Mortgage Law Blog, LLC

The Department of Housing and Urban Development has issued new permanent loan limits for single family home loans insured by the Federal Housing Administration.

Beginning January 1, 2009, the FHA limits for single-family home mortgages will be $271,050 in low cost areas and up to $625,500 in high cost areas.  The new rule results in a reduction from $729,750 that was established in February 2008. 

The press release states:

For several years, FHA’s loan levels were below the cost of the average home in communities across the nation. As a result, families who needed FHA mortgage insurance to qualify to buy a home were effectively locked out of the process. In some cases, borrowers turned to exotic subprime loans.

FHA mortgage insurance makes home financing more available to low-income and first time homebuyers. This is because the mortgage is backed by the full faith and credit of the government, freeing lenders from assuming the risk of default.

Higher FHA loan limits do not cost the government any money because the FHA Insurance Fund is fully supported by premiums paid by borrowers who receive FHA-insured mortgage loans.

The Housing and Economic Recovery Act pegs the national conforming mortgage loan limit to a house price index chosen by the new Federal Housing Finance Agency (FHFA). For 2009, the national conforming limit will remain at the current level of $417,000.

The Act says that the new FHA loan limits will be set at 115 percent of the median house price in a given area, as determined by HUD, but can not be lower than 65 percent of the conforming loan limit (the national floor). Also, the FHA mortgage limit cannot exceed 150 percent of the national conforming loan limit (the national ceiling).

The Act also pegs the national mortgage limit for FHA-insured reverse mortgages to the national conforming loan limit. The FHA product known as the Home Equity Conversion Mortgage (HECM) will therefore have a national mortgage limit of $417,000. Unlike the new forward mortgage loan limits, the new HECM loans limits are effective on loans insured or after November 6, 2008. This is the first time that a single limit applies to these mortgages nationwide. As in previous years, the special exception areas of Alaska, Hawaii, Guam, and the Virgin Islands may have higher loan limits. Starting in January 2009 counties in those areas may have loan limits of 115 percent of area median prices, where that amount is above $417,000, up to a ceiling of $625,500.

For a copy of the full press release, please click here.

Tags: Consumer Protection, Economic Stimulus, FHA Insurance, HUD & FHA, Legislation, Mortgage Banking - General, Regulations, Reverse Mortgages by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-29, “Hope for Homeowners Origination Guidance.”

In the Mortgagee Letter, HUD states: 

The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new temporary FHA mortgage insurance program called the HOPE for Homeowners (H4H) Program. Under this Program, certain borrowers facing difficulty in paying their mortgages will be eligible to refinance into affordable FHA-insured mortgages.  The H4H Program is effective for endorsements on or after October 1, 2008 through September 30, 2011.

While underwriting mortgages for the H4H Program presents unique challenges for the industry, FHA has confidence in its approved mortgagees to exercise their ingenuity in meeting these challenges, while adhering fully to this mortgagee letter, without compromising their ability to make and support sound underwriting decisions.  The information, directions, and guidance provided in this mortgagee letter reflect statutory requirements as well as the standards, policies and regulations adopted by the Board of Directors (Board) for the H4H Program.

The Mortgagee Letter then discusses the following 12 topics:

1. Eligibility of borrowers, mortgages and properties
2. Consumer protection and disclosure requirements
3. Appraisal requirements
4. Terms and interest rates
5. MIP
6. Calculating the maximum mortgage amount
7. Underwriting and qualifying borrowers
8. Documentation requirements
9. Prohibitions on subordinate financing
10. Equity and appreciation sharing
11. Extinguishment of subordinate liens
12. Monitoring and program compliance

For a copy of the full Mortgagee Letter, please click here.

Tags: Appraisals, Consumer Protection, Distressed Assets, Economic Stimulus, FHA Insurance, Foreclosure, HUD & FHA, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-27, Treble Damages for Failure to Engage in Loss Mitigation.

The Mortgagee Letter reminds the public that HUD on April 26, 2005 published a final rule entitled “Treble Damages for failure to Engage in Loss Mitigation.” 

The Mortgagee Letter notes:

HUD’s National Servicing Center (NSC) is available to assist mortgagees in complying with FHA servicing requirements, including loss mitigation evaluation.  The NSC offers Loss Mitigation training to lenders via scheduled classes throughout the year and participates in joint training with regional and national industry groups such as the Mortgage Bankers Association (MBA). 

The NSC provides a toll-free telephone line (1-888-297-8685) to provide assistance regarding FHA’s Servicing requirements, including HUD’s Loss Mitigation Program.  This assistance is available to mortgagors and mortgage industry professionals.  Information from HUD’s National Servicing Center (NSC) is available via the following website: http://www.hud.gov/offices/hsg/sfh/nschome.cfm.

