Tag Archives for " FHA "

FHA to Implement New Home Loan Limits

September 8, 2011 – After three years of higher loan limits in some areas, the Federal Housing Administration (FHA) announced in August that single-family home loan limits will be lowered starting Oct. 1. This change is in accordance with the Housing and Economic Recovery Act (HERA) that was passed in July 2008.

The Economic Stimulus Act passed in February 2008 under President George W. Bush raised limits for home loans insured by the FHA to 125 percent of the median house price in the area. This was an effort to “mitigate the effects from the economic downturn and the sharp reduction of mortgage credit availability from private sources,” according to a May market analysis from the U.S. Department of Housing and Urban Development.

While initially the new loan limits stipulated in the HERA were set to take effect in January 2009, financial strains in the credit market delayed congressional implementation until now. The loan limits beginning on Oct. 1 will be in effect until Dec. 31, 2011. The floor loan limit in low cost areas will stay at $271,050 for one-unit properties, while the ceiling limit in high housing cost areas will change from $729,750 to $625,500, or 115 percent of the median house price (whichever is lower).

The new loan limits will take effect in the highest cost metropolitan areas in the country, which amounts to 669 counties out of the 3,234 total in the U.S. in which the FHA insures home loans. According to the FHA, loans in these areas accounted for about three percent of loans granted last year. Any loans insured by the FHA before Oct. 1, 2011 will not be affected by these new limits, including streamline refinance loans. Limits in Hawaii, Guam, the Virgin Islands and Alaska are higher than in other areas because of higher construction costs.

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FHA Home Loan Applications Drop

The first week of September saw a 2.5 percent decrease in mortgage applications, according to a Fox Business report .That decline includes applications for government-backed FHA home loans. The data was collected and evaluated by the Mortgage Bankers Association (MBA). The MBA uses weekly surveys to aggregate data on conventional and FHA home loans. The survey for the first week of September covered more than three-quarters of US home financing applications.

The MBA survey findings revealed that application rates fell almost across the board for other categories of home financing. According to the survey, the average rate on 30-year fixed FHA home loans fell from 3.6 percent to 3.54 percent.

Borrowers are generally interested in FHA home loans since they have lower qualification requirements when compared to conventional financing. FHA home loans are widely seen as being excellent options for borrowers with poor credit histories and low-incomes. These allow borrowers to obtain a home when they otherwise would have been unable to through a conventional lender.

Despite these attractive features, borrowers cannot afford to take on debt when the economy is still weak.

Applications for refinancing existing mortgages also declined. Low interest rates attract homeowners seeking to refinance their homes, but unfortunately stricter lending requirements and economic uncertainty have prevented many potential borrowers from modifying their existing financing.

The survey results arrive on continued reports of weak job growth. Unfortunately, job growth—however weak—does not inherently imply an increase in home financing applications.

Many Americans still have the fresh memory of the housing bubble in their minds and may be wary of purchasing homes even at the current low prices in the housing market. Despite some financial reforms, even homes purchased at low prices can still result in ballooning payments.

Time will tell if continued economic uncertainty, as well as the looming Presidential election, will continue to decrease applications for home loans by brewing uncertainty in the minds and wallets of prospective mortgage applicants.

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Wells Fargo Sued Over FHA Loans

Despite being arguably the strongest of the big banks, Wells Fargo is once again in regulators’ sights.

A civil suit accuses Wells Fargo of over 10 years of misconduct in regards to the Federal Housing Administration (FHA) mortgage loan program.

The bank is accused of making fraudulent insurance claims, reckless origination and underwriting of the FHA loans, deliberate concealment of loans that were rife with serious violations and having nonexistent internal controls. These mistakes have allegedly cost taxpayers hundreds of millions of dollars.

Wells Fargo is accused of having begun misconduct in 2001. From 2001 to 2005, nearly half of the FHA loans that the bank lent had not been properly underwritten, were unacceptably risky, did not meet HUD requirements or were ineligible for FHA insurance. In 2010, the bank deliberately concealed 6,320 deficient loans.

As a result, thousands of FHA loans worth hundreds of millions of dollars defaulted. The resulting write-offs and foreclosures proved costly for taxpayers.

Federal prosecutors intend to sue for three times the amount of lost money.

