one more FHA question for Poppy

[aimster]

Poppy -

Flagstar intially thought that FHA would go up to 97.75% of the value of our home, but said they calculated our GFE incorrectly and because our combined loan to value is over 100%, that it's considered a cash out refi and they can only go up to 95%. Can you confirm that? I can't find in online anywhere, that over 100% CLTV rule thingie.

Poppy, again, I have so much to tell you, and I'm about to burst at the seams with joy about all of it, but I want to put our success thread all together when it's all signed and over with. I really don't want to jinx all of this. In the meantime, I will tell you that HSBC HAS AGREED TO FORGIVE US OF A SMALL PORTION OF OUR BALANCE IN ORDER TO ALLOW US TO REFINANCE OUT OF OUR CURRENT (NEVER BEEN LATE ON) MORTGAGE WITH THEM. YES, THAT'S RIGHT, THEY JUST CALLED ME AND TOLD ME FINE, GO AWAY, WE'LL REDUCE THE PRINCIPAL A BIT AND SEND YOU A 1099 AT TAX TIME. It's a small amount (to them, not to us), but they had initially agreed to modify us for one year, and I convinced them to instead take the amount I will save off our principal so we can get refinance with Flagstar!!

Whew - that felt good just to type. More to come soon...!!!!!!

[aimster]

Just to confirm, I know FHA Secure does not care of CLTV, but I'm curious about the 97.75% versus the 95% (considered a cash out refi since it's over 100%). Is that accurate?

OK, technically speaking.....did they forgive the principle or the prepayment? In other words did you still have a prepayment with the jerks? Bucks off in lieu of modification, HSBC is being rather good, get it in writing, please. I had one once where I got them to knock of over 50% of the Balance.....they were so stupid.....but the client was a happy camper, until she got the 1099, was 52,000.00 plus or minus and they settled for 15,500.00. Yes it was HSBC. They made some big, big mistakes, was about 4 years ago.....

Ok onto the FHA questions, FHA Regular Loan will allow a 95% cash out refi, with CLTV of 97.75%.....does that make sense... no, but I understand it...that means you can subordinate an itty bitty second to the 95% cash out transaction...

The FHA Secure allows a 97.75% LTV and up to what ever CLTV....like 150% CLTV if necessary. However, you can not pull cash out on the FHA Secure, paying back payments, closing costs (NRCC's), prepayment penalties and Pre-Paids is not considered cash out. Paying bills, cash in hand, paying uncle Walt, that is cash out. Including the Second if it was a Purchase Money Second is not a cash out transaction, but including the second if it was other than a purchase money loan at the time of inception, into one big loan is Cash Out....

Now if you are refinancing the first and the second, then.....it is 95% LTV...cause that is cash out with the second folding into the first to create one big loan.....the second unless it was a purchase money 2nd as clearly reflected in the Final HUD-1 is considered a cash out situation when combined into one loan with FHA.

Now I know that you are confused, but so am I when I do these things....easy rule of thumb....Purchase Money Second as reflected on Final HUD-1, not cash out. Refinance Second as reflected on Final HUD-1, cash out. So if you combine the two loans that is the rule.

Now if there is another feature to this that I am unaware of let me know....I have always hated refi rules and so do other underwriters, cause we get lost in our minds with the well, what....stuff.....

[aimster]

Wow, you are just FULL of information!

I am a little confused, but some of that (the part I needed to know) did make sense.

We have never been late or missed a payment on our mortgage. Our pre-payment penalty expired back in February. Our rate was going to adjust in March, 2008, but HSBC granted us a one year rate freeze. As you may remember, we were having to come up with lots of money to bridge the gap between what our loan amount is and what our house is worth to refi into an FHA loan. We paid our March payment to them, but I asked them to "forgive" us of the amount that they save us by freezing our rate for a year to assist us in coming up with the $$ to refinance. Initially, of course, I got several no's, and was told over and over, "we are a business, we aren't going to let you off the hook so you can take your business somewhere else". Well, I must have a made a good case, cuz they did grant us a reduction and the gal is personally providing us with the lowered payoff amount so we can refinance. I simply had to provide her with our Good Faith Estimate to ensure that yes, we are in fact asking for the reduction in order to refinance.

More to come later, but kudos to HSBC for somewhat coming around these days.

On another note, even if they send us a 1099, that amount isn't taxable, is it, since the Pres signed into the law the Mortgage Forgiveness Act? At this point, I don't care, I'm just happy to be moving on.

P.S. If there is one thing I've learned in this process, it's to get EVERYTHING in writing.

Thanks again, Poppy.

Check with a CPA on that 1099 issue, if this was a refinance transaction that they are forgiving the $$$ on I suspect that you will owe the "man"/IRS...this area is very confusing as well and I am not a tax expert.

Read the refinance stuff, there is enough crammed into my little pea sized brain that often my teeth hurt.... LOL

Get everything in writing with this group...if you got the reduction in order to refi from them you are amount the few at this point, we will see more of this, and the tax implications will vary from case to case and the original purpose of the loan that they are reducing. The problem is going to be that I think they are going to blanket issue those 1099's to avoid problems themselves and will not take time to determine what class you fall in --- no tax liability or tax liability....watch that happen, mark my words....

