FHA Reform Provides Long-Term Relief from Market Constrictions
The National Assn. of Mortgage Processors (NAMP) constantly looks toward positive change in the mortgage market, and are pleased to focus on the recently approved FHA Reform, or FHA Modernization. Approved on May 3, 2007 by the U.S. House Financial Services Committee, the new bill now awaits a vote by the full House of Representatives. Adoption of this bill provides exciting opportunity for mortgage professionals to safeguard borrowers from high interest rates and excessive fees, as well as open the doors open for Adjustable rate mortgages. The FHA Reform may become a competitive alternative in the market, moving to replace sub prime and other similar mortgage products that were less solid and desirable financing options for homeownership.
Recent reforms such as FHA Secure have initiated change in the right direction. "With FHA Secure there is the potential to have a huge impact on the mortgage industry and homeowners nationwide," says Stacey Sprain, a Certified Ambassador Loan Processor (CALP) for the NAMP. FHA Reform will be a permanent continuation of the temporary FHA Secure initiative, providing long-term safe and affordable alternatives for homebuyers.
Mortgage professionals can become a part of the effort to protect borrowers by educating themselves on changes in the mortgage market. Enrolling in FHA Online University's classes, which embrace recent FHA Reform, will help mortgage professionals to maximize their effectiveness by gaining the knowledge to utilize FHA Reform. Relevant include FHA Processing, for processors; FHA Underwriting, for underwriters; and FHA DE Underwriting, direct endorsement, and NAMP is excited to have partnered with FHA Online University to provide educational advancement for those working within the mortgage market.
An important aspect of the proposed FHA Reform act is the increase of HUD's current statutory loan limits. Under the proposed move toward modernization, maximum mortgage limits could be set at those equal to FNMA/FHLMC single-family loan limits of $417,000. This provision will become a possibility once the FHA analyzes local markets to determine whether such an increase is justified. FHA Reform would also move toward changing the borrower's minimum required investment guideline, proposing a payment change of the borrower's minimum investment from 3% to 1.5%. The result includes providing FHA borrowers a greater wealth of options concerning personal control of down payment and mortgage payment amounts, based on their own current and future financial goals, such as the ability for borrowers in high cost areas to utilize FHA mortgage insurance as an alternative to a sub prime loan.
First time homeowners will also benefit from lower and more flexible down payment options. The new FHA underwriting guidelines enables borrowers with past credit issues that exclude them from the Community Homebuyer program to now become viable candidates for FHA financing. They will thus be protected from previously unaffordable mortgage loans, such as high interest rate Adjustable Rate Mortgages.
Furthermore, FHA Reform will increase the maximum loan term from the current 30-year limit to 40 years. The effect of this longer loan term is that monthly payments will decrease while homeowners simultaneously gain the ability to build equity through a fully amortized loan. The FHA Reforms will also allow the FHA to raise or lower mortgage insurance premiums to match the borrower's risk. Thus, the FHA borrower receives a loan rate at market interest, extended over a longer period for a resulting reduced monthly mortgage payment.
Slated to end in December of 2008, the FHA Secure plan has been a temporary, though much needed, fix to the volatile market of the past five years -- a market that rested on foreclosure problems and excessive sub prime, and that found itself consumed by predatory lending practices. The modernization of FHA Reform proposes a lasting cure, with an impact both immediate and extending into the future of the mortgage market. "By introducing the current reforms, the Department of Housing and Urban Development has created a mortgage product that is just as competitive in the market place as the more traditional conforming loan programs being administered by FNMA and FHLMC under their community homebuyer programs. With the proposed reforms and standard FHA underwriting criteria, homeownership should now be an affordable reality for most Americans," says Bonnie Wilt-Hild, lead FHA instructor for FHA Online University.
FHA Reform is an exciting opportunity for mortgage professionals to carry out the initiatives begun by FHA Secure. The American public will gain strides toward affordable financing options, especially for undeserved populations, moderate-income brackets, and first time homebuyers. The first step in providing increased loan limits, lower and more flexible down payment options lies with mortgage processors utilizing the resources created by the FHA to provide a stable, effective product that will create opportunity for the American public and turn the dream of homeownership into a widespread and lasting reality.
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