Professional Mortgage Partners in Inc Magazine's Top 5000 list

Despite the downturn in residential real estate and mortgage markets, Downers Grove based Professinoal Mortgage Partners, Inc. place number 2789 on Inc Magazine's top 5,000 list of fastest growing companies in the US. Click here for the full article:

Reverse Mortgages in Chicago

Professional Mortgage Partners, ("PMP") announced today the creation of it's new Reverse Mortgage department. Heading up the department is Will Yoho, a reverse mortgage specialist. Reverse Mortgages are a niche in the mortgage banking world that require a certain level of experience and focus. Most loan officers have never originated a single reverse mortgage transaction. So PMP decided to bring on an in-house specialist to handle these unique transactions - so it's loan officers can continue to focus on their own business.

Here are a few exerps from PMP's reverse mortgage page:
(To use PMP's online reverse mortgage calculator, click here).

What is a reverse mortgage? The real question is why.
Why did over 100,000 seniors choose a reverse mortgage last year? To have a dignified lifestyle in their retirement years, not just today but also 20 years from now. The reveres mortgage addresses two of senior’s biggest fears, running out of money and losing their home or independence. Two facts often misunderstood by the younger generations are life expectancy and income. The current life expectancy of a 65 year old female is 20 years, and over 42% of senior households have income of less than $2083 per month. If the ends aren’t meeting now for a senior, what will happen in 10 years with inflation; medications, utility bills, food?
Would you let your mom get a reverse mortgage?
The short answer is yes. The long answer is not until I knew this was the best option for her. I would ask about other options for today. Living with a family member, moving to a small apartment, getting a roommate to help with expenses, or even remarry a wealthy widower. Next I would look at the future, and make some educated assumptions. Look at a few what ifs, the best and the worst cases - ask the tough questions now. Some of mom’s answers may surprise you! Going through this process with a reverse mortgage expert will help, and at the end you will know if a reverse mortgage is the best option for your mom. Ask for your free guide, “10 tough questions to ask when considering a reverse mortgage”

First time buyers programs require larger downpayments

No Money Down? Sorry.

By AMY HOAK March 9, 2008

Prices have dropped since last year when Greg Sax bought his St. Paul, Minn., home. But the 37-year-old first-time home buyer still feels lucky he made the move when he did.
He was able to finance his purchase with no money down. And after talking with real-estate professionals in his job as communications manager for the Minneapolis Area Association of Realtors, he's not so sure he'd be able to secure that 100% financing today.
"If we had to put 10% or 20% down, we'd probably still be renting," he says.

Financing Challenge

Falling prices in many parts of the country have improved affordability for those interested in becoming homeowners for the first time, but financing the purchase has become a bigger challenge.

Lenders, in general, are requiring larger down payments and higher credit scores, criteria that can trip up first-time buyers. It's typically first-time buyers who have the toughest time scraping together a down payment. According to the National Association of Realtors, 45% of first-time home buyers opted for 100% financing between July 2006 and June 2007. The median percentage that first-time buyers financed was 98%.

No-down-payment loans "are still happening, but with a lot more restrictions than before," says Barton Pitts, president of Downers Grove, Ill.-based Professional Mortgage Partners.

Borrowers today are going to have to verify their income and verify their financial assets to lenders, says Frank Nothaft, chief economist for Freddie Mac, the government-sponsored mortgage agency. A FICO credit score of 660 to 680 is now the minimum most lenders will consider to prove your creditworthiness, he says. "It's the standards of maybe a decade ago," he adds.

The new lending realities make it especially important for first-time buyers to talk to a mortgage professional prior to the start of any home search, Mr. Pitts and others say. "Know exactly where you stand going in," he says.

There are no one-size-fits-all rules to mortgage requirements; your profile as a borrower will depend on factors such as credit scores, income levels and cash reserves. But some in the industry figure that many borrowers will need about a 5% down payment on a typical loan these days.

Looming 20% Down

Others are predicting heftier restrictions to entry: According to Guy Cecala, publisher of the industry newsletter Inside Mortgage Finance, a first-time buyer in many markets will soon need even more money down -- perhaps 10%. "And I think before too long we're going to see it up to 15% to 20%," he adds. But all hope is not lost for those who don't have the capital to make a substantial down payment.

For one, some prospective home buyers might consider a mortgage backed by the Federal Housing Administration. FHA loans require only a 3% down payment, which can be a gift from friends or family. To be eligible, the home price has to be under a certain loan limit, and that varies by location.

