The U.S. Department of Housing and Urban Development today unveiled a new website that consolidates a wide variety of economic and housing market data at the regional, state, metropolitan area and county levels. Using data from the Census Bureau, Labor Department, State and Local governments, housing industry sources, as well as HUD’s own field economists, the new website employs interactive maps that allow visitors to access a variety of reports – from a region-wide look at employment and housing activity to individual county-level figures on population trends, rental activity and vacancy rates.

“This is a powerful new tool that’s easy to use and offers the public a remarkable look at their local economic and housing markets,” said Dr. Raphael Bostic, HUD’s Assistant Secretary for Policy Development and Research. “Current and reliable data shouldn’t be hard to come by. This is precisely why this site will be so helpful to state and local leaders, developers, the real estate industry, and the general public who need the latest available data on their markets.”

HUD’s new website displays an interactive map of the U.S. allowing visitors an intuitive way to seek data in a number of areas of geography – from an entire region down to a particular county. In particular, the portal offers the following reports:

“Market at a Glance” reports contain economic and housing market data trends for every metropolitan area and county nationwide with employment data updated on a monthly basis.　 Employment data is provided from the Bureau of Labor Statistics and housing data is derived from the Census Bureau’s American Community Survey. Some adjustments are made by HUD field economists based on regional information. The data are expected to be released on monthly basis for most of the metropolitan areas and counties. Eventually these reports will become “live” documents enabling field economists to include analysis as they complete more in-depth research for specific areas and monitor local conditions.

“Regional Housing Market Profiles” are based on the quarterly U.S. Housing Market Conditions report and include non-farm employment, population changes, and building activity. These regional profiles also focus on the most recent housing rental and sales activity for the past two years. In addition, approximately 10-12 individual metropolitan areas are specifically profiled each quarter to provide these same data down to the metro area level.

“Regional Narratives” are broad overviews of economic and housing market trends within ten regions of the U.S. These narratives are based on information obtained by HUD economists from state and local governments, from housing industry sources, and from their ongoing investigations of housing market conditions

“Comprehensive Housing Market Analysis” – Periodically, HUD field economists focus on particular metropolitan housing markets to produce counts and estimates of employment, population, households, and housing inventory. Each housing market analysis considers changes in the economic, demographic, and housing inventory characteristics during three periods: from 1990 to 2000; from 2000 to the as-of date of the analysis; and from the as-of date to up to up three years in the future.
To view the reports mentioned above for a each region of the country, or for particular states, metropolitan areas or even counties, visit HUD’s Regional Economic and Market Analysis page.

The Federal Housing Administration (FHA) today released its annual report to Congress on the financial status of its Mutual Mortgage Insurance (MMI) Fund, FHA’s principal insurance account that includes all single-family and reverse mortgage activity. FHA’s study finds that since last year, the capital reserve ratio held steady, insurance claims declined significantly, and the economic value of FHA’s single-family insurance program grew by more than $1 billion, from $3.6 billion in 2009 to $4.7 billion in 2010.

Like last year’s report to Congress, this accounting shows that FHA is sustaining significant losses from loans insured prior to 2009 and its capital reserve ratio remains below the congressionally mandated threshold of two percent of all insurance-in-force. However, the report concludes that under conservative assumptions of future growth of home prices, and without any new policy actions, FHA’s capital ratio is expected to approach two percent in 2014 and exceed the statutory requirement in 2015.

“It’s clear that FHA is in a stronger position today than we were just one year ago,” said FHA Commissioner David H. Stevens. “While we are not yet completely out of the woods, based on the evidence we’re seeing, FHA is weathering the economic storm while helping to create a firm foundation for our nation’s recovery.”

