FHA Reverse Purchase Loan

• Age = 62+
• 50% Down Payment
• No FICO Minimum
• No Monthly Payment
• FHA Insured

Thinking about downsizing? Use the sales proceeds of your current home as down payment on a newer, smaller, more manageable home. All you will pay, going forward, is your annual property taxes, homeowners insurance and maintenance.
Never pay another mortgage payment!

FHA Fundings In 2014

FHA fundings will decline again in fiscal 2014 and are projected to continue to drop to their lowest levels since 2004.  HUD forecasted 2014 FHA fundings at $191 Billion.  Actual fundings came in at $134 Billion, down 30% from initial projections.
HUD independent auditors project fundings dropping again in 2015 to $124 Billion and again to $113 Billion in fiscal year 2016.

Why?  FHA’s insurance premiums are at their highest point ever.  The recent increases in FHA insurance can cost a home buyer between $200 and $400 more per month more than ever before.

Concerned industry advocates, including the National Association of Realtors and the Mortgage Bankers Association are appealing to legislators to agree to immediately lower FHA premiums.  They cite tens of thousands of potential homebuyers are being priced out of the housing market.

Congress is reticent to do so, noting that although there has been significant financial improvement at HUD, their statutory required capital ratio of 2% will not be fully met until late 2016.

So, we now find FHA loans being adversely selected by borrowers who don’t quality for high ratio, lower cost Fannie and Freddie loan programs, which carry more stringent credit requirements than does FHA.

What effect do you think this phenomena will have on the FHA insurance fund going forward?  Adverse selection is never good and is usually the precursor of a negative experience.

Good News For FHA

The Federal Housing Administration went from having a net worth of -$1.1 Billion to a current net worth of +$4.8 Billion.  That is a 500% improvement since the 2008-09 mortgage melt down.  The improvement has been gained on the backs of those who obtained FHA mortgages since 2008.  So, only those American taxpayers, who obtained a mortgage in the last 6 years, have paid the price to recapitalize FHA, not every American taxpayer as the politicians would have you think.

These relatively few American taxpayers paid for recapitalization with increased annual mortgage insurance premiums, which have risen to a whopping 1.35% of the mortgage, balance per year.  Now that FHA is recapitalized, there are a few in congress who are suggesting that the annual insurance premium be lowered in an effort to stimulate borrowing and home purchases.

FHA Lawsuit Of Wells Fargo Upheld

FHA’s ability to sue Wells Fargo for “reckless origination and underwriting practices, that caused FHA to experience hundreds of millions of dollars in federal insurance payouts” has been upheld by the U.S. Court of Appeals. Wells Fargo had earlier entered into a 5 bank “limited settlement” of approximately $5b with FHA on another FHA suit and maintained that the settlement agreement in that case barred FHA from bringing additional lawsuits against the San Francisco based mega bank. 3 of the other 4 banks settled similar claims for about $2b.

So, while a multi-billion dollar settlement to FHA is eminent, it is not going to be anywhere near the hundreds of billions of dollars that FHA maintains it lost. It will be interesting, however, to see how much more settlement dollars it will cost Wells to put up this fight.

Lower Down Payments?

There is continued pressure on FHA, Fannie and Freddie to lower down payment requirements. Federal Housing and Finance Director Mel Watts, who has been a bright spot to lenders since taking over, did not include lower down payments in his strategic plan for 2014.  The reason that many give for the agencies resisting lowering DP’s is the overall quality of appraisals.  The federal agencies are very unsure of the quality of appraisals as delivered through the current AMC systems.  Everyone is aware that the AMC’s take a big cut of the appraisal revenue leaving less than half for the appraiser.  Many feel that appraisers in the AMC system(s) are lessor qualified and are being adversely selected because of their willingness to work for less. It is common knowledge that the AMC’s take up to ½ of the total appraisal fee.

We’re in a tough spot. The agencies found significant evidence of faulty value assessments and appraiser fraud on loans funded prior to 2009.  While fraud has been significantly curtailed, accurate value assessments are still a concern and the agencies are not comfortable with the current level of accuracy.

When the agencies purchase a loan of $193,000 on a home valued at $200,000, they really need to be able to feel confident that the house is worth at least $200,000 on the day they funded the loan, as there is precious little equity with which to hedge a loss.

Defaulted FHA Loans

Did you know that co-borrowers on defaulted FHA loans are not being noted and listed?  In some instances co-borrowers, on previously defaulted FHA loans, have been granted new FHA insured loans, as the primary borrower within days of foreclosure.  This is an interesting glitch in FHA’s CAIVRS system which provides lenders with qualification data on potential borrowers on FHA loans in process. 

The Cost Of FHA

The cost of a seat at the table to originate FHA loans has increased, once again.  Mortgage Bankers who wish to originate FHA product must keep a cumulative net worth equal to the sum of net worth requirements for each FHA loan type they wish to originate.  For example the net worth requirement for a lender wanting to originate standard Single Family and Reverse Mortgages (HMBS) will need a minimum net worth of $7.5m.  Once upon a time you only needed $1m net worth to get in the game.  Not so these days. Industry consolidation is well under way.