For the fourth time since 2010, HUD has decided to waive its anti-flipping rule, good news for real estate markets nationwide which remain hobbled by the mortgage meltdown.

Starting in 2003, HUD set out regulations which prohibited the use of FHA-insured financing for properties that had been resold within the past 90 days. The purpose of the rule was to stop illegal flipping, the practice of selling homes through the use of mortgage fraud and appraisal fraud.

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There was a big commotion last week when HUD announced that the reserves “used to support FHA’s single family mortgage and reverse mortgage insurance programs fell below zero to -1.44 percent. This represents a negative economic value of $16.3 billion.”

In fiscal 2012, the government accounting calendar which just ended, the FHA insured 1,239,874 loans. Most of these were “forward” loans, the 15-year mortgages and 30-year mortgages that most of us consider when we buy or refinance real estate.

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The report is in. It’s not good.

The “Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund Fiscal Year 2012” shows the FHA’s reserve fund has fallen to -1.44 percent—far below the 2 percent cushion mandated by Congress, and may open the door to the first infusion of government cash in the insurer’s 78-year history.

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Nearly one year ago to date, we published a blog post titled, “Is FHA the next housing bailout?” Fears surrounding the federal mortgage insurer’s reserve fund, or lack thereof, really haven’t dissipated since then. In fact, the state of the FHA reserve fund has been in question for years.

Both the public and private mortgage markets reacted to the downturn by instituting very strict lending conditions. Thus, during the height of the downturn, the FHA became a refuge for would-be borrowers seeking relaxed credit-score and down payment requirements.

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In the next few weeks, we will find out how the FHA’s reverse mortgage program has done in the past year. This is an important benchmark because the reverse mortgage program has lurched along, creating big losses for the FHA and its reserve system.

Read: FHA reverse mortgages are flawed and need fixing

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HUD announced last week that it would increase their bulk sale of troubled mortgages from 20,000 loans to 36,000 loans a year. That’s good news, but could HUD have gotten better prices with less restrictive sales?

The government’s Distressed Asset Stabilization Program is designed to get troubled loans out of the FHA program in order to reduce or eliminate additional FHA insurance claims. As RealtyTrac reported in June, “a servicer can add a loan to the FHA’s distressed asset program if the borrower is at least six months delinquent, loss mitigation hasn’t worked, foreclosure proceedings have started and the borrower is not in bankruptcy.”

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The Consumer Financial Protection Bureau (CFPB) says we need to make the mortgage process simpler and more understandable. This sounds like a good idea, but having just completed a mortgage refinance, I’m not particularly sure that the CFPB is on the right track.

It was in January 2010 that HUD introduced a new form that borrowers were supposed to receive within three days of making a loan application. The 2010 Good Faith Estimate of Closing Costs (GFE) was and is an excellent form, a huge improvement over the paperwork that had previously been used for many years. With the 2010 GFE you could clearly see your interest rate, closing costs and whether the loan had a balloon payment or prepayment penalty.

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Earlier this month, Moody’s Investors Service downgraded $5 billion of Home Equity Conversion Mortgage (HECM) bonds, a ratings change which ought to catch the attention of someone at HUD.

While the FHA mortgage program has been doing better in general, the situation with reverse mortgages is very different–claims for HECMs are up 64.6 percent. Read the rest of this entry »

Millions of self-employed borrowers are likely to get a nasty surprise the next time they try to apply for an FHA mortgage. Last week, HUD introduced a new standard for the income documentation needed from self-employed borrowers.

HUD’s new rule

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The FHA’s reverse mortgage program has undergone a number of changes in the past year, and now HUD says more are to be expected.

HUD is also telling reverse mortgage lenders they can add additional requirements above the FHA standard to help reduce program claims…or are they? Read the rest of this entry »