Sentate Passes FHA Modernization December 14, 2007

In our previous e-mail, you attempted to click on a link to a story about FHA  modernization that may not have been available at the time.  We apologize for the confusion.    Earlier today, the FHA modernization bill passed in the Senate by a vote of 93 to 1.  The Senate and House versions of the bill will now be reconciled before going to the White House for signature.    Below is a summary of the bills passed in the House and Senate.  Please contact me if you have any questions about the bills or FHA.

Sincerely,  David Cool, REALTOR & Mortgage Broker info@DavidCoolRealtor.com www.DavidCoolRealtor.com (904) 338-4601     Key Provisions of the FHA Modernization Act of 2007 Title I - Building American Homeownership Act of 2007 1. Loan Limits Increased: Increases FHA single-family loan limits across the board, at both the high and low ends. Sets the limit at 100% of the median home price of an area (up from 95%), or the GSE conforming loan limit (currently $417,000), whichever is lower. Increases the minimum loan limit to 65% of the GSE limit, which is sufficient to purchase a newly constructed home. 2. Downpayment Requirements Reduced: Lowers and streamlines the downpayment requirement to 1.5% from the current requirement of about 3%, depending on an assortment of factors. Sets the maximum loan amount in any individual case at 100% of the appraised value of the home. 3. Streamlining: Simplifies FHA requirements for condominiums and housing cooperatives so that FHA can be used more effectively to purchase individual units in a condominium development, including a manufactured housing condominium development. 4. Home Equity Conversion Mortgage (HECM) Program: Expands the HECM program. These are also known as reverse mortgages. HECMs allow seniors to convert equity into cash by taking out a mortgage where the lender pays the borrower either a lump sum or a monthly payment. The borrower makes no payments until the ownership of the home is transferred through sale or inheritance. The legislation sets one national loan limit equal to the GSE conforming loan limit (currently $417,000). In addition, the legislation lowers the origination fee from 2% to 1.5%, a cut of 25%. 5. Enhanced Counseling: Creates a pre-purchase counseling demonstration to test the efficacy of a variety of counseling options. The bill also significantly expands eligibility for post-purchase counseling for low- and moderate-income homeowners who are having trouble making their mortgage payments. 6. Alternative Credit Scoring Pilot Program: Establishes a pilot program to test alternative automated credit rating systems for borrowers with "thin" credit histories. The pilot may include alternative credit rating information such as rental, utility, and insurance payments. This provision is intended to expand access to credit for borrowers who may have a history of making required payments on time, but have not established a sufficient credit record at traditional credit bureaus. 7. Homeownership Preservation: Requires the Secretary of HUD and the FHA Commissioner to work with industry, the Neighborhood Reinvestment Corporation, and other non-profits to improve the FHA loss mitigation process so that more troubled homeowners can retain their homes. 8. Enhanced Fraud Protection: Requires FHA to establish a screen to detect and prevent fraud, and increases the penalties for committing fraud against FHA. 9. Technological Modernization: Authorized $25 million out of FHA's revenues to modernize the programs technology, improve its staffing, and other improvements. 10. Multifamily Premium Freeze: Prohibits HUD from raising FHA premiums, except to cover increased lending risks, for two years. This will prevent premiums from being increased simply to raise funds for other purposes.   Overview of Current Reform Legislation Reform Legislation The Expanding American Homeownership Act, H.R. 1852, known as FHA Reform or FHA Modernization, was approved by the U.S. House Financial Services Committee on May 3, 2007. The bill now awaits a vote by the full House of Representatives and by the Senate. It will enable the FHA to reach more prospective borrowers and allow millions more low- and moderate-income families to achieve the American dream of homeownership. Some of the highlights of the legislation include: FHA mortgage limits: Increase the limit for lower cost areas from 48% to 65% of the government sponsored enterprises (GSE) conforming loan limit, permitting the FHA to insure more newly constructed homes. Increase the limit for higher cost areas from 87% to 100% of the conforming limit with individual local limits set at the median price of a home in each area. Because of its current mortgage limits, FHA is not a viable option for borrowers in high cost housing markets. ·                                 Down payment: o                                Eliminates the FHA's 3% minimum cash investment requirement and down payment calculation. o                                Provides FHA borrowers a range of options to control the amount of their down payment and mortgage payment based on their immediate and long-term goals. ·                                 Loan term: o                                Increases the maximum loan term from 30 years to 40 years. The longer loan term will decrease monthly payments yet build homeowner equity through a fully amortized loan. ·                                 Mortgage insurance premium: o                                Eliminates the 2.25% upfront and .55% annual premium caps allowing the FHA to raise or lower the premium to match the borrower's risk. The FHA borrower gets a market interest rate loan; the risk is mitigated through the premium. 'High cost loans' offset risk in the interest rate, sometimes 3% to 8% above market. For example, a 3% FHA upfront premium for a $100,000 mortgage is $19 per month. A 3% interest rate increase (6.5% to 9.5%) for the same mortgage is $156 per month. The difference of $137 would allow the use of $21,700 more towards the purchase of a house. The annual FHA premium charge is eliminated after 5 years and 22% property equity. ·                                 Condominiums: o                                Revises the definition of "mortgage" to insure condominiums as a single family unit rather than a multifamily project. The change would align the FHA to the industry and streamline processing, potentially reducing condominium costs. ·                                 Reverse mortgages: o                                Eliminates the FHA cap on the number of loans that can be insured. o                                Sets a national loan limit at the GSE conforming rate so that all seniors have equal access to their equity regardless of where they live. o                                Permit seniors to purchase a home and get a HECM in one transaction, so that seniors can easily move to more suitable housing. Currently borrowers must complete their home purchase transaction and HECM separately, incurring additional costs.

Please contact me with any questions at 904 338-4601 David Cool, REALTOR & Mortgage Broker www.DavidCoolRealtor.com info@davidcoolrealtor.com