HUD came out with three major changes this week for FHA loans when case numbers ordered April 1 2012 and afterward. This does not mean that the loan must be closed by April 1, 2012 but a contract must be executed and the FHA case number ordered through their system by that date.
These changes have the potential to hurt the housing industry and disqualify buyers who could have purchased in the past!
Change #1- Increase in Upfront and Monthly MIP
The UFMIP will be increased from 1 percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or LTV ratio. FHA will continue to permit financing of this charge into the mortgage. Again, this change is effective for case numbers assigned on or after April 1, 2012. In addition, the monthly MIP will increase by .10.
This change will make a difference of $11.49 per month on an $100,000 sales price with 3.5% down, 30 year note.
So call your current clients that are going FHA and get those contracts executed on or before March 30.
Change #2- Disputed Accounts Must be Paid if over Cumulative $1000- Major Change
If the borrower has individual or multiple disputed credit accounts or collections with singular or cumulative balances equal to or greater than $1,000, the accounts must be resolved (e.g. payment arrangements with a minimum three months of verified payments made as agreed) or paid in full, prior to, or at the time of closing. The lender must obtain documentation supporting the payment arrangements or that the debt has been paid off. The payments arranged for the accounts must be included in the calculation of the borrower’s debt-to-income ratios.
Exceptions include disputed accounts more than 2 years old, or those arising from Identity theft
Change #3- Collections Accounts Must be Paid if over Cumulative $1000- Deal Killer
If the total outstanding balance of all collection accounts is equal to or greater than $1,000 the borrower must resolve the accounts (e.g. entered into payment arrangements with minimum three months verified payments- paid as agreed) or paid in full at the time of, or prior to closing. Mortgagees must document the case binder showing each account was resolved or paid in full.
ACTION NEEDED- At this point, prequal letters written may not be able to be honored if collections exceed cumulative $1000+. It is imperative that buyers that have not yet written a contract but will using FHA financing contact their lender and re-review the credit report. In addition, let the lender order the FHA case number as quickly as you have an executed contract.
See the following link if you’d like to make your voice heard regarding these new changes.
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