FHA’s capital reserve ratio measures reserves in excess of those needed to cover projected losses over the next 30 years. The independent actuarial reviews of the MMI Fund estimate FHA’s capital reserve ratio to be 0.50 percent of total insurance-in-force this year, falling fractionally from 0.53 percent in 2009. The difference is primarily attributed to the use of much more conservative assumptions regarding future house price growth than were used last year, which also resulted in an $8.5 billion decrease in economic value. However, that decrease was offset by a variety of factors, including an $8.7 billion increase in value due to better credit quality, loan performance, and the premium increase implemented earlier this year.

Due in large part to the performance of recently originated loans, FHA’s total capital resources increased by $1.5 billion since last year, to $33.3 billion, and are at their highest level ever – $5.5 billion greater than predicted last year. If the economy were to suffer a further significant downturn, recovery of the capital ratio could be delayed beyond the projected timeframe. However, even in the actuaries’ worst-case stress test scenario, FHA’s capital resources remain sufficient to cover projected claim losses and FHA would not require a taxpayer subsidy, an improvement over last year’s assessment and due to new loans having higher credit quality than had been anticipated.

Loans insured before 2009 are responsible for 70 percent of the expected single family loan losses. Though they are now prohibited, so-called “seller-financed down payment assistance loans” produced $6.6 billion in claims to-date and may ultimately cost FHA $13.6 billion. Without these seller-financed loans, FHA’s capital ratio would be above the congressionally mandated two percent threshold. Conversely, loans insured since 2009 earned $4.8 billion in economic value to the MMI Fund and are estimated to generate $28.3 billion in economic value by 2016. Expected economic value of FY 2010 and FY 2011 loans alone are estimated to reach $11 billion.

Insurance claim expenses in FY 2010 were 21 percent lower than predicted last year. Even before last year’s actuarial study, FHA management began instituting sweeping reforms to strengthen the MMI Fund. These policies have improved loan quality, strengthened lender enforcement, and helped to protect future performance. As a result, the FY 2010 and future books-of-business are expected to generate significant amounts of net capital resources that will help pay losses on earlier books and rebuild the capital position of the MMI Fund.

Since July 2009, FHA implemented the most sweeping reforms to its credit policies, risk management, lender enforcement, and consumer protections in its history. FHA hired its first Chief Risk Officer and established a permanent risk office to expand FHA’s capacity to assess financial and operational risk, perform more sophisticated data analysis, and respond to market developments. FHA also increased enforcement of its lenders, changed the approval process making lenders liable for oversight of their mortgage brokers, and strengthened FHA’s lender approval requirements.

In addition, FHA eliminated approval for loan correspondents and increased net worth requirements for lenders. FHA introduced a new premium structure that is more in line with private mortgage insurers’ pricing, and is estimated to provide approximately $300 million per month of additional capital to the MMI Fund. Furthermore, FHA has changed its credit score and down payment requirements to ensure that FHA provides access to borrowers who have historically performed well. Specifically, a minimum down payment of 10 percent is now required of borrowers with credit scores below 580 and applicants with credit scores below 500 are no longer eligible for FHA insurance.

Over this past year, FHA:

• Served more than 1.75 million households by insuring $319 billion in single-family mortgages. This volume was second only to FY 2009.
• Enabled 882,000 families to become homeowners for the first time. This represents one-third of all first-time buyers in the nation.
• Helped more than 450,000 families avoid foreclosure through loss mitigation actions.
• Helped 556,000 families to refinance their mortgage at lower interest rates, saving households an average of more than $140 per month.
• Provided access to credit for close to 40 percent of purchase mortgages including 60 percent of all African-American and Hispanic homebuyers.
• Helped more than 450,000 families avoid foreclosure through loss mitigation actions.

HUD’s report to Congress on the Financial Status of the MMI Fund, and FHA’s Fiscal Year 2010 Financial Status Briefing are available on HUD’s website, www.hud.gov.

Federal Housing Administration Commissioner David Stevens said early indications of a review into mortgage servicer operations has shown they are not meeting the loss mitigation needs of the Department of Housing and Urban Development.

