specific laws will need to be considered in this action.
Six proposals will require approval from Congress:
1. Extend Indemnification Authority for Direct Endorsement Lenders.
FHA has been lobbying Congress since 2010 to allow the Department to demand indemnification from DE lenders (which represent 70% of all FHA lenders). Right now, HUD has authority to require lenders with Lender Insurance (LI) approval to indemnify HUD for losses. Now HUD will seek to expand that authority to all DE lenders.
2. Revise indemnification authority.
Currently, to demand that a lender indemnify HUD for losses associated with FHA loans, HUD must prove that the lender "knew or should have known" of the fraudulent or errant conduct. HUD seeks an amendment to the National Housing Act that will require FHA lenders to retain all fraud-related risk, similar to the standards imposed by the Government-Sponsored Enterprises.
3. Expand its flexibility to terminate origination and underwriting authority, making it easier for HUD to terminate a lender's ability to originate or underwrite FHA insured loans if HUD were to find that the lender had an excessive rate of defaults or claims.
4. A revision in Credit Watch Thresholds.
Revises the statute governing Credit Watch termination authority, by allowing the Secretary greater flexibility to fine tune compare rates of defaults and claims based on geographic area, underwriting standards or populations served. Bottom line - it would allow HUD to more easily terminate a lender's authority to originate and underwrite FHA loans.
5. HUD may seek authority to transfer servicing.
Involves the transfer of servicing from the current servicer to a specialty servicer identified by HUD; require the servicer to enter into a sub-servicing arrangement; or, request a servicer to engage a third party contractor to assist it with loss mitigation activities. Lenders who find themselves in a Tier III ranking, or others whose servicing is deemed inadequate, will likely be subject to this new authority.
6. More flexibility in HECM program changes by acting through Mortgagee Letters to make changes to the HECM program.
The reverse mortgage program (which enables senior homeowners to withdraw funds based on the equity in their properties) dominates the industry but has produced inordinate losses to the FHA insurance fund because of home-value declines and the failure of some borrowers to make their property tax and insurance payments, thereby triggering foreclosures. Look for changes to the program to possibly include restricting the amounts that seniors can draw down in a lump sum upfront. The MBA's Dave Stevens suggests that the FHA also needs to consider some form of basic "qualification standards" for those in the program, perhaps that applicants should have sufficient income and assets to ensure that they don't blow through their initial lump-sum drawdowns and have nothing left to pay taxes and insurance. Currently there are no such requirements.
FHA Changing in 2013 Washington DC Update: Short Sales
FHA Acting Commissioner Carol J. Galante said the agency also plans to streamline the short-sale option permitting owners to sell their house for less than the balance on the mortgage in order to avoid the huge costs of foreclosures.
As changes are implemented, we'll keep you updated.
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