“Yet another major bank has engaged in a long-standing and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” said U.S. Attorney Preet Bharara, according to the San Francisco Gate.

Other government officials and civil servants have voiced their views.

“Wells Fargo has been a valued participant in the FHA-mortgage lending program. Unfortunately, there was a time when Wells Fargo placed profits over people, corporate results over corporate integrity, and did not consider the effect its actions would have on the FHA program as well as the overall economy,” said Helen Kanovsky, general counsel of the U.S. Department of Housing and Urban Development, according to San Francisco Gate.

Predictably, Wells Fargo denies the civil suit’s charges, arguing that it acted in good faith and in compliance with federal lending regulations. Wells Fargo feels that this is simply a repetition of previous allegations that had been previously addressed with the U.S. Department of Housing and Urban Development (HUD).

Aside from Wells Fargo, other banks have faced similar prosecution by the federal government. Deutsche Bank, Citigroup, Flagstar Bancorp, Bank of America, and Countrywide Financial have all received fines or litigation.

Wells Fargo is believed to be prepared for the lawsuit since, aside from its enormous wealth, it has likely set aside enough funds for a legal defense once it became aware of an investigation into its FHA loans back in August.

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Wells Fargo Wants FHA Loan Suit Dismissed

In an unsurprising move, Wells Fargo is pushing for the dismissal of an FHA loan-related lawsuit that was filed by federal attorneys in New York. The bank alleges that it was exonerated of any liability in the pending lawsuit since it had settled another lawsuit several months earlier in April after a massive investigation by federal and state officials into alleged lending abuse.

According to the LA Times, the new lawsuit in New York seeks hundreds of millions of dollars from Wells Fargo as compensation for the bank falsely certifying thousands of mortgages for Federal Housing Administration insurance eligibility over a ten year period.

FHA loans have the benefit of being insured by the government, which means that in the event of a default the federal government repays the lender of the mortgage. These mortgages tend to have lower interest rates and smaller down payments as a result of the government insurance since it lessens risk to lenders.

Wells Fargo believes that this latest lawsuit in New York violates the earlier settlement from April which resulted in the bank paying the government $5 billion. Part of that settlement between the bank and the federal government stipulated that Wells Fargo would be free from additional lawsuits dealing with FHA loan and mortgage abuse.

According to the LA Times, the bank stated in its legal filings that its previous settlement should have “wiped the slate clean for Wells Fargo in terms of facing any further liability to the United States (except in carefully crafted, narrow circumstances) for a wide range of Wells Fargo conduct relating to its Federal Housing Administration…mortgage loan portfolio.”

The settlement that Wells Fargo had made in April was part of a joint operation led by an alliance of 49 state attorneys general along with the Justice Department. The joint investigation found that Wells Fargo, along with the other five biggest home lenders in the US, had automatically approved foreclosures for many mortgages across the country that should not have been foreclosed upon. Subsequently many borrowers lost their homes around the country prompting a concerted effort amongst regulators and government officials to seek out the abusive banks responsible.

Hoping to swiftly stop the legal proceedings, Wells Fargo’s attorney, Douglas Baruch, asked Judge Rosemary Collyer of Washington D.C. to drop the pending lawsuit in New York. Judge Collyer is the same judge that approved the April settlement between Wells Fargo and the federal government.

Baruch argued that any new claims of FHA loan abuse against Wells Fargo can only involve individual mortgages in instances when underwriters abused the FHA qualification process. He also argued that the pending lawsuit claims Wells Fargo abused certain FHA loan guidelines but that the April settlement exonerates the bank from being sued for these abuses once more. Wells Fargo is seeking an order from Judge Collyer—and possibly other judicial officials—to bar the government from pushing for claims in the new lawsuit. Government attorneys intend to oppose the motion and press on with the FHA loan lawsuit.

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FHA Could Report Negative Conclusions

The Federal Housing Administration (FHA) will issue its 2012 report next week and may reveal a need for U.S. Treasury funding.

According to Bloomberg News, three people briefed on the report who requested to remain nameless for security purposes, stated that the report will be more negative than expected. During the agency’s 2011 report, it stated the insurance fund was being drained and that premiums and standards would be raised in order to avoid financial problems.