The Mortgagee Letter also provides three key actions mortgagees must take to help avoid treble damages:  (i) ensuring that loss mitigation evaluations are completed before four full monthly installments are due and unpaid, (ii) ensuring that the appropriate actions are taken based on these evaluations, and (iii) maintaining documentation of initial and subsequent loss mitigation evaluations and actions taken. 

HUD defined a failure to engage in required loss mitigation as: 

1. A mortgagee’s failure to evaluate a loan for loss mitigation before four full monthly mortgage installments are due and unpaid to determine which, if any, loss mitigation techniques are appropriate (see 24 CFR § 203.605); and/or
2. A subsequent failure to take appropriate loss mitigation action(s).

Mortgagees must be able to provide documentation of their loss mitigation evaluations and actions.  Mortgagees will be considered to be in compliance with 24 CFR § 203.501 where plausible loss mitigation options were offered to eligible borrowers.  The Department will not consider a mortgagee to have “failed to engage in loss mitigation” where the mortgagee can demonstrate that a borrower was uncooperative or ineligible.

For a full copy of the Mortgagee Letter, please click here.

For a full copy of the 2005 Final Rule, please click here.

Tags: FHA Insurance, Foreclosure, HUD & FHA, Loan Modifications/Workouts, Loan Servicing, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-30, “Hope for Homeowners Servicing Guidance.”

In the Mortgagee Letter, HUD states: 

The Housing and Economic Recovery Act of 2008 amends the National Housing Act to authorize a new, temporary Federal Housing Administration (FHA) mortgage insurance program called the HOPE for Homeowners Program (also referred to as the H4H Program).  Under the Program, a borrower facing difficulty paying his or her mortgage will be eligible to refinance into an affordable FHA-insured mortgage.  The H4H Program is effective for endorsements on or after October 1, 2008, through September 30, 2011.

This mortgagee letter provides HUD-approved servicing mortgagees with servicing and loss mitigation guidance on the new H4H Program.  The information, directions and guidance provided in the mortgagee letter reflect statutory requirements and the standards, policies and regulations adopted for the H4H Program by the Board of Directors of the H4H Program.

HUD then addresses the following topics:

• Background;
• Prohibition against subordinate financing;
• Refinancing;
• Capital Improvements;
• Defaults and loss mitigation;
• Impact of first payment defaults; and
• Sale and payoff.

For a full copy of the Mortgagee Letter, please click here.

Tags: Bailouts, Consumer Protection, Distressed Assets, Economic Stimulus, FHA Insurance, Foreclosure, HUD & FHA, Legislation, Loan Modifications/Workouts, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-26, “Treble Damages for Failure to Engage in Loss Mitigation.”

In the Mortgagee Letter, HUD reminds FHA approved mortgagee that HUD has the authority to assess treble damages when a mortgagee fails to engage in required loss mitigation.  The treble damages rules stem from a final rule published April 26, 2005. 

The Mortgagee Letter states in part:

A mortgagee’s failure to evaluate a loan for loss mitigation before four full monthly mortgage installments are due and unpaid to determine which, if any, loss mitigation techniques are appropriate (see 24 CFR § 203.605); and/or

A subsequent failure to take appropriate loss mitigation action(s)[; and]

Mortgagees must be able to provide documentation of their loss mitigation evaluations and actions.  Mortgagees will be considered to be in compliance with 24 CFR § 203.501 where plausible loss mitigation options were offered to eligible borrowers.  The Department will not consider a mortgagee to have “failed to engage in loss mitigation” where the mortgagee can demonstrate that a borrower was uncooperative or ineligible.

For a full copy of Mortgagee Letter 08-26, please click here.

For a copy of HUD’s April 2005 final rule addressing the issue, please click here.

Tags: Consumer Protection, Distressed Assets, FHA Insurance, Foreclosure, HUD & FHA, Loan Modifications/Workouts, Loss Mitigation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-25, “Converting Existing Homes to Rentals - Underwriting Guidance.”

In the Mortgagee Letter, HUD states in part:

Recently, FHA and others in the mortgage industry have observed an increasing number of homeowners who have chosen to vacate their existing principal residence and purchase a new residence.  This has been occurring as some homeowners, given the rising price of fuel, are relocating to homes nearer their employment, or are taking advantage of other home buying opportunities arising in the marketplace.

Due to FHA’s concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages.  Consequently, beginning with case number assignments on or after the date of this Mortgagee Letter and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter.

The Mortgagee Letter also indicates it is partially directed at “buy and bail” schemes, where a homeowner buys a new primary residence, and then allows a former primary residence to go into foreclosure.

The Mortgagee Letter provides for certain exceptions to the new temporary rules.

For a full copy of the Mortgagee Letter, please click here.

Tags: Buy and Bail Schemes, Distressed Assets, FHA Insurance, HUD & FHA, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 2008-24, entitled Home Equity Conversion Mortgage (HECM) Program - Requirements on Mortgage Originators.