Amy Hoak writes for MarketWatch. See more stories at MarketWatch.com

What's the long term solution to our housing crisis?

A lot of us in the mortgage business are looking for the Fed to continuously cut rates until the housing market rebounds. Please read below from Bill Gross - the leader of Pimco, the largest bond fund in the US. I've always followed Bill's comments because 1) I'm always wrong about the direction long term rates are headed and2) Bill is ALWAYS RIGHT. I copied some of his latest commentary below. If you don't want to read the whole thing, the cliff notes are as follows:
Don't cut short term rates any further. That's only going to prop up the sort of artificial consumer driven economy that has gotten us into this mess. We need massive, prolonged, fiscal stimulus, of Keynsian (for you econ majors) proportions. I happen to agree. Some more monetary stimulus would be great for mortgage companies in the short run. But in the long run, our economy ultimately depends, as Gross says, on our " ability to 1) innovate, and 2) save and invest."

Here are Bill's comments:

And so the monetary attempt to halt housing’s – and therefore the economy’s – downward slide rests on the shoulders of the 30-year mortgage. If so, then Mr. Bernanke – we have a problem. First of all these 6-7% 30-year mortgages now require a significantly higher down payment than in prior years. 20% down? Say what? Where does a 30-year-old couple get that kind of money? Secondly, however, and just as important, what motivates a future homeowner to pay 6%+ interest for an asset that is going down in price? It was an easy decision to pay subprime yields of that and then some when housing prices were accelerating at double-digit annual percentages; the benefit was obvious. Now however, with prices in negative territory, the risk/reward is tilted towards the renter.
My point is that Chairman Bernanke must recognize the reduced benefits and obvious dangers of a déjà vu trek to 1% short rates. Those yields produced 5% 30-year mortgage rates to the homeowner for a 2-3 month period in 2003 and they could do so again, but bubble creating, inflation inducing damage to the U.S. dollar would be the likely result now. Best to stop far short of 1% and at the same time encourage reforms in FHA government assisted programs that would permit subsidized mortgage rates with minimal down payments. An artificially low, 1% short-term interest rate was an elixir during the days of a burgeoning shadow banking system. It cannot be the solution now.
In combination, a well constructed, more than temporary fiscal/monetary stimulus plan is what is required to rejuvenate a U.S. economy reeling from a low punch delivered by a private market economy gone too far. Its "Rosemary’s Baby" took the form of a shadow banking system based on leverage and the fateful conclusion that a finance-based economy alone can deliver prosperity. It cannot. As Keynes theorized and then Krugman affirmed, when private demand falters, it becomes the responsibility of government to fill the breach. Because it likely will not do so effectively until after a new Administration is elected in late 2008, the U.S. economy and its somewhat coupled global companion will sleep walk for some time and a resumption of prosperity as we knew it will be dependent on reforms of monetary and fiscal policy resembling the 1930s more than our past decade. Better late than never.

William H. Gross
Managing Director
Pimco Bonds

Illinois Homeowners Assistance Initiative program

State plans program to reduce foreclosures
By Susan Diesenhouse Tribune reporter
From a Chicago Tribune article - February 14, 2008

Homeowners facing possible foreclosure will be able to apply to refinance their mortgages at stable, affordable rates under a program to be announced Thursday by Gov. Rod Blagojevich.The Homeowners Assistance Initiative program, funded with $200 million from four mortgage lenders, is aimed at trying to ease the rising tide of home foreclosures.The program will offer 30-year fixed-rate mortgages guaranteed by the Federal Housing Administration. The interest rate will not exceed 8 percent for loans capped at $417,000, with no prepayment penalties and no income requirement for borrowers.

