FHA Mortgage, Interest Rates and Marketing

It amazed me last week to see how swiftly lenders eliminated the HECM 150 and began attempting to force Reverse Mortgage Borrowers into higher margin programs like the CMT 200. 

At RP Funding we took a look at what was left in the industry and put together the RP HECM which, for a limited time, will match HECM 150 calculations.  The Expected Rate we are using for calculation on the RP HECM is currently 5.5% the SAME as the HECM 150 so there is no change in principal limit for borrowers. 

If you or someone you know is working with a lender that eliminated the 150 and is now offering lower calculations, we can help.  We will match the previous HECM 150 calculations with our new RP HECM by using a 5.5% Expected Rate.  The RP HECM is still an FHA Insured Home Equity Conversion Mortgage we are just using a different combination of index and margin and cutting our profit to help out. 

Other lenders could have made a decision to offer the same product, but most of them refused to cut their profit margins. Instead they lowered the calculations for their borrowers.  If you are working with a lender who is forcing you to take higher rates and reducing your principal limit, check out our website at http://www.efreverse.com/hecm-150-match-calculator.cfm 

FNMA announced drastic increases in HECM Reverse Mortgage rates over the last few days.  National lenders such as Everbank Reverse Mortgage (MetLife), Sun West Mortgage, and J B Nutter have all eliminated the Treasury based 150 margin reverse mortgages.  All loans must close and fund by the end of August to maintain the current rates.  In addition to eliminating the HECM CMT 150  (The HUD Insured Reverse Mortgage tied to the Constant Maturity Treasury with a 1.5% Margin) pricing to mortgage lenders and brokers was also greatly worsened on the 175 Marin and 200 Margin Treasury Products as well.

This move seems to be an attempt to push lenders, brokers and borrowers into Reverse Mortgages based on the more lucrative LIBOR Index.   With treasury rates currently under 4% FNMA will make much greater returns by basing the mortgages on the LIBOR Index.   One has to wonder if this move isn’t partially based on their current loss in value on the stock market - make more money on the loans that can’t default… Reverse Mortgages.

Other factors have to include the surge of reverse mortgage refinances that are expected to take place when the new higher HUD limits go into effect.  Almost any current reverse mortgage holder with a home worth more than $400,000 will receive significant additional funds under the new loans limits.  I think FNMA is hoping to force this surge of refinancing seniors into higher margins and/or LIBOR based products to increase profits over the long run.  Once the initial surge is over I wouldn’t be surprised to see lower margins return to the market.

Sometime between October 1st, 2008 and January 2009 HUD will be increasing the loan limits for HECM Reverse Mortgages as outlined in the Housing and Economic Recovery Act of 2008.

According to the NRMLA, HUD’s lawyers are still trying to figure out how to enact these limits.  Now I am not a lawyer but it doesn’t seem like there are too many ways to interpret it.  We gave it a shot and put a New Proposed HECM Reverse Mortgage Limit Calculator on our website to give you an idea of what the calculations will be.   Below is an explanation of our interpretation and the EXACT TEXT from the bill to back it up.  DISCLAIMER:  I am not an attorney and this may not be how HUD interprets the law.

First it establishes the base amount of $417,000.00 through the following text: ” Section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by striking the 7th and 8th sentences and inserting the following new sentences: `Such limitations shall not exceed $417,000 for a mortgage secured by a single-family residence”

That seems pretty cut and dry the limit cannot be higher than $417,000.  Simple enough, but then just like on the forward side there is an exception for High Cost Areas:

“(2) HIGH-COST AREA LIMIT- Section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)) is amended by adding after the period at the end the following: `Such foregoing limitations shall also be increased, with respect to properties of a particular size located in any area for which 115 percent of the median house price for such size residence exceeds the foregoing limitation for such size residence, to the lesser of 150 percent of such limitation for such size residence or the amount that is equal to 115 percent of the median house price in such area for such size residence.’.

For the High Cost HECM Limit this is saying that if 115% of the median price for an area is more than the $417,000. You use the LESSER of 115% of that areas median price OR 150% of $417,00 which is $625,500.