The Mortgagee Letter responds to recent changes to the law governing the Federal Housing Administration’s HECM (Reverse Mortgage) program.  The changes were set forth in the Housing and Economic Recovery Act of 2008 enacted July 30, 2008.

The Mortgagee Letter notes Section 255(n)(1) of the National Housing Act now provides that the:

HECM mortgage originator or any other party that participates in the origination of a FHA insured HECM mortgage shall (1) not participate in, or be associated with, or employ any party that participates in or is associated with, any other financial or insurance activity; or (2) demonstrate to the Secretary of HUD that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that (i) individuals participating in the origination of a HECM mortgage have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and (ii) the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product. 

The Mortgagee Letter states that HUD will solicit public comment on these issues prior to issuing fuller guidance.  Until that time, HUD generally admonishes compliance.

The Mortgagee Letter also notes that Section 255(n)(2) of the National Housing Act now provides:

all parties that participate in the origination of a mortgage to be insured under FHA’s HECM program must be approved by the Secretary.  This requirement means that loan origination must be performed by FHA approved entities including: (1) a FHA-approved loan correspondent and sponsor; (2) a FHA approved mortgagee through its retail channel; or (3) a FHA-approved mortgagee working with another FHA-approved mortgagee.   

For this reason, the Mortgagee Letter rescinds prior Mortgagee Letter 2008-14 as inconsistent with this statutory standard effective October 1, 2008.

For a full copy of Mortgagee Letter 2008-24, click here.

Tags: Consumer Protection, FHA Insurance, HUD & FHA, Mortgage Banking - General, Regulations, Reverse Mortgages by the Editor
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Mortgage Law Blog reminds readers that the Mortgage Bankers Association will hold its annual Regulatory Compliance Conference September 14 - 16, 2008. 

The conference will be held at the JW Marriott in Washington, DC.

The MBA’s website describes the conference as the “the premier forum for you to attain the most comprehensive, up-to-date information on significant regulatory and compliance issues facing the mortgage banking industry at the federal and state levels.”

The conference includes “an in-depth discussion of the Housing and Economic Recovery Act of 2008, the most sweeping real estate finance and housing legislation in a generation. Attendees of this conference learn about the contents of this law, how its provisions will be implemented and what changes your business needs to make to comply with the new regulations.”

Speakers will cover a variety of topics, including:

• Home Owners Equity Protection Act/Truth in lending Act
• Real Estate Settlement Procedures Act
• Anti-predatory lending requirements
• Home Mortgage Disclosure Act/Fair lending
• Fair Credit Reporting Act/Fair and Accurate Credit Transactions Act
• Federal Housing Administration loans
• Mortgage fraud against lenders
• Servicing
• Secondary market issues

There will also be legislative and litigation updates. 

The final day will include a visit to Capitol Hill to meet with legislators.

To learn more, visit the conference website here.

Tags: Association Activities, Conferences & Events, Consumer Protection, Economic Stimulus, FACT Act, FCRA, FHA Insurance, Fair Lending, Foreclosure, Fraud, HUD & FHA, High Cost Loans, Industry Involvement, Legislation, Loan Servicing, Lobbying, Mortgage Banking - General, RESPA, Regulations, State Regulation, Unfair or Deceptive Acts by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 2008-23, Revised Downpayment and Maximum Mortgage Requirements. 

The Mortgagee Letter directly results from the passage of the Housing and Economic Recovery Act of 2008, which became law on July 30, 2008.

The Mortgagee Letter states in part that HERA revised the National Housing Act to:

• require the mortgagor to have paid in cash or its equivalent at least 3.5 percent of the appraised value of the property,
• eliminate the variable LTV limits that were based on the combination of the property value and the average closing costs of the state where the property is located, and
• limit the total of the FHA-insured first mortgage to 100 percent of the appraised value, and require inclusion of the up-front mortgage insurance premium within that limit.

The Mortgagee Letter then goes on to provide guidance on these issues.

For a copy of the Mortgagee Letter, please click here.

Tags: Economic Stimulus, FHA Insurance, HUD & FHA, Legislation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued guidance regarding the statutory moratorium on risk-based premiums enacted as part of the Housing and Economic Recovery Act of 2008. 

Mortgage Law Blog readers may recall that HUD had established a structure for certain risk-based premiums on loans insured by the Federal Housing Administration effective July 14, 2008.  In HERA, however, Congress imposed a one-year moratorium on risk-based pricing beginning October 1, 2008.

Congress also required HUD to issue guidance under HERA.  HUD has now issued that guidance. 

For a full copy of the guidance, please click here.

Tags: Consumer Protection, FHA Insurance, HUD & FHA, Mortgage Banking - General, Risk-Based Pricing by the Editor
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