To qualify, borrowers must undergo mortgage counseling and have a credit score of at least 580, lower than the rating required for prime loans. Those unable to meet the criteria may be offered loans at different terms. "By making good loans and sound advice available to Illinois families, we can turn the mortgage crisis around and save homeowners from foreclosure," Blagojevich said in a statement. He expects 70,000 state homeowners to face foreclosure this year. "We profit when people buy homes, and would like to see more of that," said Ken Perlmutter, chief executive of Perl Mortgage Inc., one of the lenders that provided mortgage pool funding. Other lenders involved are Guaranteed Rate Inc., Chicago Bancorp and Professional Mortgage Parnters, Inc. In his statement, the governor invited more lenders to join the program."A significant amount of borrowers probably weren't put into the right mortgage programs in the past," said Victor Ciardelli, CEO of Guaranteed Rate. Ciardelli organized the lender group at Blagojevich's request.Lynette Briggs, a housing counselor with the DuPage Home Ownership Center in Wheaton, a non-profit agency certified by the Department of Housing and Urban Development, said the program is a step in the right direction but "isn't a magic wand."Carl Tannenbaum, a Chicago economist, said, "The number of borrowers in our state caught in the web of rising mortgage payments and falling property values is so vast that it cries out for a more aggressive resolution."Last year, foreclosures rose 79 percent nationwide, to 2.2 million. In the Chicago region, foreclosures jumped 50.2 percent, to 73,469, according to a study released Wednesday by RealtyTrac, an online foreclosure-tracking firm.Suburbs with the highest number of defaults include Aurora, with 2,054; Bolingbrook, 840; Carpentersville, 595; Elgin, 1,239; Itasca, 1,225; Naperville, 550; Plainfield, 937; Round Lake, 845; and Waukegan, 870, according to RealtyTrac.The housing initiative also consists of a statewide network of 15 consumer counseling services. They will determine eligibility for refinancing and provide loan-option advice. Neighborhood counselors also can refer consumers who suspect lending fraud to the state mortgage fraud task force.Homeowners seeking help can call 888-995-4673, a national toll-free hot line, to receive counseling by phone and be referred to the Illinois network set up by Neighborhood Housing Services of Chicago Inc.Lenders involved expect the program to enhance their public image and to help them gain market share, said Perlmutter."We're interested in doing business with a larger proportion of the region's homeowner market," said Ciardelli.

Rescue available, but with conditionsThe Homeowners Assistance Initiative will offer some homeowners 30-year fixed-rate mortgages guaranteed by the Federal Housing Administration. Here are details of the program: Interest rate: Will not exceed 8 percent for loans capped at $417,000To qualify: Borrowers must undergo mortgage counseling and have a credit score of at least 580For information: Call 888-995-HOPE (4673)

Professional Mortgage Partners in the news..

The following article appeared on the front page of the Chicago Tribune on Saturday, January 26th, 2008. We're posting it here because Professional Mortgage Partners is quoted several times, but the content is very relevant to what is going on in the mortgage industry in general.