Here is an example using the current median home prices Miami-Dade County, Florida  - current median price is $339,000 and 115% of 339,000 = $389850 so this is NOT a high cost area under the new law and would default to $417,000. 

HUD has 3,233 counties in their current database for loan limits.  Under my interpretation of this ruling 3,028 counties would have a limit of $417,000 and not be considered “high cost”.  81 counties would utilize the cap of $625,500 leaving only 124 counties to that would be calculated.

I think HUD’s biggest problem with implementation is going to be waiting for the updated median prices to be released so they can calculate these 124 counties that fall in the middle.  Again I AM NOT AN ATTORNEY, but you can read exactly what I read and draw your own conclusions.  To me it seems like this is the only way to calculate to stay in accordance with the law.

If you are curious as to the impact the new limits will have on your reverse mortgage eligibility, we put up a calculator on my companies reverse mortgage website to give you a comparison.  WE ARE NOT ADVERTISING THESE AS AVAILABLE LOAN LIMITS, WE ARE NOT 100% SURE THAT HUD WILL USE THE METHOD I HAVE OUTLIEND ABOVE, but if they do then our calculator is correct.  You can check it out here New Proposed HECM Reverse Mortgage Limit Calculator

After dodging the bullet a few times over the past few years, seller funded DPA is finally gone. This time it will take more than a court order to save Seller Funded Down Payment Assistance.  A new bill passed by the house and the senate and expected to be signed into law by the President, bans seller funded down payment assistance on FHA loans.  These are companies like Nehemiah, Ameridream, American Family Funds, The Dove Foundation, etc.

 On top of banning DAP they also INCREASED THE FHA MINIMUM DOWN PAYMENT TO 3.5% from 3%.  Making it even harder to buy a home. 

Many people had no idea that the Housing and Economic Recovery Act of 2008 included:

 The house passed the bill last Wednesday and the senate passed it today, Saturday.  All that’s left is for the president to sign the bill.

This bill is going to do a lot of great things, don’t get me wrong.  But I think they picked a poor time to decide to make buying a home harder.  Some estimates indicate that 30% of home-buyers were just taken out of the market with this new requirement for 3.5% down.  To buy a $200,000 house a buyer now needs at least $7,000 of their own money!  As it stands today the buyer can buy they same house with very little money out of pocket.  With the recent changes in fanniemae and freddiemac this eliminates the last source of “No Money Down” financing to purchase a home.

The president has already agreed to sign the bill, since the clause to ban down payment assistance is a part of the 300 billion dollar package to help Americans keep their homes (like he can really veto that!)

This change is going to hit New Home Builders and Manufactured Home Dealers the hardest.  They used the programs extensively to move inventory.  I would say 80% of the new construction loans my company funds have Seller Funded Down Payment Assistance.  Lucky for us New Construction only makes up about 10% of our overall volume. 

HUD Announced the much awaited changes to the FHA Mortgage Insurance Premiums (MIP) and Up-Front Mortgage Insurance Premiums (UFMIP) based on LTV and Credit Score.  With all the talk about FHA doing what it can to help home-buyers I find this to have strange timing.  This will definitely put a lot more cash into the FHA coffers, and although it is going to impact homeowners I don’t think it will be that drastic.

Below you will find a copy of the new risk based mortgage insurance premium chart.  You can see that LTV and now Credit Score are going to play a large factor, and FHA effectively sets a minimum credit score (over 90% LTV) as a part of this announcement.  This is FHA’s first real acknowledgement of credit score after years of a stance that FHA was NOT credit score driven.  Guess what.. now it is.   The FHA Risk Based Mortgage Insurance Premiums show that FHA feels Credit Score = Risk.

Read the rest of this entry »

In my opinion the FHA Manufactured Home One Time Close Construction Permanent Loan is one of the most difficult transactions to put together.  It layers all of the most complex loan types imaginable you have a Construction To Permanent Loan combined with an FHA loan and then mix in Manufactured Home as the property type and I think all levels of complexity are covered.

I have been originating these loans for about 1o years and the amazing part is that once you get used to them they are very easy and very consistent.  The biggest problem is when a company jumps into this arena with no experience because there are a lot of mistakes that can be made. 