Stevens testified before the House Financial Services Committee Thursday on the recent foreclosure issues that have surfaced in many banks. Lenders such as Bank of America (BAC: 11.28 +1.71%), JPMorgan Chase (JPM: 38.16 +1.41%), Ally Financial (GJM: 22.37 +0.58%) andWells Fargo (WFC: 27.1125 +1.17%) are resubmitting affidavits allegedly signed by employees en masse without a review of the documentation as required by law in some states.

Stevens said when he first entered office in 2008 significant reviews into servicers were not being done. So, in May, the FHA launched a review of several of its largest servicers that, combined, accounted for over 70% of HUD’s single-family servicing portfolio.

“The early returns suggest that some servicers may be falling short – that in varying degrees many of the servicers under review may not have met HUD’s expectations in assisting borrowers through the loss mitigation process,” Stevens said.

He added that FHA analysts have found some servicers even lack knowledge of the FHA loss mitigation process, necessary technology and enough experienced staff necessary to clear modification request backlogs.

Ally Financial’s chief of mortgage operations said the bank is refiling the affidavits and bringing in outside counsel to review processes.

Stevens said a review of one unnamed servicer yielded $700,000 in administrative fees. On the origination side, the FHA has withdrawn approval for over 1,500 lenders and imposed more than $4.2 million in penalties. As his office turns its attention to servicers, he warned that more action could be coming.

“If you don’t operate ethically and transparently, we will not do business with you, and we will not hesitate to act,” Stevens said.

The Federal Housing Administration has avoided the need for a taxpayer bailout, as we report today, but the agency’s reserves have stabilized at levels that don’t leave much of a cushion against future losses.

The FHA’s annual audit showed that the agency’s reserves were largely flat from a year ago. The amount of cash on hand, at $33.3 billion, actually went up because the agency did so much business in the 2010 fiscal year, which ended Sept. 30. (The FHA, for example, guaranteed 1.1 million home-purchase loans in the recently concluded fiscal year, the most in its 76-year history.)

But the audit must subtract estimated losses over the next 30 years, which leaves the agency with a surplus of just $4.7 billion to handle any unexpected claims, or 0.5% of the $931 billion in mortgages that it guarantees. The agency estimates that it will take five years to put that ratio back at the 2% level required by Congress.

“The report understates the true improvement to date in FHA’s outlook,” said Peter Swire, a former White House housing adviser who teaches law at Ohio State University.

The reserves were lower than they would have been for two reasons: the agency used more conservative assumptions for variables such as home prices, and the agency also revised the methodology used to estimate its reserves to more accurately account for potential losses (some of those models had been criticized earlier this year). Without those modeling changes, the FHA’s reserves would have been $8.5 billion higher.

The negative revisions were offset by higher fees that the agency began charging this year and by improving performance of mortgages backed in 2010.

But the agency still faces several big risks:

1) Home prices decline beyond the 3% drop built into the forecast. The FHA runs several home-price stress tests on its loan book. Under a “mild” recession, where home prices decline by another 12.5%, the FHA’s reserves would run into the red through 2011. Under a more severe second recession, with price declines of another 19%, the FHA’s reserves would turn negative into 2013.

Under both scenarios, the agency would have to ask Treasury for cash infusions for the first time in its history because it must hold enough cash to account for projected losses. But officials say that revenue from new business would eventually make up the gap and that, according to their forecasts, the Treasury money wouldn’t actually be spent.

2) Modifications fail and foreclosures accelerate. Housing economist Thomas Lawler notes that the agency’s financial condition could be worse than it appears because loan modifications may be simply pushing losses into future years.  Foreclosures on FHA-backed loans increased by around 40% last year while modifications jumped by 80%. The re-default rate on modifications for FHA-backed loans are the highest in the industry, and many modified loans could ultimately default. FHA officials say their audit accounts for higher default rates on modified loans.