www.chicagotribune.com/news/chi-sat_refi_0126jan26,0,6423594.story


ECONOMY HITS HOME: REFINANCING

By Michael Oneal and Mary Umberger - TRIBUNE REPORTERS

With long-term mortgage rates sinking to their lowest level since March 2004, it looked like one of those golden opportunities to refinance the home or condo this week.But many who rushed out to their banker or mortgage broker discovered that it is much more difficult to borrow money than it was even a few months ago.The real estate crisis dragging down the rest of the U.S. economy has frozen the market for many borrowers. As prices fall and lenders wallow in a sea of losses, only those with gold-plated credit ratings and ample equity in their homes are sailing through the application process, mortgage bankers said.Everybody else is paying more or getting rejected. The many no-money-down borrowers in sinking markets whose homes are now worth less than their mortgage balance are finding little help from lower interest rates."There's a widening gap between those people who can qualify for a mortgage and get great rates and those who can't," said Barton Pitts, president of Professional Mortgage Partners in Downers Grove. "It's a totally different world."For the broader U.S. economy this presents a problem. With consumer spending lax, the Federal Reserve is expected to cut rates yet again next week in part to perk up housing. But with credit markets in shock and credit quality down, the usual stimulative effect of low rates may be muted, said Mark Zandi, chief economist of Economy.comThat's why the White House and Congress are pushing for tax rebates and other forms of stimulus to jump-start the economy. To make it easier for banks to offer large mortgages at lower interest rates, they also proposed higher limits on loans purchased by Fannie Mae, Freddie Mac and the Federal Housing Administration.Right now, said Pitts, since the secondary market has dried up for fixed-rate "jumbo" loans larger than $417,000 -- the Fannie Mae purchase limit -- even qualified borrowers must pay rates 1 percent higher to get one.What's happened is that banks and mortgage lenders have not only clamped down on exotic, subprime loans they can't sell in the secondary market, but they also have tightened rules or raised the cost for medium quality and jumbo loans that make up a big part of the market. They have demanded more equity, tougher appraisals, and higher credit scores.Fannie and Freddie grease the mortgage market by purchasing loans and turning them into securities for resale. In November they began issuing new rules to tighten the screws on loan quality.Mostly gone are the once-popular "no doc" loans that required little or no proof of income or assets. And new requirements demand more equity as a percentage of home value in weak markets.They also created a set of fees that increase the cost of getting a loan for anybody with a credit score below 680. This is a big change from the recent past, when Fannie charged no such fees and had relatively lax standards."A good credit score today is 740. Acceptable is 680," said Dan Green of Mobium Mortgage Group Inc. in Chicago. "It used to be that people were able to get 100 percent loans with a 575 score."Most brokers agree the new rules make sense."What has gone away is you can't come in and lie to me," said Ken Perlmutter of Perl Mortgage in Chicago.But the rules can also lead to unintended consequences. Charlie Deese, one of Green's clients, ran into trouble when he got into a dispute with his insurance company over a $150 charge on an emergency-room visit. The dispute lingered, the bill went unpaid and unbeknownst to Deese it went into collection, torpedoing his credit score from a strong 784 to 674.When the 26-year-old went to refinance his downtown Chicago condo he found that the new score triggered Fannie's fees, adding three-quarters of a point to his mortgage and eliminating any monthly savings."All this paperwork and submitting all the forms -- I know it's just due diligence," Deese said. "But I handle money at work. I know I can handle these payments."For borrowers like Deese this sort of hassle is inconvenient. For others -- such as those who bought a house at the market's peak with no money down and an adjustable-rate mortgage -- tighter standards can mean real trouble.With the ARM set to adjust upward and fixed rates low, this would be a great time to refinance into a safer mortgage. But without a big infusion of new equity, lenders won't touch these undercapitalized borrowers -- especially if their home value has fallen.Fannie and Freddie are now demanding that borrowers come up with an additional 5 percent of equity in markets determined to be declining. And, spooked by falling home prices, many lenders have become hypervigilant about appraisals.Pitts of Professional Mortgage Partners said he is holding five high-quality mortgages that one of the nation's largest lenders promised to buy at a set rate. But when the appraisals didn't match the lender's computer model measuring value in the area, it wouldn't buy them, forcing Pitts to stop using the lender."We've never had a loan like this rejected," he said. "They're scrutinizing appraisers more than they ever have."

Jumbo Mortgage Rates - what's up?

Mary Umberger, a reporter for the Chicago Tribune Real estate section, interviewed me about the jumbo mortgage market a few weeks ago. The jumbo market has experienced the same liquidity problems recently that the ALT-A and subprime markets have. Logically, it doesn't make sense, because the jumbo A paper market comprises much higher quality borrowers. But the reality is an efficient market needs buyers, and the subprime debacle has forced mortgage backed securities buyers to stop buying mortgage backed's of all types. Here is the article:

