HAFA Provisions

May 17, 2010

HAFA Provisions

The Home Affordable Foreclosure Alternatives (HAFA) Program provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.

In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer – provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.

HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation.

  • Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.
  • Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.
  • Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).
  • Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
  • Uses standard processes, documents, and timeframes/deadlines.
  • Provides the following financial incentives:
    • $3,000 for borrower relocation assistance;
    • $1,500 for servicers to cover administrative and processing costs;
    • Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.
  • Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

There are also specific forms that must be used with HAFA…

  • Home Affordable Modification Program – designed to enable borrowers that meet eligibility requirements to avoid foreclosure by modifying loans to a level that is affordable for borrowers and sustainable for the long-term.
  • Second Lien Modification Program – designed to enable borrowers struggling with their mortgage to lower payments on second mortgages.
  • Home Affordable Foreclosure Alternatives Program – provides borrowers that do not qualify for a HAMP modification with options to avoid foreclosure through a short sale or deed-in-lieu.
  • Treasury FHA-HAMP – designed to enable borrowers with FHA-insured first lien mortgage loans, that are modified under FHA-HAMP, eligible for certain incentive payments under HAMP.

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FHA Program Adjustments to Support Refinancings for Underwater Idaho Homeowners

March 31, 2010

Posted by Dean Tucker of Waterstone Mortgage – Prime Equity Group in Boise Idaho

The Administration announced adjustments to Federal Housing Administration (FHA) programs that will permit lenders to provide additional refinancing options to homeowners who owe more than their home is worth because of large falls in home prices in their local markets. These adjustments will provide more opportunities for qualifying mortgage loans to be responsibly restructured and refinanced into FHA loans as long as the borrower is current on the mortgage and the lender reduces the amount owed on the original loan by at least 10 percent. This option should be available by the fall.

 The new FHA loan must have a balance less than the current value of the home, and total mortgage debt for the borrower after the refinancing, including both first and any other mortgages, cannot be greater than 115 percent of the current value of the home – giving homeowners a path to regain equity in their homes and an affordable monthly payment. This refinancing will help homeowners by setting monthly payments at affordable levels and decreasing the mortgage burden for families owing significantly more than their homes are worth. Keeping more responsible families in their homes should support the continued recovery of the housing market.

FHA Refinance Option 

1)    FHA Refinance Option for Underwater Loans –Encouraging Responsible Restructuring and Refinancing.

  • Voluntary option encourages lenders and borrowers to work together, when appropriate, to restructure underwater mortgages. Because it is voluntary for lenders, not all underwater borrowers who meet criteria below will receive an FHA refinance loan.
  • Enables refinancing into more sustainable loans that are no higher compared to the value of the home than the standard FHA refinance loan (97.75 percent).
  • Lenders write down principal of the original first mortgage at least 10 percent to reduce the debt burden on borrowers, though we expect the average principal write-down to be significantly more than that.
  • Enables refinancing to a reduced monthly payment at current low interest rates to facilitate affordable homeownership.
  • Homeowner Eligibility

               i)       Homeowners must be current on their existing mortgage. They must occupy the home as their primary residence, fully document their income and have a qualifying credit score.

              ii)     As with any loan forgiveness, this short refinancing should be reflected as a negative feature on a borrower’s credit score.

              iii)   Option is available to homeowners with mortgages not currently insured by the FHA.

2)    Incentives for Principal Write-downs on Second Liens

  • All mortgage debt including second liens must be written down to a maximum of 115 percent of the current value of the home to qualify for the refinance.

3)    Transparency on Impact of These Refinancings

  • FHA will publish data on number of loans, average percentage written down and quantity of principal reduced quarterly.

4)    TARP Funded Support to Expand Impact of Refinance Option

  • TARP funds will be made available up to a total of $14 billion to provide incentives to support writedowns of second liens and encourage participation by servicers, and to provide additional coverage for a share of potential losses on these loans.

The following information provides a brief overview of the key features of the refinance option. Detailed guidelines will be announced by FHA Mortgagee Letter.