3) Losses on foreclosed properties increase. Mr. Lawler notes that foreclosure timelines have grown much longer, which has postponed eventual losses for now but which could lead to larger-than-expected losses later.

FHA Commissioner David Stevens today released another letter to the industry. This communication focused on two topics. A new FHA loan product aimed at incentivizing borrowers to invest in energy efficient homes and HUD’s effort to promote sustainable homeownership though transparency and borrower education.

The following words are from the desk  of David Stevens….

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In this edition, I want to highlight two exciting new announcements that will interest the mortgage industry and its customers: a new mortgage insurance product that will help current homeowners make energy-efficient home improvements, and a new consumer video series that will help potential homeowners make wise home-buying choices.

FHA PowerSaver
Improving American homes to make them more energy efficient presents an excellent opportunity to simultaneously reduce homeowners’ utility bills, expand the number of green jobs, and allow more homeowners to live in greener, healthier homes. But several barriers, including a lack of financing options for energy-efficient retrofits, have prevented a self-sustaining retrofit market from forming.

This Administration has placed a priority on enabling more homeowners to improve their homes’ energy efficiency, and FHA is bolstering that priority with a new mortgage insurance product. Announced today by Vice President Biden and Secretary Donovan, FHA PowerSaver will extend financing for credit-worthy borrowers to make cost-effective, energy-saving improvements to their homes.

PowerSaver will begin as a two-year pilot program launching in early 2011, and we are seeking a limited number of lenders to participate. To be eligible, lenders must be approved participants in either the FHA Title I or Title II programs. If selected, lenders will be required to target PowerSaver loans to markets that have already taken affirmative steps to expand home energy improvements. We are aware of many such markets in both urban and rural areas across the country, and FHA and the Department of Energy (DOE) will help lenders identify eligible target markets.

For more information, go to: http://www.hud.gov/offices/hsg/sfh/hsgsingle.cfm

FHA has carefully designed the PowerSaver product to meet the marketplace need for retrofit financing while ensuring that FHA is not subjected to unnecessary risks.

Key product features include:

• PowerSaver loans will only be available to borrowers with credit scores of at least 660, total debt-to-income ratios no higher than 45 percent, and combined loan-to-value ratios (including the PowerSaver loan) of no more than 100 percent.
• FHA insurance will cover up to 90 percent of the loan amount. To incentivize responsible lending, participating lenders will retain the remaining risk.
• Consumers will be able to borrow up to $25,000 with loan terms up to 20 years. Interest rates are expected to be 5 – 7 percent, comparable to or lower than other home-improvement finance options.
• Loans will be secured by mortgages or deeds of trust, which will be in subordinate position to the first mortgage on the home. Loans will be limited to owner-occupied, detached single-family properties.
• Loan proceeds must be used to make proven cost-effective, energy-saving improvements based on a list of measures published by FHA and DOE. Examples include insulation, duct sealing, energy efficient doors and windows, energy efficient HVAC systems and water heaters, solar panels, and geothermal systems.

FHA will select lenders to participate based in part on their commitment and capacity to provide the lowest cost financing for consumers. We recognize that small loans for home energy retrofits may have relatively high transaction costs for lenders, so FHA will deploy up to $25 million in grant funds to support lenders’ efforts to decrease costs to borrowers.

Participating lenders are not required to utilize these incentive payments, but lenders planning to provide bona fide benefits (e.g. lower interest rates or servicing costs) to borrowers may be eligible to receive them. All participating lenders will receive streamlined insurance claims for PowerSaver loans.

Lenders interested in participating must submit an Expression of Interest using the template and following the instructions provided in the Federal Register Notice on HUD’s website. FHA will host two live webcasts that will give interested lenders an overview of the program and an opportunity to ask questions. Webcast schedules and instructions for registering will be available on HUD’s website.

I strongly encourage all lenders with the commitment and capacity to provide PowerSaver loans to apply. Participating lenders and eligible target market communities will be announced early next year.