chicagotribune.com
CONDOMINIUMS 2007
THE HIGH AND THE PRICEY
Luxury buyers on toes as subprime aftershocks rattle jumbo market
By Mary Umberger
Tribune staff reporter
September 16, 2007
If the sagging fortunes of the mortgage industry haven't crippled the high-end condo market, they at least have made it more, shall we say, interesting.All summer, the tsunami that has been building in subprime lending, which caters to home buyers with blemished or sparse credit histories, built enough momentum in mid-August to jolt other lending sectors as well.So, for those who are willing to carry so-called jumbo mortgages -- more than $417,000 -- the cost of borrowing suddenly got steeper."There are still some local banks offering halfway decent jumbo rates, but the national market has dried up," said Barton Pitts, president of Professional Mortgage Partners in Downers Grove. "It does knock out some buyers who are on the margin for qualifying."He's talking high-end buyers.In recent days, a few national lenders began to tiptoe into the jumbo-loan business, though many in the industry don't expect the big picture to change soon."In 13 years in this industry, I don't think I've ever seen as much irrational, knee-jerk decision-making in the lending community," said Darren Weisberg, president of PFG Mortgage Services in Lake Forest.Within a 48-hour period in August, he said, interest rates hurtled upward on jumbo loans for the best-credit-quality borrowers who could document their income and assets. They now hover between three-quarters of one percent and 1 percent higher than comparable 30-year non-jumbo (or conforming) loans, according to industry experts."What [the turmoil in the mortgage industry] has done is not only to broad-brush the subprime borrowers, but also the prime, jumbo borrowers who, for all intents and purposes, should be the most qualified and most unfettered in the process," Weisberg said. "They are being hijacked."Others in the industry may be less vociferous, but they share his concern about how the new premium on big loans is going to play out."It doesn't make a lot of sense," agreed Pitts. "I can understand the subprime market getting wiped out, and the Alt-A market [for borrowers who are a notch higher on the credit-scale] getting wiped out."People with an 800 FICO score who are putting 30 percent down shouldn't be affected," Pitts said. "But they are, definitely."In that good-credit category were his firm's clients, Carl and Cheryl Belles, who are moving to a North Side condo from the Cocoa Beach, Fla., area and financing with a fixed-rate jumbo mortgage."We first were talking to a lender at the beginning of July," Carl said. "We locked in a 6.75 percent rate that was scheduled to expire in the middle of August."When their late-July closing was delayed, the Belleses were forced to make a decision as rates began to rise.They elected to buy a rate-lock extension whose price was based on a percentage of the mortgage size, he said. "For us, that worked out to $100 a day, which is not insubstantial," Belles said. "But when I checked with what the lender was offering, we were still ahead.""Thirty days later, his rate would have shot up to about a percent higher," said Pitts. "On a $600,000 loan amount, a 1 percent interest-rate increase means about $400 a month."The Belleses found that they did have options, though at heftier price tags, and many of the options carry a lot of "ifs," industry experts say."The jumbo credit markets are still open if you're a borrower with good credit quality, are willing to document your income, have asset strength, have a down payment and don't have huge amounts of debt relative to your income," said Keith Gumbinger, vice president of HSH Associates, a financial-industry publisher in Pompton Plains, N.J.That could be a tall order. None of that was on the buffet of so-called "exotic" mortgages that put ever-pricier real estate within reach of many in recent years. Such loans -- requiring little or no documentation of income or payments of interest only or little or no down payment, among other variations -- got scarce in August, mortgage experts say.In the jargon-filled world of lending, jumbo mortgages are called "non-conforming" because they exceed the $417,000 limit set by Fannie Mae and Freddie Mac, the quasi-governmental financial entities that purchase loans from banks and other lenders.Because jumbos are considered riskier than conforming loans, they're more expensive, with interest rates that in the recent past were one-eighth to one-quarter percent pricier than the under-$417,000 variety. But the disparity turned into about 1 percent after the market uproar in August, Gumbinger said.Jumbos began to gain favor in the fevered days of the housing boom as home prices escalated, particularly on the East and West Coasts and in urban areas with high concentrations of condominiums."The latest data I've seen is that about 16 percent of the dollar volume [of mortgages originated in 2006] were jumbos," said Gumbinger. "That's up from high-single digits a couple of years ago."Most jumbos run to about $650,000 or $700,000. Once you get above $800,000, you're starting to get into what are called 'super jumbo' loans," which generally are handled by private bankers and not traded on the secondary market, he said.Demographics, however, could be an ace in the hole for the top-most end of Chicago condo market, which has been populated by extremely well-off buyers or affluent Baby Boomers whose purchases may be fueled by deep retirement savings, lots of home equity or both."By and large, all of my high-net-worth clients are paying cash or they're using their private banks," said Meredith Meserow, sales agent with Koenig & Strey GMAC's Gold Coast office. "They may be buying it for cash and financing it later. Whatever it is, they write the contract for cash."Meserow says the top price bracket among city condos starts at $1.2 million. Suburban agents start the upper tier at $700,000, and suggest that so far, financing isn't necessarily an issue."Our closings aren't until 2008, so [the pricing of jumbo loans] is yet to be seen," said Jeanne Martini, sales and marketing director for Edward James Homes, which is building high-end condos at Burr Ridge Center in the west suburb. "But based on sales at our other developments, my guess is that they would be paying cash or they have so much equity in their current homes, so it's not a problem."But in that condo category just below ultra-luxe -- where private bankers are few and mortgage financing often hinges on the terms of jumbo loans -- it may be a different story, and real estate analysts say it's too soon to tell how the situation will play out.For some jumbo borrowers, the recently scorned adjustable-rate mortgage is starting to look good again because its rates are better, Pitts said. And "piggybacking" of loans to add up to jumbo equivalents is gaining favor, he said."Some of our loan officers are saying, if you need to borrow $600,000 today, they're splitting it up -- getting you a [conforming] $417,000 first mortgage and a $173,000 second loan," said Pitts."We can, at the moment, get the first mortgage at 6.125 percent, and the second loan would be at 7.5 percent," he said. "That works out better than paying a jumbo rate on the whole $600,000."Those terms, he said, are for buyers with strong credit. "Most jumbo lenders are way above that. There are plenty of people quoting 8 percent."Pitts said the jumbo market is likely to feel the pain until pension funds, insurance companies and others that buy mortgage-backed securities regain their confidence."We're hearing rumblings out there that in the next few months, the ship will start to right itself in the whole mortgage-liquidity market," he said. "That's a big if. It could take six months."----------mumberger@tribune.com
Copyright © 2007, Chicago Tribune

