FHA MIP Updates Go Live on Monday; Flood Insurance Officially Extended; Lots of Lender Bulletins

You learn something new every day. "Section 504" loans are "Certified Development Company" loans. Under the "504" program, begun in July, the SBA (Small Business Administration) provides a government guarantee on pools of portions of eligible 504 first mortgage loans assembled by approved pool originators who sell them to third-party investors. Lenders retain at least 15% of each individual loan, pool originators assume 5% of the risk, and the SBA guarantees the remaining 80%.

Typically, a 504 project includes three elements: a loan (or first mortgage) secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a second mortgage secured with a junior lien from a Certified Development Company (backed by a 100% SBA-guaranteed debenture) covering up to 40% of the cost, and a contribution of at least 10% equity from the small business borrower. Brokers, or pool originators, purchase portions of the first mortgages, package and sell them on the secondary market. The reason I mention this is that there is some good news in the securities market: Bank of America and United Midwest Savings Bank have become the first financial institutions to assemble SBA 504 first mortgage pools to be sold on the secondary market. FULL STORY

On the legislative front, President Obama signed into law S. 3814, a bill that will extend the National Flood Insurance Program (NFIP) for one year to September 30, 2011. And H.R. 3081 passed the House of Representatives, which among other items is the authorization to extend current loan limits for mortgages provided through Fannie Mae, Freddie Mac, and the Federal Housing Administration. Passage of the legislation will ensure that current loan limits for single-family residential mortgages will remain in place until September 30, 2011 at 125% of local median home sales prices, up to a maximum of $729,750 in high-cost areas. The floor for FHA is $271,050; the floor for Fannie Mae and Freddie Mac conforming loan limits is $417,000. The bill also appropriates $20 billion so that FHA can continue making loan commitments through the end of 2010.

Everyone in the FHA biz knows that Monday is a big day. FHA will lower its upfront mortgage insurance premium (except for HECM's) while simultaneously increasing the annual premium, which is collected on a monthly basis.  This change will affect purchase money and refinance transactions, including FHA-to-FHA credit-qualifying and non-credit-qualifying streamlined refinance loans. (Hawaiian Homelands Section 247 loans are not affected by these changes, for anyone doing business in the state whose motto is "Ua Mau ke Ea o ka 'Āina i ka Pono.") READ MORE

Private mortgage insurers have been licking their chops for Monday. They have grappled with credit losses on policies, claims of bad policy rescission, and an inability to compete with FHA's prices on new insurance. So with the increase on Monday could come the restoration of competitiveness of private insurance, potentially letting the companies win back market share and rebuild their reserves. And anyone watching that business has seen MI companies increasing riskier loans in somewhat subtle ways. Most believe that the MI companies, as a whole, are still fairly well capitalized. And of course lenders undoubtedly will benefit from the better prices, service and product diversity after Monday's FHA premium changes.

Fannie Mae issued Lender Letter LL-2010-10, "Extension to Fannie Mae's Alternative Modification to the Home Affordable Modification Program". It extends the program terms for cases submitted through the HomeSaver Solutions Network through November of this year. FANNIE MAE BULLETIN

Flagstar told its clients that "All borrowers must have at least one valid credit score to be eligible. All transactions not meeting this guideline must be locked on or before Oct 7, 2010 to be eligible."

I mentioned SBA loans in the first paragraph. Chase revised its Subordinate Financing policy to indicate SBA liens must be included in the CLTV calculation for both Agency and Non-Agency loans. "An SBA lien against an individual's personal residence is typically additional collateral for a business loan and not the primary collateral nor the primary source of repayment. However, the business must be analyzed to determine its ability to service the business debt as well as provide sufficient income for the borrower to service his/her debt. The SBA lien should be entered as subordinate financing in any of the Automated Underwriting systems and should reflect the subordination of all mortgage liens. In addition, monthly payments on the SBA loan must be included in the debt ratio calculation unless proof is provided the business is paying the debt" with certain documentation.

Starting today, Fifth Third's brokers should know that "per Florida Statutes 494.004(2), in every mortgage loan transaction, licensees must notify a borrower of any material change in the terms of a mortgage loan within 3 business days of the change and at least 3 business days prior to closing", a material change being a change that would be important to a reasonable borrower in making a borrowing decision, and includes a change in the interest rate previously offered to a borrower, a change in the type of loan offered to a borrower, or a change in fees to be charged to a borrower resulting in total fees greater than $100.00.

US Bank National Wholesale Sales Division reminded brokers that the VA requires the itemization of: credits to seller, lender, mortgage broker, or real estate agent and title service charges for applications starting tomorrow. "When credits for fees paid by a party other than the veteran borrower are shown as a lump sum on the first page of the HUD -1, the lender needs to itemize the lump sum credits to ensure the veteran borrowers are not charged for unallowable fees such as underwriting, settlement statement or document preparation fee. Lenders may create an attachment to the HUD 1 itemizing the lump sum credit or expand the Origination Statement."

Most investors have credit and guideline overlays, over and above what the government agencies allow for programs. CitiMortgage, currently ranked #5 in volume among lenders right behind #4 GMAC, releases its overlays monthly. Citi's clients are aware of them, but include restrictions on initial & final 92900A and 92900-LT forms, VA Funding Fee information, source of funds documentation requirements, savings documentation, maximum VA loan amounts ($1 million prior to the VA Funding Fee), etc., etc. In other words, in this environment, borrowers had better have proof of anything or any transaction for practically every investor.

On to the fixed income markets. After some intra-day volatility, mortgage (MBS) prices ended Thursday unchanged from Wednesday's closing prices, with about $2.2 billion being sold. 10-yr notes worsened about .125 in price and moving to 2.52%. This was all after new U.S. claims for jobless aid fell last week, while manufacturing in the nation's Midwest region grew faster than expected in September, supporting the view that economic activity picked up a bit in the third quarter. There are, of course, large-scale trends occurring around the world, with commodities on the rise, the dollar sinking, several European countries still wallowing - so one might ask what a few percentage points in an ISM survey or the NY Fed's Empire Index means. It is a valid question.

Science Translations: The following list of phrases and their definitions might help you understand the mysterious language of science, medicine, and even security analyst's reports. These special phrases are also applicable to anyone working on a Ph.D. dissertation or academic paper anywhere!

"It has long been known" = I didn't look up the original reference.
"A definite trend is evident" = These data are practically meaningless.
"While it has not been possible to provide definite answers to the questions" = An unsuccessful experiment, but I still hope to get it published.
"Three of the samples were chosen for detailed study" = The other results didn't make any sense.
"Typical results are shown" = This is the prettiest graph.
"These results will be in a subsequent report" = I might get around to this sometime, if pushed/funded.
"In my experience" = once.
"In case after case" = twice.
"In a series of cases" = thrice.

(More on Monday.)