[tim c]

I have been following this website for months and just wanted to say thank you for all your help.
My Q is for Poppy about the FHA secure. I Purchased my home in 2006 for $585,000. My first mortgage is with Countrywide for $467,000 at 8.25% and my 2nd is w/ ASC for $87,000 for 11.3%, bring the total to $554,000. My online appraisal is showing $524,000. I am currently trying to have my loan modified w/ CW. I called C/W today and asked if my 2nd mortgage was subordinate to the first, would I qualify for a FHA Secure loan. The rep from C/W told me no. He said that if even if the 2nd mortgage was subordinate, there would still not be enough equity in my house to be approved for the loan. Is this true?

Thank you for all your help.

[aimster]

We were eligible for and refinanced FHA Secure, but we had to come up with A LOT of money to bring to the table to close on our refinance...(like $42,000 A LOT). That amount was to bridge the gap between what our house was worth and what we owed, to cover the minimum closing costs (compared to what we paid 3 years ago for a disgusting, toxic loan) and set aside necessary funds for escrow.

[Moe Bedard]

Tim,

Did Countrywide already do an appraisal as a part of the modification?
Are you behind on any of your payments?
When is your rate on the first set to adjust?

[tim c]

Thank you for the quick response.

C/W did a online appraisal when I called today. I have never been late on my mortgage and my rate will adjust next month on April 1st.

On line appraisal....HAH!!!!!!!! What did they say the value was? What is your reasonable estimate of valuation and why would you go to Country Wide for your refinance....????? Sorry, but their loan officers do not have the training required and the ones on the phone are just that...telemarketers, not loan officers....

Let me know the valuation that they got and the one that you deem reasonable please.

[tim c]

I only called CW because I'm desperate. I share your strong dislike for them. Their online appraisal came in at $524,000. I think a reasonable appraisal would be around $540,000-$550,000.

Well they just lost your business....call your credit union or call Flagstar and tell them that you want to do either an FHA Secure or FHA regular loan depending on the value that they can obtain with a valid FHA Appraisal.

See if you prequalify for the FHA loan and go forward with another lender....I do recommend your credit union first and then Flagstar if you do not have a credit union.

As long as your value exceeds the first by more than 3% you can do the FHA Secure product and then subordinate the Second Mortgage, this is allowed by FHA in the FHA Secure program. If Country Wide is so ignorant of the program, take your business else where, then all Country Wide has to do is subordinate the existing Second Mortgage to the FHA Secure loan that you get.

They should be compelled to Subordinate as you are more able to make your payments on the larger loan and they have lowered their risk exposure. FHA does allow the second to exceed the value of the property under the FHA Secure program as long as you have the 97% LTV to allow the first to be placed on the property to payoff the existing lien with Country Wide on the First mortgage.

So do not bother with the idiots....go to another lender you are not forced to use the dolts....

[tim c]

I just want to thank you again for all your help.

I called a local credit union and Flagstar bank. Flagstar told me that there was no way the could refinance the first mortgage even if the 2nd was to subordinate. He said that the value of the home had to exceed both mortgages by 3% not just the first one. Is there anyone you can recommend that I can call direct? Do you think I should get a lawyer involved? I'm still waiting to hear from the credit union. I fell that I am going to get the same response that I got from Flagstar.

Flagstar was wrong...I am a DE FHA Underwriter...and the fact is that you can subordinate the second even if it exceeds the value of the property, this is why they have the FHA Secure....you can not do that with a regular FHA loan, only with FHA Secure....Call Flagstar back and ask to speak with an FHA Secure Specialist....a Loan Officer that knows FHA Secure Guidelines.

WHAT IS FHASecure

FHASecure is a refinancing option that gives homeowners with non-FHA adjustable rate mortgages (ARMs), current or delinquent and regardless of reset status, the ability to refinance into a FHA-insured mortgage. With FHASecure, the lender will not automatically disqualify you because you are delinquent on your loan, and the lender may offer you a second mortgage to make up the difference between the value of your property and what you owe.

This is from FHA and they speak about a new second, but they also allow the old second to subordinate behind the new FHA Secure loan at higher then the property value.....this was designed to accommodate the problem that you have, i.e. underwater when the second mortgage is added into the new First Loan Equation......

What this means is that the second can exceed the value of the property...pure and simple and nothing has changed...

Here is another FHA Secure bulletin to Lenders....regarding seconds and CLTV limits....again the Second may exceed the value of the property...

Under FHASecure, there is no CLTV limit or a seasoning requirement for purchase money seconds. However, lenders are again reminded of existing FHA policy: if any portion of the funds of an equity line of credit in excess of $1,000 was advanced within the past 12 months and was used for purposes other than repairs and rehabilitation of the property, the line of credit is not eligible for inclusion in the new FHA mortgage (HUD Handbook 4155.1 REV-5, paragraph 1-11 A 2).

Was your second a HELOC with a line of credit that extended credit in the last 12 months? You indicate in your post that the second was a puchase money second and as such falls within the rules.....really does...

Now if Flagstar does not have a pool available for the FHASecure with excessive CLTV's they may as an Lender not make the product available, but I doubt that they are huge and have the ability to do this for the good borrower that has FICO's in excess of 600 or better. They have been in the past very aggressive as is GMAC in this line of lending.....they have been very competent and capable in this arena....I am of the opinion that they either have a loan officer that does not understand the program or they as a Lender do not have an outlet for the excessive CLTV's.

[tim c]

I'm still at it. I contacted a consultant from Wells Fargo. He told me he checked the guidlines and he didn't see any red flags. He said I might be able to get a FHA secure streamline. Wish me luck. Thanks for the help. I'll keep you posted.

Wells was one of the first to come out with the product on their platforms, as much as I hate to say it they have a great community reinvestment platform and this falls in that category.