An FHA loan is a mortgage loan backed by the Federal Housing Administration. Created under the National Housing Act of 1934, the FHA was designed to increase home construction, fuel employment and provide loan insurance programs. Although the agency does not provide the loans themselves, it does provide an extra security for lenders. FHA loans enable lower income U.S. citizens to apply for mortgages when traditional lenders would likely reject them.

The 2012 report, if negative as expected, could stop a government effort to expand the FHA’s role. The government has been planning to enable the FHA to insure borrowers who have homes worth less than they owe on them, commonly referred to underwater homeowners.

John Griffith, an analyst for the Center for American Progress, is preparing to highlight the economic need for the agency, in case the FHA’s importance is questioned.

“If FHA alone simply stopped doing business, we would have been propelled down into another double-dip recession,” Griffith said to Bloomberg.

Since the report will not be released until next week, a FHA spokesperson would not comment on the report’s contents.

In the past, the FHA was able to cover all of its costs because the insurance premiums exceeded the cost of claims. This year, it refused a taxpayer-funded subsidy because of a singular $1 billion payment from a legal settlement. Although recent FHA loans have improved in quality, and comprise 15 percent of all U.S. mortgages, it might not be enough to offset the effects of the housing market bubble. FHA loans made from 2005 to 2008 might prove to be a heavier burden for the agency. Outstanding balances for these 7.6 million FHA loans currently reach $1.1 trillion, three times the amount from five years ago.

As unidentified informants stated, this could lead the FHA to the Treasury’s door. The Treasury can financially assist the FHA without Congressional approval, but it cannot run from the agency’s critics. Ed Pinto, told Bloomberg that he does not agree with the FHA and advocates for free markets instead.

“FHA has been used by the Realtors, by the homebuilders and by the administration as a stimulus program rather than as a responsible lending program,” Pinto said.

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Bailout Threat Lurks for FHA

A threat is lurking for the FHA. For the first time in 78 years, it could face a taxpayer bailout.

The results of an independent annual audit project that the Federal Housing Administration’s (FHA) reserves are $16.3 billion less than the agency’s financial obligations for the current year.

The results, released last Friday, are worse than initial reports predicted. Legally, the FHA is supposed to hold reserves equal to two percent of its portfolio. But due to the high level of expected losses released in the report, the agency’s reserves are the equivalent of negative 1.44 percent.

It released a statement report that the study does not “mean FHA has insufficient cash to pay insurance claims…or will need to immediately draw funds from the Treasury.”

The FHA stated that its need for Treasury funds will be decided in February 2013 when the Presidential Fiscal Year 2014 budget is released.

An immediate bailout is not expected, but the home loan crisis will remain on taxpayers’ minds throughout the near future.

During the Great Depression, the FHA was created to restore confidence among banks and lending institutions and protect against the risk of borrower default. It grew as a strong institution, wavering in reasonable patterns, until the home loan crisis occurred. Mortgage giants Freddie Mac and Fannie Mae were recently bailed out by taxpayers and have since regained their strength in the economy.

Although the FHA escaped a bailout years ago, the fear of a home loan crisis remains today for the agency.

“FHA has weathered the storm of the recent economic and housing crisis by taking the most aggressive and sweeping actions in its history to reform risk management, credit policy, lender enforcement, and consumer protections,” HUD secretary Shaun Donovan said. “During this critical period in our nation’s economic history, FHA has provided access to homeownership for millions of American families while helping bring the housing market back from the brink of collapse to a point where the outlook is positive and recovery is underway.”

The FHA plans to raise premiums and sell delinquent loans in an effort to avoid the home loan crisis. The staggering financial obligations could worsen due the record low interest rates reported by Freddie Mac. The report states that protracted low interest rates could drive the agency’s capital reserve to a deficit over $30 billion.

Parts of the projected deficit figures are due to the bad loans made several years ago — before the home loan crisis and crash.

FHA Acting Commission Carol Galante said the loans made during the Administration are the highest in the agency’s history.

“We take the finding of the independent actuary very seriously,” Galante said. “We will continue to take aggressive steps to protect FHA’s financial health while ensuring that FHA continues to perform its historic role of providing access to homeownership for underserved communities and supporting the housing market during tough economic times.”

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