Consumer Videos
In today’s housing market, the home-buying process can seem complicated and overwhelming to consumers. To help make the process more transparent, we partnered with the National Association of Realtors (NAR) to release three consumer education videos. Each video will help homebuyers navigate a critical part of the home-buying process and will enable them to make informed decisions at each step. The videos include:

• Shopping for your Home- The first video informs potential homebuyers how to assess how much home they can afford, how to work with a real estate agent and what to do when they find the home they want to purchase. It also discusses the role housing counselors can play in assisting with issues including home buying, fair housing, and foreclosure prevention.
• Shopping for your Loan- In this video, consumers learn how to use the Good Faith Estimate (GFE) to identify key loan terms and costs for a particular offer. The video also advises potential homebuyers to compare GFEs from multiple lenders to determine the best loan for them.
• Closing the Deal- This video walks consumers through the closing process and shows them how to use the HUD-1 Settlement Statement and GFE to ensure the loan they were offered closely matches the one they receive at closing.

All three videos are available on HUD’s website and YouTube channel.

Both the Power Saver loan product and these instructional videos are examples of our ongoing efforts to better serve current homeowners and potential homeowners in the modern housing market. I hope you, our industry partners, will welcome these new initiatives.

Ginnie Mae will allow issuers to pool mortgages processed through the Federal Housing Administration‘s Short Refinancing Program, according to guidance released this week.

Ginnie guarantees investors the timely payment of principal and interest on mortgage-backed securities containing federally insured loans, mainly FHA. The U.S. Department of Housing and Urban Developmentlaunched the FHA Short Refinancing Program in Septemberto help underwater borrowers refinance into an affordable FHA loan.

The Treasury Department set aside $14 billion from the Troubled Asset Relief Program to encourage mortgage servicers to support write-downs of second mortgages and provide coverage for a share of potential losses on the new loans.

But the program faces many challenges, mostly from a lack of participation from the government-sponsored enterprises and the inability of the servicers to achieve “safe harbor” with investors, according to some analysts.

The FDIC extended safe harbor protection of securitized assets through the end of the year.

Ginnie President Ted Tozer sent a memo to program participants saying it will begin disclosing the concentration of FHA short refinance loans in pools at issuance in November. Ginnie will show the amount of loans, the unpaid principal balance, and the percentage of the loans compared to the total dollar amount in the pool.

Echoing the message from a speech at the Mortgage Bankers Association’s annual conference in Atlanta, FHA Commissioner, David Stevens said the reverse mortgage industry needs to shine a light on bad participants and regain the public’s trust.

“I’m a huge fan of reverse mortgages, but I went after and shut down a lender in Hawaii,” he said during the keynote at the National Reverse Mortgage Lenders Association’s annual trade show in New Orleans.

According to the Department of Housing and Urban Development, the lender − Financial Mortgage USA − used an affiliate company to invest borrower proceeds into annuities without their knowledge.  While there are regulations to prevent this from happening and reports of this type haven’t turned up in some time, Stevens called on the industry to make the agency aware of inappropriate behavior.

“Lets make sure we get the bad players out of the industry, its not fair to let these people impact your reputation,” he said.  This is increasingly important he said, especially as more baby boomers become eligible for the HECM program “the reverse mortgage industry plays an important role in housing going forward.”

As an industry that takes a very pro-active stance in self policing lenders, data from the NMRLA Standards and Ethics Committee shows complaints against reverse mortgage lenders fell by 54% in 2010.

“We had a total of 32 complaints in 2010, the majority were related to deceptive advertising,” said Sarah Hulbert, chair of the NRMLA Standards and Ethics Committee during the conference.  The association recently published a new ethics advisory highlighting improper advertising practices seen over the past few months.

During an interview with RMD, Peter Bell, President of NRMLA said deceptive advertising is the “biggest issue we have” in terms of public perception.  When lenders use direct mail campaigns that look like “government notices” or checks, “they’re turning the public off to this industry,” he said.

While it’s difficult to know exactly how much it’s happening, “it’s enough for it to color the image of the whole industry and we’re all tarnished by it,” Bell said.  “Maybe the lenders are getting a few more loans in the short term, but we’re all paying for it in the long run.”

FHA Commissioner David Stevens sent out the following note outlining recent FHA updates and newly proposed rules.

HERE is the actual release.

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As FHA has now moved into a new fiscal year, I want to take the opportunity to update you on several FHA policy initiatives that went into effect earlier this month (October 4). These include a new product option for FHA’s Home Equity Conversion Mortgage (HECM), changes to our Mortgage Insurance Premiums (MIPs), and new credit score and down payment requirements for FHA borrowers.

In addition, I want to provide you with details of a proposed rule on lender indemnification that was published on October 8. Each of these measures is designed to strengthen our risk management practices as we continue to work to increase our capital reserves.

HECM Saver
HUD has just introduced a major new FHA insurance product for reverse mortgages. HECM Saver gives seniors a new option for accessing their home’s equity to pay for health care costs, home repairs and other needs. Despite the popularity of the HECM loan product, we have noted concerns that some senior citizens find that the upfront fees are too high for them. In response, we created this new product which will provide seniors with another reverse mortgage option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium that is required under the standard HECM option.

The new product enables seniors to borrow a smaller amount than would be available with a HECM Standard loan. This option will be available for all HECM case numbers assigned on or after October 4, 2010.

As described in Mortgagee Letter 2010-34, HECM Saver will have an upfront premium of only .01 percent of the property’s value. This provides the borrower with significant savings in comparison to HECM Standard’s two percent upfront premium. Under HECM Saver, the principal limit, or amount of money available to a borrower, is lower than under HECM Standard. Borrowers will receive approximately 10 to 18 percent less proceeds under the HECM Saver option than they would receive under HECM Standard, which lowers the risk to the FHA insurance fund.

The annual MIP for both HECM products is 1.25 percent of the outstanding loan balance.

MIP Changes
Legislation signed by President Obama on August 12 gave FHA the flexibility to increase the annual premium on FHA single family mortgages up to a maximum of 1.50 or 1.55 percent of the remaining insured principal balance, depending on the loan’s initial loan-to-value ratio.

Beginning October 4, the annual premium for FHA Borrowers with a loan-to-value ratio of 95 percent or higher is 90 basis points. Borrowers who have a loan-to-value less than 95 percent will pay an annual premium of 85 basis points.

Simultaneously with the increase in the annual premium, we have reduced the upfront premium by 125 basis points, from 2.25 percent to one percent. This reduces the barriers to consumers in purchasing a home because the annual premium is paid over the life of the loan instead of at closing. Thus, the new premium structure should help FHA increase the capital ratio in the MMI Fund without disrupting the housing market. For details on the new MIP structure, see Mortgagee Letter 2010-28.

We are confident this new premium structure is sound policy, more in line with private mortgage insurers’ pricing, and will facilitate the return of private capital to the mortgage market. This change is estimated to yield approximately $300 million per month of additional income for the MMI Fund.

Credit Score and Down Payment Requirements
Also effective October 4, FHA introduced a two-tiered down payment requirement based on the credit scores of new borrowers. To qualify for FHA’s 3.5 percent down payment program, new borrowers must have a minimum credit score of 580. Borrowers with credit scores between 500 and 579 are now required to make a down payment of at least 10 percent. Those borrowers with credit scores less than 500 are no longer qualified to obtain an FHA-insured mortgage.

These new requirements should help strengthen the MMI Fund by both reducing the claim rate on new loans and decreasing the losses experienced as a result of those claims. These changes will help FHA manage its risk while continuing to provide access to homeownership opportunities for borrowers who have historically performed well.