On top of this there are some discrepancies between different HUD offices on how these transactions can be handled.  The Denver HOC seems to feel that all new construction manufactured home utilize the BOL (Build on Own Land) Worksheet.  The Atlanta HOC instructs that they can be underwritten as either a BOL or a Construction to Perm Transaction.

I will get into more detail about the different types, but for the most part the Manufactured Home Construction Perm works like any other construction perm.  The borrower closes upfront on the loan and the land is paid off, once the home is set (or in some cases just constructed) it is paid off, and then the dealer can take a draw for additional expenses.  In the end the loan converts or modifies into an FHA Loan.  This conversion or modification is NOT a second closing, it just ends the construction period, sets the permanent loan rate and the permanent loan term and maturity.  The great thing is there is no re-verification once construction is complete.  The entire loan approval is based on the original closing date, and all of the original pay-stubs, bank-statements, credit report etc.

Manufactured Home Dealers benefit greatly from the FHA One Time Close Construction Loan:
1) Manufactured Home Dealers are able to shift the borrowers credit risk, no more setting a home to find out that the borrower’s score dropped or their job changed and they no longer qualify.

2) Manufactured Home Dealers are able to free up capital and floor plan lines.  By having the construction loan provide the funds the dealer frees up his capital for running his business.

I have interviewed with or worked for almost all of the major players in Manufactured Home One Time Close Construction Perms over my career.  Personally I always preferred companies where the same lender underwrites the FHA loan and Underwrites and Administers the Construction Portion and Final Funding.  If you are working with a program where these functions are split you have to be sure that all players are on the same page. 

The other important piece is to look at the companies exposure to manufactured home loans.  I am a huge advocate of manufactured housing but at the end of the day I call tell you from 10 years of experience that they are more likely to default.  If a company funds 100% of their business as manufactured housing at some point they will have problems with neighborhood watch and default rates.  Also the end investors track default rates and a company is selling 100% manufactured to their servicing lenders they will eventually get cut off.  I have seen it happen to a few companies I worked for in the past. 

I try to make sure that Manufactured Homes only make up 15% - 20% of my volume.  This helps protect the company and my dealers because we won’t run the risk of getting cut off. 

As far as qualifications for the loans they run pretty standard with FHA. A 580 is a good minimum benchmark for credit score but its not a set minimum.  It is much easier to get a loan approved over a 580, the lower scores can be  approved but require compensating factors (usually reserves and a good LTV).  In order to accommodate 100% financing a non profit gift can be used, this allows the dealer to contribute the required down payment to the borrower through the non profit gift company.   Collections don’t have to be paid off in most cases and borrowers with no credit score can be approved with alternative credit.

Manufactured Home Information:

• All manufactured homes built on or after June 15, 1976, must have an affixed HUD seal(s) located on the outside of the home indicating the house is in accordance with Federal Manufactured Construction and Safety Standards.  If the home is a multi-wide unit, each unit must have a seal.  If the tags are missing from the property, the appraiser must recommend rejection of the property and notify the lender.
• A certification of compliance with the Foundations Guide, including the licensed professional engineer’s seal and signature, is required on all manufactured homes.
• All foundation systems, new and existing, must meet the guidelines published in the Permanent Foundations Guide for Manufactured Housing, HUD-7584, dated September 1996.  A certification attesting to compliance with HUD requirements must be obtained from a licensed professional engineer and included in the insuring file.  This procedure does not apply when the current FHA borrower refinances their loan.  It is applicable for all re-sales.
• The home must have at least 400 square feet.
• The home must be built and remain on a permanent chassis.
• The home must be erected on permanent foundation designed and constructed in accordance with FHA requirements.

4155 may sound like the price of a used car but it is actually the FHA bible.  Most people in the mortgage business say it as “Fourty-One, Fifty-Five” as opposed to the Four Thousand One Hundred Fifty Five.   This is the document number assigned to the federal housing administration (FHA) handbook for single family mortgage loans.