1)    FHA Refinance Option for Underwater Homeowners – Encouraging Responsible Refinancings

  • Voluntary option for lenders and borrowers
  • Encourages lenders and borrowers to work together, when appropriate, to restructure debts

              i)       Qualifying first lien mortgage loans must have a minimum write-down of at least 10 percent and total mortgage loan to value on the home can be no greater than 115 percent after the refinancing

  • Eligible underwater loans are refinanced into new FHA loans on FHA terms for full documentation, income ratios, and complete underwriting
  • Terms of FHA refinancing:

              i)       FHA loan will be equal to no more than 97.75 percent of the value of the home

              ii)     Combined mortgage debt must be written down to a maximum of 115 percent of the current value of the home

              iii)   Standard FHA mortgage insurance premium structure will apply

  • Mandatory principal write-down as part of refinance

              i)       Minimum write-down by lender of 10 percent of the unpaid balance of the original loan

  • Affordable monthly mortgage payments to facilitate affordable homeownership

              i)       New monthly mortgage payment at current low FHA interest rate

              ii)     Total monthly mortgage payment, including for second mortgage, will not be greater than approximately 31 percent of income, and total debt service including all forms of household debt will not be greater than approximately 50 percent except for some borrowers with especially strong credit histories

  • Existing lenders can retain second mortgages on the property, but only up to a combined 115 percent of the current value of the home

              i)       If there is an existing mortgage that is not extinguished, holders must agree to resubordinate and write off any amount over 115 percent of the current value of the home

              ii)     The existing first mortgage is refinanced into a fully documented FHA insured mortgage at no greater than 97.75 percent of the value of the home

  • Homeowner Eligibility

              i)       Homeowners must be current on their existing mortgage payment

              ii)     Homeowner must occupy the home as their primary residence and fully document their income

              iii)   Homeowners must qualify under standard FHA underwriting guidelines

              iv)   Homeowners must have a FICO credit score of at least 500

              v)     Existing lenders/investors holding the first lien must agree to the principal write-down requirement. Thus, not all homeowners who meet above criteria will receive an FHA refinanced loan

              vi)   As with any loan forgiveness, the short refinancing should be reflected on borrowers’ credit score

  • Performance of these refinanced loans will not count against lenders for their Credit Watch scores, if the above parameters are met

2)    Incentives for Principal Write-downs on Second Liens

  • Incentives for immediate write-down of underwater second liens by lenders will be offered to encourage write-downs in connection with the FHA refinance.
  • An extinguishment schedule will be implemented based on the below taking into account the likely distribution of the second lien lenders that will agree to immediate write-downs

Table: Extinguishment Price Schedule: Per Dollar of Unpaid Principal

  Second Lien CLTV Range 
Combined LTV 105 to 115 115 to 140 > 140
Projected Schedule 0.21 0.15 0.10

 

3)    Transparency on Impact of These Refinancings

  • FHA will publish data on numbers of loans refinanced in this way including average percentage written down and quantity of principal reduced quarterly 

4)    4. Up to a total of $14 billion in TARP funds to expand impact of refinance option

  • TARP funds will be made available for incentives to support write-downs of second liens and encourage participation by servicers as well as the provision of coverage for some share of potential losses on loans. Total support provided through these three mechanisms will not exceed $14 billion
  • TARP funds will be used to provide coverage for a share of losses on loans up to a specified amount. The FHA will provide remaining loss coverage up to the maximum insurance coverage. Thus, the new lender will have a loan that is backed by the United States for up to 97.75 percent of the home value, as with other FHA refinance loans
  • TARP will purchase a letter of credit that will provide this loss coverage

(Waterstone Boise) (Prime Equity)

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FHA Proposes Loosening its Flipping Rules

January 20, 2010

By Dean Tucker, Waterstone Mortgage – Prime Equity Group in Boise Idaho

It appears that starting February 1st, 2010, HUD / FHA is going to loosen their guidelines pertaining to property flips.

THIS IS HUGE!!! According to HUD’s Shaun Donovan, some of the restrictions will be temporarily lifted beginning February 1st to further promote home sales. Here are some basic guidelines we have been able to research:

  • The transaction must be “Arms Length”.
  • The seller MUST hold title to the property at the time of the sale.
  • There shall be no pattern or previous property flipping in the past 12 months.
  • The property must be marketed openly and freely (i.e. MLS).
  • If the home being “flipped” has a new sales price that is 20% + greater than the previous purchase price, then the seller must document any repairs and rehabilitation performed on the home and/or a 2nd appraisal will be needed and requested. (In these cases it should be expected that a home inspection will be required as well. Currently, FHA does not require home inspections OR termite / WDO inspections unless the contract calls for them. FHA only recommends the buyer order these services.)