For details, read Mortgagee Letter 2010-29.

New Proposed Rule
On October 8, HUD published a proposed rule for comment in the Federal Register that would strengthen its authority to force certain lenders to indemnify FHA for insurance claims paid on mortgages that are found not to meet the agency’s guidelines.

This rule is one of the initiatives announced earlier this year as part of FHA’s increased focus on risk management.

HUD’s proposed rule would require all new and existing lenders with the authority to insure mortgages on FHA’s behalf (Lender Insurance or “LI” lenders) to meet stricter performance standards to gain and maintain their approval status.

The proposed rule would create a regulatory framework and codify the legal authority FHA currently has under the National Housing Act. It clarifies the circumstances under which we will require indemnification and the level of loan performance we expect lenders to maintain.

For LI lenders, HUD seeks to force indemnification for violations of FHA origination requirements that are ‘serious and material’ to the extent that the mortgage never should have been endorsed by the lender in the first place, just as FHA would not have insured the mortgage on its own.

Specifically, these lenders may be required to indemnify HUD if they failed to:

1. verify and analyze the creditworthiness, income, and/or employment of the borrower;
2. verify the source of assets brought by the borrower for payment of the required down payment and/or closing costs;
3. address property deficiencies identified in the appraisal affecting the health and safety of the occupants or the structural integrity of the property, or
4. ensure that the property appraisal satisfies FHA appraisal requirements.

HUD may seek indemnification irrespective of whether the violation caused the mortgage default.

Tightening Performance Standards
The proposed rule will also require LI lenders to continually maintain an acceptable claim and default rate, both to gain and preserve this special lender status. We are proposing that for initial and continuing approval to self-insure mortgages, unconditional direct endorsement lenders must demonstrate a default and claim rate at or below 150 percent for the previous two years. This standard would apply to the state/states where the lender does business, rather than a national default/claim average.

The present regulation defines an acceptable claim and default rate as at or below 150 percent of either: (1) the national average rate for all insured mortgages; or (2) if the mortgagee operates in a single state, the average rate for insured mortgages in the state.

The current regulation may make it easier for a single-state lender to meet the acceptable standard if that lender operates in a state that has a high default rate. In contrast, a lender would be disadvantaged by having its claim and default rate compared to the national average if it operates in states with comparatively high default rates, even if the lender is in full compliance with FHA requirements and otherwise eligible for “Lender Insurance” approval.

The proposed methodology will more accurately reflect lender performance by evaluating each lender based on its actual area of operations. Also, FHA will continually monitor lender performance rather than conduct an annual review of each Lender Insurance mortgagee.

In addition, FHA will consider the two-year default and claim performance of either entity in the case of an acquisition or merger without requiring these entities to seek a waiver.
The rule also clarifies that FHA, at its own discretion, without any judicial or administrative action, has the authority to immediately withdraw a lender’s ability to self-insure mortgage loans. The proposed rule has a 60-day public comment period that runs through December 7.

In closing, I want to assure you that we are constantly working to maintain FHA’s sound financial footing so FHA can continue to provide access to credit while meeting the unprecedented demands of the housing market. I will keep you posted as we move forward.

The U.S. Department of Housing and Urban Development (HUD) has announced a new reverse mortgage alternative aimed at cash-strapped seniors who are looking to reduce the up-front costs of tapping their home equity in exchange for lower loan proceeds.

The move comes on the heels of increases in the cost of mortgage insurance. Mortgage insurance is required on all reverse mortgages so that the lender is protected if the senior outlives the value of the home. It also protects the owner in the event the lender goes out of business.

Both issues come into play in a down real estate market, where many homes are worth less than they were at the time the reverse mortgage was issued.

A reverse mortgage historically has enabled senior homeowners to convert part of the equity in their homes into tax-free funds without having to sell the home, give up title or take on a new monthly mortgage payment. Funds obtained from the reverse mortgage are tax-free.

The new HECM Saver is a variation of the federally insured Home Equity Conversion Mortgage (HECM Standard), which allows owners older than 62 to stay in their homes for as long as they wish. More than 130,000 HECMs were originated last year.

According to Vicky Bott, HUD deputy assistant secretary, implementation of the HECM Saver will reduce the amount of mortgage insurance premium (MIP) required at closing. However, the reduced upfront cost also reduces the maximum amount an owner can take out.

The HECM Saver will have an upfront MIP of .01 percent of the maximum claim amount (the value of the home or $625,500, whichever is less). The HECM Standard upfront MIP remains at 2 percent of the maximum claim amount.

In addition, both products will have an annual MIP of 1.25 percent. This is an increase in the now HECM Standard MIP, which has been .5 percent annually.

The HECM Saver has principal limits between 10 percent and 18 percent less than the HECM Standard principal limits, thus offering consumers the option of lower proceeds in exchange for lower costs. According to HUD, the lesser decrease in principal limits will be for younger borrowers and the larger for older borrowers.

The changes were made because the funds for reverse mortgages have dwindled. The HECM portion of the overall FHA Mortgage Insurance fund pool of funds is down significantly and no private lender has resurfaced. Private reverse mortgage “jumbo” funds have virtually evaporated given the present credit crisis.

According to Peter Bell, president of the National Reverse Mortgage Lenders Association, reverse mortgages are increasingly being used by seniors to pay off defaulted mortgages and avoid foreclosure, thus preserving their ability to remain in their homes.

A reverse mortgage also can be an effective tool to relieve the burden of current loan payments or moving from the home. In many cases, homeowners use reverse mortgages to pay off existing “forward” mortgages, thus eliminating burdensome payments on their current mortgages and freeing up cash for living and health care expenses.

While reverse mortgages have been used primarily as a way to keep seniors in their homes, they have other uses as well. The Housing and Economic Recovery Act of 2008 approved the HECM for purchasing homes as well. The move allows older homeowners to make a large down payment on a new home and then utilize the reverse mortgage as permanent financing.

The same law reduced the maximum loan fee on reverse mortgages to 2 percent on the initial $200,000 of the home’s value and 1 percent on the balance thereafter, with a cap of $6,000. Previously, HECM fees were capped at 2 percent of the home’s value or the county lending limit, whichever was lower. These fees are in addition to the mortgage insurance premium.

If you are a senior in the market for a reverse mortgage, shop around for the best program for you. Some lenders have reduced fees for servicing, origination and title insurance for fixed-rate HECMs. Lump-sum payouts, monthly draws, lines of credit — or combinations of these options — are now part of the reverse mortgage mainstream.

Questions about the validity of the foreclosure process continue to spread and may have reached the Federal Housing Administration.

Washington advisory firm Patton Boggs LLP said the federal agency may “soon be taking steps to address faulty foreclosures of FHA-insured mortgages as a result of the recent foreclosure furor.”

The firm said it expects the Mortgagee Review Board of theDepartment of Housing and Urban Development“will probably wade into the foreclosure crisis.”

A few weeks ago, the Federal Reserve announced its own plans to review foreclosure practices at the nation’s largest mortgage servicing operations. Most the biggest banks in the U.S. suspended their foreclosure process after allegations of improper documentation and illegal affidavit signing were disclosed. Attorneys general in all 50 states have initiated their own reviews of the foreclosure procedures of mortgage servicers.

The board can sanction, suspend or even terminate lenders and servicers that are found to have erred during a foreclosure on a FHA-insured mortgage. Patton Boggs said the board also has the authority to assess and collect penalties from the perpetrators for violations of HUD regulations and guidance.

“Mortgagees who service FHA-approved mortgages should be concerned about the likelihood of FHA action. Loss mitigation and foreclosure procedures and case files of foreclosures should be carefully reviewed,” according to Patton Boggs.