FHA Secure Guideline Summary

Below is a letter from HUD regarding the guidelines for the new FHA Secure program. In general, this program is designed exclusively for borrowers that are trying to refinance adjustable rate mortgages. To qualify, borrowers must have been current on their mortgage payments for at least 6 months prior to their rate adjusting. If their rate adjusted upwards between June, 2005 and December, 2009 and they made late payments as a result of that rate adjustment, they can still qualify for this program - (normally, late payments on a mortgage would mean they would NOT qualify for an FHA refinance).

For more information on this program, click on http://www.chicagofhasecure.com/ .


MORTGAGEE LETTER 2007-11
September 5, 2007

TO: ALL APPROVED MORTGAGEES
ALL FHA ROSTER APPRAISERS


SUBJECT: The FHASecure Initiative and Guidance on Appraisal Practices in
Declining Markets

The Federal Housing Administration is pleased to announce an initiative that will enable homeowners to refinance various types of adjustable rate mortgages (ARMs) that have recently “reset.” This mortgagee letter describes how lenders and homeowners may refinance mortgages that, due to the increased mortgage payment following the reset, have become delinquent. The mortgagee letter also reiterates guidance to lenders about making objective decisions regarding the underlying collateral in declining markets. The FHASecure initiative, which is a temporary program designed to provide refinancing opportunities to homeowners and to increase liquidity in the mortgage market, requires that the loan application be signed no later than December 31, 2008.

Refinancing Non-FHA Adjustable Rate Mortgages Following Resets

FHA is currently doing a significant business in refinancing non-FHA mortgages for borrowers who are current under their existing mortgage. This mortgagee letter extends eligibility to borrowers who became delinquent under their current mortgage following the reset of the interest rate.

FHA recognizes that many lenders are engaged in a variety of loss mitigation activities to keep borrowers in their homes, and applauds these efforts. This mortgagee letter explains credit policies for refinance transactions involving non-FHA adjustable rate mortgages where the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

These instructions are designed to permit homeowners, who previous to their reset, demonstrated an ability to meet their mortgage obligations, an opportunity to refinance into a prime-rate FHA-insured mortgage. In many cases homeowners may be permitted to include mortgage payment arrearages into the new loan amount, subject to existing geographical mortgage limits and the loan-to-value limit shown below.





Eligibility Highlights of the FHASecure Initiative

The mortgage being refinanced must be a non-FHA ARM that has reset.

The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments, i.e., the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due.

If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.

Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2) either the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing if the indebtedness exceeds FHA prescribed LTV and maximum mortgage amount limits.

Mortgagees must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

Additional Information About the FHASecure Initiative

Maximum FHA loan-to-value ratios

The maximum loan-to-value limits are shown below and are applied to the appraiser’s estimate of value, exclusive of any upfront mortgage insurance premium.

Maximum Loan-to-Value Ratios

States with Average Closings Costs At or Below 2.1 Percent of Sales Price

· 98.75 percent: For properties with appraised values equal to or less than $50,000.
· 97.65 percent: For properties with appraised values in excess of $50,000 up to $125,000
· 97.15 percent: For properties with appraised values in excess of $125,000.

States with Average Closings Costs Above 2.1 Percent of Sales Price

· 98.75 percent: For properties with appraised values equal to or less than $50,000
· 97.75 percent: For properties with appraised values in excess of $50,000


Calculating the Maximum FHA Mortgage Amount

The amount of the FHASecure mortgage may not exceed either the geographical maximum mortgage limits or the loan-to-value ratios shown above. FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount provided the arrearages arose after the reset.