Waterstone Mortgage Corporation is a true Mortgage Bankers, we underwrite and fund loans for over 30 of the top mortgage lenders in the country, the “Who’s Who” in mortgage lending. Our parent company, Waterstone  Bank, is $1.9 Billion strong.

(Home)

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FHA Announces Major Changes, Effective Immediately

January 20, 2010

By Dean Tucker, Waterstone Mortgage – Prime Equity Group in Boise idaho

This morning the FHA announced a series of changes designed to protect the federal agency that has emerged as the cornerstone of the mortgage market as the housing sector wobbles toward recovery. 

Consumers, Lenders and Realtors may find some of these new rules painful — but necessary.  With FHA hovering around 40% of all new loan originations, even these small changes have a major impact on the continued health of the housing market.

Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending.

  • The first step will be to raise the up-front MIP from 1.75% to 2.25% and request legislative authority to increase the maximum annual (paid monthly) MIP that the FHA can charge.
  • If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
  • This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
  • The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

Update the combination of FICO scores and down payments for new borrowers.

  • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
  • This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
  • This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

Reduce allowable seller concessions from 6% to 3%

  • The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
  • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Waterstone Mortgage Corporation is a true Mortgage Bankers, we underwrite and fund loans for over 30 of the top mortgage lenders in the country, the “Who’s Who” in mortgage lending. Our parent company, Waterstone  Bank, is $1.9 Billion strong.

(Home)

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Federal Reserve policymakers were conflicted

January 12, 2010

Some Federal Reserve policymakers last month were conflicted over whether to expand or cut back a program intended to drive down mortgage rates and bolster the housing market, according to a document released Wednesday.

Minutes of the Fed’s closed-door meeting on Dec. 15-16 revealed that a “few members” thought that the Fed’s $1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac might need to be expanded and extended beyond its current end date of March 31. Such an additional dose of stimulus would be especially needed if the economic recovery were to weaken, they argued.

However, one member thought the program could be “scaled back” given the improvement in economic and financial conditions.

The debate over the future of the program comes amid uncertainties about the vigor of the budding economic recovery.

At the December meeting, Fed policymakers decided not to make any changes to the program. At their September meeting, they opted to slow the pace of the purchases, wrapping them up by the end of March, rather than the end of 2009.

The minutes don’t identify speakers by name but seeks to provide a more detailed account of the Fed’s private discussions.

Some Fed officials remained concerned about the economy’s ability to mount a self-sustaining recovery once government supports are removed. To that end, those officials worried that improvements seen in the housing market might be “undercut” this year as the Fed’s mortgage-buying program winds down, the government’s home buyer tax credits expire at the end of April and home foreclosures grow.

Getting the housing market back on firm footing is a key ingredient to a lasting recovery. The collapse of the housing market, which dragged down home prices with it, was the catalyst for the longest and worst recession to hit the country since the 1930s.

“Generally the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness,” the minutes said.

To nurture the recovery, the Fed at the December meeting kept its key bank lending rate at a record low near zero and pledged to hold it there for an “extended period.” The goal: low interest rates will entice people and businesses to boost spending, which will fuel economic growth.

RATES REMAIN NEAR ZERO: Fed left rates unchanged at Dec. meeting

Economists said the Fed is all but certain to leave rates at record lows at its next meeting on Jan. 26-27 and probably for a good chunk of this year.

“Overall, there is nothing here to suggest that interest rates will rise for quite some time,” Paul Ashworth, economist at Capital Economics., said of the Fed minutes. Ashworth is among the economists predicting economic growth will slow in the second half of this year as President Barack Obama’s $787 billion stimulus package of tax cuts and increased government spending fades.

Most Fed officials don’t currently see inflation as a problem because companies have “little ability to raise their prices” in the fragile economic environment. But they had mixed views about inflation risks.

Some noted that rising prices of oil and other commodities could boost inflation pressures down the road. Others thought investors’ expectations of inflation could edge up because of large federal government budget deficits and vast sums of money the Fed pumped into the economy to fight the financial crisis.

However, others predicted that the sluggish recovery and “slack” in the economy — meaning factories operating well below capacity and the weak labor market — would keep inflation under wraps.

At the December meeting, Fed staff gave several presentations on research into “inflation dynamics.”

The biggest challenge facing Fed Chairman Ben Bernanke and his colleagues is to decide when to start boosting interest rates. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation.

(Home)

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