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By Fred Chamberlin
Senior mortgage adviser
Alpine Mortgage Planning
Government-Lending Changes to Know
FHA, VA and USDA are important and evolving options in today’s market
during the melee and finger-pointing
that took place as part of the subprime
(aka, nonprime) meltdown, the U.S. Department of Housing and Urban Development (HUD) introduced changes to
continue helping borrowers qualify for
home loans through the Federal Housing Administration (FHA).
Government-loan programs represent
an important segment of today’s mortgage market, and mortgage brokers
should pay attention to the changes.
These programs include mortgage insurance, loan guarantees and direct
loans. Brokers also should know which
programs work for specific borrowers.
This includes programs offered by FHA,
the U.S. Department of Veterans Affairs
(VA) and the U.S. Department of Agriculture (USDA).
In the past few years, for example,
FHA’s market share has increased dramatically. FHA insured 21. 5 percent of
all new mortgages in 2008 compared
to less than 6 percent in 2007. FHA-insured lending also has changed in
The upfront mortgage-insurance premium has increased from 1.5 percent
of the loan amount to 1.75 percent,
and the monthly mortgage-insurance
premium for most loans has increased
from 0.5 percent to 0.55 percent. These
changes help generate a larger fund to
In addition, the use of downpayment-assistance programs supported by
seller contributions stopped, and the
minimum downpayment requirement
increased from 3 percent to 3. 5 percent.
Although FHA has no minimum credit
score for borrowers, individual lenders
have started putting their own overlays
on the product. It’s now common to see
lenders that won’t accept FHA-insured
loans for borrowers with middle credit
scores lower than 620. Some lenders
require middle scores of 660, especially
for manufactured homes.
Many lenders have stopped taking FHA manufactured-home loans
entirely. Although a few lenders still
accept these types of loans — and a
few still accept lower-than 620 credit
scores — underwriting often presents
employment with copies of pay stubs
and W-2 forms on file.
Letters of explanation for late payments, short job gaps and anything remotely suspicious are common. Bank
statements are reviewed, gift funds are
sourced and changed incomes often
are averaged. Many of these things are
familiar to more-experienced mortgage
brokers, but they can seem foreign to
newer members of the industry.
Some of the most-recent changes to
FHA include modifications to streamline
refinances. Previously, FHA customers
often could refinance their homes for a
lower interest rate with no out-of-pocket
money and no new appraisal. Now, that
same refinance can require either money
to close or a new appraisal. Minimum
seasoning requirements also exist.
In addition, as of Jan. 1, FHA has
changed appraiser requirements, and
there are new net-worth requirements
for FHA lenders. Moreover, mortgage
brokers no longer can order appraisals
for FHA-insured loans after Jan. 1.
USDA’s rural guaranteed-loan program shouldn’t be confused with
USDA’s direct-loan program for low-income borrowers.
Many areas also are receiving money
from HUD’s Neighborhood Stabilization Program, which targets specific
areas for the purchase of foreclosures
for principal residences. The program
also is designed to assist nonprofit
groups in purchasing these homes for
low-income housing. These loans are
designed to return foreclosed-upon
properties to productive status.
Also, FHA now allows reverse mortgages to be used to purchase homes,
a great assistance for borrowers ages
62 or older who want to downsize and
reduce their monthly expenses.
mortgage lending involving some form
of government assistance — including
direct loans, loan guarantees and mortgage insurance — seems poised to continue its growth in 2010.
Brokers who educate themselves and
their borrowers can take advantage of
the trend toward government-supported
lending and thrive. Whether you work
with FHA, USDA or VA loan programs, it’s
important to know how changes affect
your borrowers and your business. •
Mortgage brokers should pay careful
attention to government loan-program
modifications and know which programs
work for specific borrowers. The share of
Fred Chamberlin, senior mortgage adviser at
Alpine Mortgage Planning, is an experienced
mortgage lender based in Oregon. He has more
than 20 years’ experience in mortgage lending
and is a noted trainer in government lending. He
authors eugeneloanguy.com, fhaloansoregon.
com and no-money-down-usda-mortgage.com.
Chamberlin specializes in government loans and
enjoys sharing his expertise with others. Alpine
Mortgage Planning is part of Pinnacle Capital, a
West Coast lender. Reach Chamberlin at
(541) 342-7576 or email@example.com.
Generally speaking, underwriters have
tightened their standards and don’t
want to be responsible for their company repurchasing FHA loans that can’t
be insured or that don’t meet investor standards. They complete verifications on nearly everything. They also
pull copies of tax returns as part of
the process, order review appraisals,
and complete verbal verifications of
VA and USDA
FHA isn’t the only government lending program to experience changes.
Offering financing for U.S. veterans
and their spouses, VA changed its
guarantee amount and increased the
maximum loan size without a downpayment to $417,000 in most areas.
VA also offers an enticing jumbo-loan
option with a limited downpayment. It
involves a fairly complicated formula.
As an example, the program will allow
veterans to buy a $600,000 house
with about 5-percent down and a reduced funding fee. The potential maximum loan amount is slightly more than
Active-duty members of the armed
forces also qualify for VA loans, as do
active members of the reserves and
National Guard, following fulfillment
of specific service requirements. Find
more information about VA-loan eligibility at homeloans.va.gov/elig2.htm.
Meanwhile, USDA’s rural guaranteed-loan program can be especially
helpful in nonurban areas. There are income limitations, but those limitations
are quite liberal as the result of recent
changes. Previously, there were income
limits based on family size that went
from one to eight members in steps.
Now, the income limits are for one- to
four-person families and five- to eight-person families with additional tiers for
families of more than eight.
Those limits vary by county. In Oregon’s Lane County, for example, a family of one can earn as much as $73,600
and qualify for 100-percent financing
for a home in a rural area.