These are the FHA Loans that are all the buzz right now in the mortgage business.  If you are a loan officer, processor or any other industry insider who is involved in FHA Loans I suggest you get a copy of the 4155 and study it.  It is THE guidebook for FHA Loans.

 When I  first got into FHA loans back in 1998 I read the 4155 word for word over and over again and it made me a much better originator.  I could quote guidelines in my sleep which gave me a huge advantage.  The 4155 is the FHA BIBLE!

We have recently found out that Taylor Bean and Whitaker is still accepting FHA loans below a 580 credit score with a manual underwrite.

There underwriting times are very slow for this reason because they are getting a lot of loans they cannot approve.  If you have an FHA loan below a 580 credit score and have plenty of time to wait, TBW (Taylor Bean) is your best bet.  I would warn you that if you are going to submit a loan below a 580 credit score you need to make sure it is processed properly! Make sure you understand FHA guidelines and are meeting them, and underwriter will be looking for a reason to decline your loan when the score is this low.  This makes it even more important to present the loan properly when the credit score is below 580 and the loan is FHA.

Although FHA guidelines do state that Overtime pay should have a two year history, a Direct Endorsement Underwriter can make an exception to use overtime with only a 1 year history.  A direct endorsement underwriter can also take previous job history and recent transfers into account when calculating overtime for someone who doesn’t have a full 2 year history.  So if a borrower has less than a 2 year history of overtime you should build a strong case (if it can be built) and present it to an FHA DE Underwriter and see how they feel about the circumstances.

 One of the great benefits of FHA loans is the authority a Direct Endorsement Underwriter has to make judgement calls in good situations.

Get in on the ground floor with a full service mortgage lender.

Are you tired of working for a broker or net branch that has no control over the mortgage process?
There is a better way to do business.

R P Funding is a new, locally owned, FHA Direct Endorsement Lender. Get in on the ground floor with a Direct Lender. All loans are underwritten and closed in house (get to know the underwriters and closers). Loans are underwritten in 24 hours and closing time is 24 hours.

Our Head FHA Direct Endorsement Underwriter is top notch, and understands customer service. The entire staff has a “can do” attitude and is all about closing loans. The president started in the industry 10 years ago as a Loan Officer/Branch manager - this company was built to be what he always wished he could have found back then.

What we do:
We process loans efficiently and keep our sales staff informed
We underwrite most loans in 24 hours (even faster if you need to impress a new client)
Our closing department gets docs out in 24 hours and has great customer service
Programs include FHA, VA, FNMA, and FHLMC
We are a small company, no corporate politics.
There are only around 370 companies in Florida that can underwrite and close FHA Loans (we are one of them).

What we don’t do:
We don’t pay 100% commission
We don’t hire “just anyone”
We don’t do net branches

We are looking for two types of sales people:

1)Phone sales to work leads from marketing, direct mail, Internet and telemarketing

2) Outside Loan Officers who have relationships with Real Estate Agents, CPAs, Financial Planners, Builders (generate their own business)

Phone Sales:
Mortgage Originators EXPERIENCED with working inbound and outbound leads. Direct Mail, Internet, Telemarketed. You must be used to working with borrowers who are NOT referrals, be able to quickly build rapport on the phone and help people see through the “Bait and Switch” offers from the competition. If you have done this kind of work you know what I am talking about. We have a great CRM system and know how to get the phone to ring. Our commission splits for this type of work are very competitive and for the right person/experience/attitude we WILL PAY A DRAW/SALARY. We are also open to new ideas, if you have a lead generation technique you like that we are not currently using we would be happy to give it a try.

Outside Originators:
Mortgage Originators who have an established referral source and track record of closing loans through referrals. Your referral sources will love how fast we underwrite and close loans. FHA experience is preferred, but if you have the right following we are willing to teach you everything there is to know about FHA (our President has personally originated over 1,000 FHA loans and our head DE underwriter has approved around 5,000 - we know FHA!).

What to do next…
If you are interested, and think we would be interested in you, drop us an email or a call. You can send over a resume, but a brief description of what you have done, are doing, and what you would like to do… would be more helpful.

email: jobs519@rpfundingcorp.com
phone: 904-270-2812