Subordinate Financing Under the FHASecure Initiative

If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate non-FHA insured lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. Borrowers need not yet have missed any mortgage payments to be eligible for this type of subordinate financing.

Underwriting the Mortgage/Qualifying the Borrower

FHA encourages all approved lenders to use FHA’s TOTAL Mortgage Scorecard to obtain risk classifications on each mortgage originated under the FHASecure initiative. If TOTAL renders an “accept/approve,” the mortgagee’s underwriter need not perform a personal review of the borrower’s credit history and capacity to repay. However, in the more likely event that the risk class is a “refer,” the underwriter must:

1. Determine that the homeowner has the capacity to make future mortgage payments as well as pay all other obligations. The payment-to-income ratio and debt-to-income ratios remain 31 percent and 43 percent, respectively. Compensating factors are to be provided by the underwriter when the ratios are exceeded.

2. Analyze the homeowner’s overall credit history, especially payments on the existing mortgage. The underwriter must determine that the homeowner’s mortgage payment history during the 6 months prior to the reset showed no instances of making mortgage payments outside the month due and that other recurring obligations were paid on time. If the borrower was offered partial forbearance after interest rate reset, the underwriter must determine that he/she has made payments under the forbearance agreement in a timely manner.

3. Provide comments in the “remarks” section of the mortgage credit analysis worksheet that he or she has determined that the cause of the borrower’s inability to make payments was directly related to the increased payment attributable to the reset and not due to a disregard for obligations.

Tax consequences for a borrower when the note holder writes off a portion of the amount to pay off the first mortgage

FHA recognizes that there may be tax consequences resulting from debt relief. However, since FHA does not provide tax guidance, it recommends borrowers—and mortgage lenders—in such situations seek competent tax advice.

Other considerations of which the mortgagee must be aware when refinancing these mortgages.

The FHASecure initiative for refinancing borrowers harmed by non-FHA ARMs that have recently reset is not to be used to solicit homeowners to cease making timely mortgage payments; FHA reserves the right to reject for insurance those mortgage applications where it appears that a loan officer or other mortgagee employee suggested that the homeowners could stop making their payments, refinance into a FHA insured mortgage, and keep, as cash, the amount of payments not made on time.


Appraisal Practices in Declining Markets

Historically, FHA has provided a counter-cyclical force in helping to stabilize declining housing markets and will continue to do so. In fact, much of FHA’s business activity this year has been in those states (e.g., Ohio, Michigan, Indiana) that have suffered sustained depreciation of home prices due to job losses and increased foreclosures. Nevertheless, recent property value declines in certain markets suggest the need to reiterate our guidance to mortgage lenders to ensure that appraisers are providing accurate property valuations. A declining market could be as small as a neighborhood or as large as an entire state, and no standard definition exists other than home prices are falling.

Appraiser Responsibilities

The purpose of the appraisal is to provide the lender/client with an accurate, and adequately supported, opinion of market value. It is the appraiser’s responsibility to determine whether a property being appraised is located in a declining market.

The neighborhood section of each property specific appraisal form contains a housing trends section where the appraiser marks a box indicating property values are increasing, stable or declining. Whichever box is selected, the appraiser is certifying that he/she has performed an objective analysis of quantifiable data supporting the observations made.

If a property is located in a declining market, the appraiser must provide an explanation in the “Market Conditions” section of the appraisal report that includes relevant information in support of the conclusions relating to trends in property values, demand/supply and marketing time. The appraiser must also provide a description of the prevalence and impact of sales and financing concessions and/or down payment assistance in the subject’s market area. Other areas of discussion may include days on market, list-to-sale price ratios, and/or financing availability.

Lender Responsibilities

The mortgagee’s responsibility is to properly review the appraisal and determine that the appraised value used to support the mortgage is accurate and adequately supported.
Lenders are reminded that if the appraiser they selected provides a poor or even fraudulent appraisal that leads the Department to insure a mortgage at an inflated amount, the lender is held equally responsible with the appraiser for the violation if the lender knew or should have known. FHA will pursue appropriate enforcement actions against both or either party if necessary. Lenders accept responsibility, equally with the appraisers for the integrity, accuracy and thoroughness of the appraisal submitted to FHA for mortgage insurance purposes.
If you should have any questions concerning this Mortgagee Letter, call 1-800-CALLFHA.

Sincerely,




Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner