The house approved a plan to expand federal backing of mortgages through the Federal Housing Administration (FHA). (more…)

Everyone knows a Florida mortgage loan is a major expense; most likely the greatest investment you’ll ever make. However, it can be even MORE costly if your credit score is less than idea.

Some buyers look into subprime Florida home loans, but rates can be even more significant on these resources. Therefore, the question remains: how do you avoid having to pay a higher rate? One way is to pay down your debt and establish a good track record of paying your bills on time. But this can take up to a year to show results.

There is another way, to afford that dream home: through the use of the Federal Housing Administration (FHA). We’ve recently talked at length about changes made in favor of the buyer when it comes to an FHA mortgage - but what, exactly, is the criteria used for approval on these loans?

Florida mortgage loans: FHA style!

Contrary to some people’s belief, the Federal Housing Administration is NOT a lender. This is a federal government agency that guarantees Florida mortgage loans by private lenders, making them available to people who may have a difficult time qualifying , often because of a lack of credit history.

Examples would include recent college graduates or newlyweds, as well as people who have had credit problems with bankruptcies and foreclosures. Because an FHA mortgage is government-insured, lenders granting these mortgages assume less risk than they do with other low credit score loans and therefore can extend credit at a more reasonable interest rate.

How to qualify for such a Florida mortgage loan

The qualification process for an FHA mortgage is different than for a conventional Florida home loan. While your credit score is usually the most important factor lenders consider when approving you for a conventional loan, with an FHA loan it’s not the central factor. Rather, the FHA looks at your overall credit history - and is often more flexible in considering mitigating factors.

The FHA does require a one-year period of acceptable credit, during which you have made all your payments promptly. It may review your rental or mortgage payment history during that time, any new credit or credit inquiries, and whether you have paid off any judgments against you. And it considers your debt-to-income ratio to ensure you’ll be able to repay the loan.

Advantages:

- The FHA may not hold an unpaid collection against you if there is a valid reason for not paying it.
- You can qualify three years after a foreclosure, as opposed to the usual four years with a conventional Florida mortgage loan.
- Your down payment can be as little as 3 percent of the loan amount.
- Your housing expenses (PITI) and other debt payments can total 41 percent of your income, compared with the usual 33-36 percent for a conventional loan.

Disadvantages:

- There is a limit to the amount you can borrow that varies depending upon your area.
- You may have to take out a second loan if, due to regional limitations on the amount your can borrow, an FHA loan does not provide you with sufficient financing.
- You will be required to take out FHA mortgage insurance.
- In most cases, you’ll pay 1.5 percent of the loan amount on closing, plus 0.5 percent per year. However, both of these amounts can be rolled into your monthly payments; the total is likely to be less than that the cost of private mortgage insurance on a conventional low-down-payment Florida mortgage loan.

In the end, an FHA mortgage may be the answer for you, but not all FHA Florida mortgages are the same. Look carefully at the rate and other features, while comparing options, before signing up with any lenders.

Lower- and middle-income home buyers got a big boost from Congress at the end of July when the House voted 415-7 to approve a bill revitalizing the Federal Housing Administration (FHA), syndicated columnist Kenneth Harney writes.

The bill designed to bolster the biggest mortgage program in the U.S. now awaits Senate action. In essence, it would allow the FHA to offer no down payment home loans for the first time, substantially increase permissible loan amounts in high-cost markets, and provide lower interest rates and consumer protections rarely available from subprime lenders.

The legislation would also effectively open the FHA marketplace to mortgage brokers, who are by far the largest source of home mortgages originated in the U.S. With brokers able to offer both private-market subprime and FHA-insured mortgages, buyers with less than stellar credit will be able to directly compare FHA’s rates, fees and consumer protection.

For example, rather than paying 9 percent for a low or no down payment loan with a hefty prepayment penalty from a subprime lender, a buyer might obtain a low or no down-payment FHA mortgage for 6.5 percent or 7 percent with no prepayment penalties at all. When shopping around for the best deal on a Florida home loan, that 2 percent could be enormous.

FHA loans also come with guaranteed loss protection requiring lenders to pursue remedial steps whenever borrowers fall behind on mortgage payments, rather than rushing to start the foreclosure process. Private subprime lenders, by contrast, often have no mandatory remedial responsibilities, and are practically hoping you default. Miss a few payments and you’re done.

The House-passed bill, called the Expanding American Homeownership Act of 2006 (H.R. 5121), would reopen the FHA program to consumers in large portions of the country where home prices far outstrip statutory limits on maximum FHA mortgage amounts.

In high-cost areas, the FHA maximums would increase to the median home price level, but not beyond the loan limits of congressionally-backed Fannie Mae and Freddie Mac, currently set at $417,000. The Fannie Mae-Freddie Mac limits move up annually as home prices increase.

Rep. Maxine Waters, a California Democrat and one of many liberals who joined with Republicans in support of the bill, estimates that more than 120,000 California residents lost the opportunity to apply for consumer-friendly FHA mortgages during the last six years because home prices in California have risen dramatically and now exceeded FHA limits.

Similar squeezes occurred in high-cost New England, New York, New Jersey and Washington, D.C., as well as big sections of the Florida housing market. Nationwide, the FHA’s share of the total market declined from approximately 11 percent in the mid-1990s to just above 3 percent last year, primarily because of statutory limitations on the agency.

Another key change on the horizon is that the FHA will join the rest of the mortgage market in underwriting home buyers based on their risks of default as measured by credit scores, down payment amounts and financial profiles.

The bill would authorize the agency to charge lower insurance premiums to applicants with lower risks of default, a standard operating procedure in the private marketplace. By the same token, borrowers could be charged higher premiums than they are today if the FHA concludes that they pose a certain credit risk.

While the bill enjoyed strong bipartisan support in the House and carries the endorsement of the White House, it faces a tougher battle in the Senate, where the housing subcommittee chairman, Republican Wayne Allard of Colorado, is skeptical about the FHA’s capacity to handle risk assessment on credit-challenged buyers.

Banking committee chairman Richard C. Shelby, an Alabama Republican, agrees on a go-slow approach. Both are considered allies of the private mortgage insurance industry on the issue, which could lead to hesitation regarding the new bill and a desire to block any revival of the FHA.

The legislation has its backers in the Senate, however, including its prime sponsor, Jim Talent, a Missouri Republican. Other supporters include John Cornyn and Kay Bailey Hutchison, both Texas Republicans, along with Johnny Isakson and Saxby Chambliss, both Republicans from Georgia, and former federal housing secretary Mel Martinez, a Republican from Florida. Home loan seekers across the country could be aided greatly by the bill, they feel.

In what is billed as “far-reaching legislation,” the U.S. House of Representatives has passed The Expanding American Homeownership Act, which will increase homeownership opportunities for millions of Americans.

The bill will modernize the Federal Housing Administration (FHA), returning it to its traditional role as an important financing option in today’s housing market.

This legislation should be especially helpful locally - it’s no secret that lower-income families cannot afford Florida home loans in cities around the state at the moment.

“I applaud the House for passing this far-reaching legislation and express appreciation for the leadership provided by Representatives Bob Ney, Maxine Waters, Gary Miller, and Patrick Tiberi,” said Housing and Urban Development Secretary Alphonso Jackson.

The Expanding American Homeownership Act will enable FHA to reach more prospective borrowers and allow millions more low- and moderate-income families to achieve the American dream of homeownership. Many of these borrowers currently have little choice but to pay consider subprime Florida home loan rates because FHA lacks the ability to offer an affordable financing option.

The Expanding American Homeownership Act will:

1) Eliminate the current statutory three percent minimum down payment, reducing a significant barrier to homeownership. FHA’s existing down payment requirement doesn’t meet the demands of today’s marketplace, where most first-time homebuyers put down two percent or less. The “new” FHA would offer a variety of down payment options.

2) Create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower. It would replace the current structure, in which there is standard premium amount for all borrowers, while still protecting the soundness of its Insurance Fund. FHA would have the flexibility to charge a lower premium for low-risk borrowers, and to charge higher-risk borrowers a slightly higher premium.

3) Increase and simplify FHA’s Florida home loan limits. FHA’s loan limit in high-cost areas would rise from 87 to 100 percent of the GSE conforming loan limit and in lower-cost areas from 48 to 65 percent of the conforming loan limit. This change is crucial in today’s housing market.

In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those areas.

Combine this legislation with the recent grant for affordable Florida housing and things should be looking up for lower-income buyers.

Good news for modest-income home buyers and their real estate professionals could be coming in the near future, writes syndicated columnist Kenneth Harney. Thanks to legislation making its way up Capitol Hill, the Federal Housing Administration (FHA), once the dominant source of financing for first-time buyers short on down payment cash, could be headed for a major overhaul and improvement.

Last week, a House subcommittee unanimously approved the bipartisan FHA reform bill (HR 5121), or the “Expanding American Homeownership Act of 2006.” A vote is expected before the end of June, with like legislation introduced short in the Senate, where a June 20 banking committee hearing is scheduled.

Advocates of the bill say the Senate could vote on its version as quickly as September, with the final legislation making its way to the desk of President George W. Bush by October.

What makes this FHA reform effort so extraordinary is its wide spectrum of backers, both in Congress and in the financial industry. The House bill has more than 60 co-sponsors, including many who are ideologically poles apart on most issues. The prime co-sponsors of this home loan reform bill are conservative Republican Rep. Bob Ney of Ohio, and far-left Rep. Maxine Waters, a California Democrat.

The collection of industry groups supporting the bill also is diverse. The American Bankers Association and the National Association of Realtors, for example, have engaged in some bitter battles issues such as banks getting involved in real estate brokerage, but they both are lobbying Congress to get the FHA bill passed quickly. Also among the industry supporters are:

• The National Association of Home Builders
• The National Association of Hispanic Real Estate Professionals
• The minority National Association of Real Estate Brokers
• The National Association of Mortgage Brokers

The bill would, essentially, broaden the FHA’s ability to compete with private subprime lending institutions. For starters, it would simplify FHA down payment rules, allowing for minimal or even no down payments for qualified applicants. It would also accomplish numerous other reforms, including…

• Upping the much-criticized maximum limits to each local market’s median home price. Some high-cost areas, such as the California and Florida housing market, would see their ceilings soar. In California, FHA loan are now around $300,000 and would be raised over $500,000 or even $750,000 under the new rules.
• Allowing the FHA to price applicants according to the credit risks they present. Known in the subprime and prime markets as “risk based pricing,” this is hardly a new concept, except to the FHA. Borrowers who have lower credit scores and are thus rated higher risks by the FHA could be charged lower upfront and monthly premiums. High-risk borrowers, conversely, would pay higher premiums and monthly payments.
• The introduction of more innovative loan concepts to keep pace with private market developments, such as 40-year home loans.

In addition to these reforms, the FHA would still be empowered to offer superiors package of consumer protections to home buyers. For instance, subprime lenders will often impose a stiff prepayment penalty, which results in thousands of dollars assessed to borrowers engage in the process of Florida home loan refinancing, or terminate their mortgage altogether during the first three years. The FHA bans prepayment penalties altogether.

The key purpose of the bill is to enable FHA to rebuild its market share, which has slipped from about 12 percent in the late ’90s to 3 percent this year. For those seeking Florida home loan relief in these trying times, this FHA reform could not come at a better time. Stay tuned.

On one hand, there’s troubling news for those seeking an FHA Florida home loan: the IRS is considerating eliminating the down payment assistance program.

On the other hand, there’s positive news for lower-income families in need of mortgage help: An FHA reform package was approved in a mark-up vote this week by the House Financial Services Committee, led by Congressman Bob Ney (R- Ohio) and Congresswoman Maxine Waters (D-Calif.).

H.R. 5121, the Expanding American Homeownership Act of 2006, would accomplish the following goals:

• Raise FHA loan limits
• Eliminate restrictive down payment requirements
• Provide risk based mortgage insurance premium flexibility
• Extend the possible terms of FHA Florida home loans from 30 years to 40 years

“The Expanding American Homeownership Act will make FHA a more viable tool for first-time home buyers and lower and moderate income families and many others pursuing the dream of homeownership. It is also the most substantive FHA reform legislation undertaken by Congress in over 15 years, ” aid Congressman Ne. “Not only will hundreds of thousands of additional families have the opportunity to own their own home, but this legislation will improve FHA’s relevance and competitiveness in the housing market.”

More positive FHA reform reaction

“On a typical loan, these changes will save many families hundreds of dollars per month - opening the door to the American Dream for thousands,” said NAR President Thomas M. Stevens. “We commend the House Financial Services Committee for taking this important step to make FHA once again competitive in the home mortgage arena. With interest rates climbing and housing prices at all time highs, it is imperative to have a modernized, effective FHA pro

A new NAR-sponsored coalition is expected to become an advocacy force for the housing market. The coalition’s mission is to ensure FHA reform is enacted and that it becomes a competitive option, thereby ensuring the availability of reasonable Florida mortgage loans.

NAR and its Coalition for a Strong FHA partners urge House Members to cosponsor this legislation and urge the House leadership to schedule time for House floor consideration as quickly as possible following the Memorial Day recess.

The possibility of longer-term Florida home loans is that these mortgages would allow for lower, easier payments to be made each month.

As the housing market takes a slight downturn, many options are being considered to open up the door for affordable home loans across the nation. One of them has been a proposal to reform FHA guidelines. A positive step was taken in this direction recently.

In written testimony submitted to the House Financial Services Committee, Subcommittee on Housing and Community Opportunity, the National Association of Realtors expressed enthusiastic support for these initatives. The idea behind them is to provide more Americans with a chance to down a house via an FHA home loan.

The NAR believes that these enhancements, such as extending the term of mortgages to 40 years, eliminating the statutory 3 percent down payment, and increasing FHA’s limits in high costs areas to the 2006 conforming loan limit, will allow FHA Florida home loans to better serve today’s housing market.

“NAR gladly stands ready to work with HUD Secretary Alphonso Jackson and FHA Commissioner Brian Montgomery to help make the reforms a reality,” said 2006 NAR President Thomas M. Stevens, senior vice president of NRT Inc., from Vienna, Va.

If enacted, the reforms would provide Realtors the necessary tools to work with hundreds of thousands of additional families each year to become homeowners. This is encouraging news for those hoping to track down an affordable, reasonable Florida home loan in the near future.

The Federal Housing Administration (FHA) - the federal government’s largest home finance program - might soon offer consumers a range of options they’ve never had before: mini-downpayments, lower than 3 percent, scaled all the way down to zero.

To accomplish this goal, the FHA wants Congress to allow it to use electronic “risk-based pricing” for the first time in its 72-year history. Risk-based pricing has been used in the private mortgage marketplace since the mid-1990s, when Fannie Mae and Freddie Mac introduced their Desktop Underwriter and Loan Prospector systems.

What is risk-based pricing?

All risk-based pricing involves electronic credit checks and credit scores, ordered and obtained in seconds from the national credit bureaus. The risk-based system then prices the mortgage according to the probability of future default posed by the applicant and the size of the downpayment. Applicants with shaky credit and very low downpayments tend to get quoted higher interest rates and home loan fees than applicants with better credit.

The FHA never has adopted risk-based pricing for the premiums it charges on its mortgage insurance. Instead it has pursued a “cross-subsidization” approach whereby applicants with better credit pay slightly higher premiums than they deserv” on the basis of default risk, while borrowers with lower quality credit pay less than they deserve on a risk-adjusted basis.

Changes to the FHA approach

However, the Bush administration’s new budget proposes to do away the traditional cross-subsidization approach and replace it with risk-based pricing.

The reason? Many applicants for FHA Florida home loans with better credit profiles have abandoned the program in recent years, attracted by fast-growing competitors in the private sector that offer subprime lending. The White House estimates that 70 percent of FHA’s business has shifted elsewhere during the past three years alone.

FHA’s chief operating officer, federal housing commissioner Brian D. Montgomery, said in an interview that “we are losing our core group of customers” in part because the agency cannot offer rates and down payment levels on a risk-based sliding scale.

Combined with FHA’s substantially higher loan limits - up to $362,790 for 2006 in high cost areas - the zero-down, risk-based pricing approach could help turn around FHA’s declining mortgage insurance volume.

This, in turn, could be very good news for moderate-income and minority first-time home buyers. As housing affordability becomes more and more of an issue, any changes that make it easier to acquire a Florida home loan should be welcomed.

If you’re unclear about whether or not you’re owed funds from a FHA Florida home loan, don’t bother talking to a private company over the matter. There are simple steps you can take on your own to determine if you have a refund coming your way.

The U.S. Department of Housing and Urban Development, which oversees all FHA loans, increased its research efforts three years ago to locate approximately 348,000 homeowners owed $250 million in FHA mortgage insurance refunds. However, some homeowners could not be found, typically because they had moved and the new mailing address was not in HUD’s records.

Details of a FHA Florida home loan

When homeowners pay off their FHA-insured loan within five years, a portion of the mortgage insurance upfront premium is returned. It works much like a homeowner’s fire insurance policy that’s canceled before the term expires. For example, if you pay $600 to insure your home for a year and move after eight months, a portion of the $600 would be refunded.

If you believe you are due for a refund, try to dig out your old FHA loan number and then check online or by phone. Your proper name may not be enough, especially if it’s a common one.

Lenders require mortgage insurance when borrowers apply for more than 80 percent of the purchase price of the home. It insures the investor (lender) in case the borrower defaults on loan payments. Therefor, if you sold your home and the new owner assumed the loan, you are not eligible for a refund. That’s because there is still a risk of default. The insurance follows the loan and not the initial borrower.

On older FHA loans, mortgage insurance was part of the deal and had to be paid regardless of the equity position of the borrower. Mortgage insurance on newer FHA loans - those placed after Jan. 1, 2001 - can be dropped when equity reaches 22 percent of the original appraised value and the borrower meets other guidelines.

The bottom line is that you may be owed a decent chunk of change. Take a close look at your Floirda home loan. If you feel as though a refund is in order, don’t hesitate to act on it.

The U.S. government’s biggest home mortgage program streamlined itself at the end of December, which figures to be good news for buyers, sellers, realtors and builders like, writes syndicated columnist Kenneth Harney in the Seattle Times.

The Federal Housing Administration (FHA), a branch of the U.S. Department of Housing & Urban Development (HUD) has eliminated or softened many onerous rules about property conditions and mandatory repairs. This could help open mortgages with low down payments and no prepayment penalties to thousands of first-time, moderate-income buyers — people who, in the past several years, have been turning to risky, subprime alternatives instead.

Those buyers, in turn, could provide sellers of the dwellings cash to move up to more costly properties, prompting increased sales activity at successive levels up the housing ladder.

The FHA once dominated lower-cost housing and was a crucial entry point for young, minority and lower-income buyers. But the agency has been heavily criticized for enforcing decades-old requirements about property condition and repairs of resale homes. In the boom markets of the last two years, real estate agents often advised sellers to reject offers that came with FHA mortgage financing contingencies.

In other words, buyers using other forms of financing could buy houses “as is,” but FHA rules required painting, patching, repairs and inspections before closing — even if the problems were minor and did not affect health or safety. FHA-contingent offers were considered troublesome, and agents, lenders and sellers in some areas effectively boycotted the program.

Meanwhile, FHA’s share of the overall market fell to a record low 3 percent, down from 11 percent less than 10 years ago.

Thanks to a reform of its rules last year, capped by revised repair and inspection standards outlined to lenders at the end of last month, agents and sellers might take a fresh look at FHA, as buying a house with FHA’s help do longer puts bidders at a competitive disadvantage. The agency “shifted from its historical emphasis on the repair of minor deficiencies and now only requires repairs for property conditions that rise above the level of cosmetic defects, minor defects, or normal wear and tear,” said FHA Commissioner Brian Montgomery.

Before the overhaul, FHA required advance repairs on homes for defects such as:

• Leaky faucets.
• Cracked window glass.
• Poorly installed carpeting.
• Missing handrails on stairways.
• Cracked or buckled plasterboard in walls or ceilings.
• Crawl spaces that contained any type of “debris” or “trash.”
• Worn or deteriorated flooring.
• Cracked sidewalks.

Although the agency considered its standards to be valuable consumer-protection measures, everybody else in the market considered them nit-picky. Under the more tolerant standards, minor defects no longer have to be repaired before closing. More serious problems — such as structural problems, foundation damage, bad roofing and electrical hazards that pose more serious risks to buyers — still will have to be repaired.

FHA also announced that previously mandatory inspections for certain property conditions have been waived. These include:

• Septic systems with no evidence of malfunction.
• Wells that function normally and show no sign of contamination.
• Termite and other insect damage, unless “evidence of active infestation” is present or local real estate regulations require inspections.

FHA’s streamlining of property rules is part of a broader effort to regain the agency’s previous role in the national real-estate marketplace. Last year Housing Secretary Alphonso Jackson said he agreed with critics who said FHA rules and procedures were out of date, but emphasized the agency’s mission to assist lower-income and minority renters through low down payments and generous credit and debt-to-income ratio standards.

“We need to reach out to blacks, Hispanics and other consumers with better loan concepts, less red tape and faster mortgage approvals,” Jackson said. “Compared to most subprime loans, we offer a better deal. We’ve got a superior product.”

Jackson noted that FHA offers lower interest rates, lower fees, no prepayment penalties and mortgage limits up to $362,790 in high-cost urban areas and $200,160 in others.

The rule changes may not silence all critics (the FHA is, after all, a government program) but it should get the attention of buyers and sellers in moderate-cost segments of the market, along with the industry professionals who work with them. If you are on the borderline of being able to afford a home, working with FHA programs may be a strong alternative to exotic, higher-fee Florida home loans. The agency still offers great financing, and while its regulations have been relaxed somewhat, you won’t have to worry that you are compromising your safety.