What Are the Requirements of FHA Secure?

[mochalover]

I am confused about what the requirements are to obtain an FHA Secure loan. Can someone explain it to me in layman terms? I have a home that I paid $120,000 for in Feb, 2005, 80/20 split. In Nov, 2007 it appraised at $101,000, I have no equity. One 30 day late which was in June 2007, it was not my fault but I have been paying EMC via phone ever since. That is my only late throughout the last three years. Would I qualify?

[Moe Bedard]

Hi Mochalover,
For what you have indicated the FHA Secure plan would not be a viable option because under the plan the new loan must not exceed 97% of the appraised value of the property........meaning you would have to have at least 3% equity.

[Moe Bedard]

Oh if it was that easy to explain the FHA Secure in layman's terms. There are so many in and outs with just an FHA loan and then the SECURE and it can complicate things.

Poppy is very familiar withe the FHA Secure Loan and maybe she can help you more with it.

Subordinate Financing under the FHA Secure Initiative: If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHA Secure first mortgage and any subordinate lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios.

Maximum Loan to Value Ratios for the FHA Secure

States With Closing Costs at or Below 2.1% of the Sales Pirce

• 98.75% for properties with appraised values equal or less than $50,000
• 97.65% for properties appraised in excess of $50,000 and not greater than $125,000
• 97.15% for properties appraised in excess of $125,000

State With Closing Costs Above 2.1% of Sales Price

• 98.75% for properties with appraised value equals or less than $50,000
• 97.75% for properties apprased in excess of $50,000

[californiagrape]

FHA Secure: guidelines requires no lates 6months prior to resetting of the interest rate. - has your loan reset to a higher interest rate?

Can you get any written proof that the late was not your fault?

If my calculations are correct your current first mtg is 95% of your $101k appraisal. As Moe said check your state for the max 1st ltv. (hopefully the FHA reform Act will be signed into law soon and reduce minimum equity RQ to either 1.5% or 0%. Mostly likely 1.5%)

Ck with Flag Star Bank, Wells Fargo Bank, First Horizon Mtg;they offer the FHA Secure loan product.

Good Luck.

[mochalover]

Well my one late was in June '07 so I think I'm o.k. with the one 30 day late. However, I had the bank send a letter to EMC regarding it was their error and not mine but EMC said it was still my responsiblity. Also my first mortgage is currently at $95,000.00 with American Serivicing Company and my 2nd mortgage (HELOC) is with EMC and is for $24,000.00. So I'm not sure does that make me eligible for the FHA Secure? There is no equity in my home. My loan is set to increase in March '08 and I have sent in the required paperwork for a loan modification. It is currently being reviewed and as a courtesy ASC froze my rate for the month of March since they said they would probably still be reviewing the possible modification.

[Andrew]

Whats your rate and payments like?

[mochalover]

Currently my 1st mortgage is 738.00 (I/O) currently 5.5% interest this includes my taxes and my 2nd is variable HELOC that in the past three years has ranged from 10-13% each month, the payment is roughly averages about 200-238.00. Then I also pay my association fee which is 230.00.

[Andrew]

Are you paying more the 738 interest only payment? That rate is real good on the first. Is it fixed, ballon at end, or adjustable?

[mochalover]

It is an adjustable rate interest only plus my taxes and is due to increase in March '08 and my payments will increase by $200.00 then. However, as I mentioned American Servicing Company is reviewing a possible modification.

[californiagrape]

ck with your local lender to see about a regular FHA not FHA Secure loan.. refinance only the first up to the max loan to value you can for your state and then request the 2nd to subordinate to the new first. (meaning the second remains in 2nd position) let them know you are refinancing the first as a rate and term (no cash out) and also inform them that your refinance is only to secure a fixed rate. (ie) protecting your ability to keep paying them on time.

show the bank that is refinancing your first the letter from your bank that the late on the 2nd was their error.

Good luck.

[mochalover]

Thank you for your input but I'm not sure how I can do this if I don't have any equity? Maybe I'm just not understanding, which is not beyond the realm of possiblity , because being able to refinance would be a dream come true.

[californiagrape]

if you just look at your first mortgage and divide it by the value of your home, what do you get.. based on your numbers i read you are at 95% just looking at your first mtg. Your second is not included in the calc. (for the new FHA loan b/c FHA does not care about how far the second mtg is positioned) meaning the second will (hopefully subordinate to the new FHA loan)

FHA Secure allows the first only to be refinanced at the 97% LTV of the property value and leave the second in place (subordinate to the first) with a greater CLTV than the value of the property.

So if your home was worth 100,000.00 and you had a first for 93000.00 and second for 25000.00 you can borrow 97000.00 to payoff the first and closing costs and leave the second for a 97% LTV and a 122% CLTV. This is a program designed to get the borrower out of the toxic ARM mortgages by FHA rolled out in September and October of 2007.

The late payment in 06/2007 has to have a 6 month seasoning from the date of the last late payment, the reason is acceptable after that 6 months has elapsed.

[californiagrape]

now the hard part is getting the second mtg lender to subordinate to the new first.. it make since to. But we are hearing a lot of lenders won't subordinate eventhough it is in everyones best interest..

Poppy: do you have any strategies to get the second to subordinate to the new FHA first.. (do you know which lenders are actually subordinating over 100% cltv??)

There is always prayer and belief to get us through.

[mochalover]

Hello everyone,

I called FHA 800-225-5342 and they confirmed that it did appear that I could get the 1st mortgage refinanced with FHASecure since my home appraised at $101,000 and my first mortgage is for 96,000. The counselor stated that my HELOC would just be subordinate to the first. However, I don't know what that means exactly.

That means that you get a new first and leave the old second HELOC in place, as the second,just they way it is now, but.....the first is a lot more palatable. So find a direct FHA lender now, do not go to a Broker, you run the risk of fees and charges that although allowable by FHA that are a lot higher than what that Direct Lender will charge you.

You are not going to touch the second except to have the lender request a subordination agreement beyond that you get a manageable new first mortgage fixed rate 30 year vanilla product...reasonable fixed rate should be about 6.50 or less in today's world and stop worrying.

[mochalover]

Thank you Poppy! Now if everyone were like you in the "mortgage world" I could have a lot less sleepless nights. Thank you again.

Grape - the seconds are appearing to do it out of self preservation.....if the borrower can continue paying on the first, then.....goes to reason that the second has a better chance of realizing their money. The second as we all know in the industry is behind the eight ball with few remedies if that first goes south. So, we have not seen any issues, just happy subordinations filing after the new first. I only had one that was at issue and it was not on the FHA secure program and it was an ugly, ugly issue back in September when I was on a platform out in CA....the second was a Credit Union and took an intractable position about subordinating, they did not have to.....actually they had one of those older notes and T/D's that did state they did not have to nor would they subordinate. They wanted the new first, so they held out.

The institutional T/D's that are boiler plating now on the Seconds for the most part will not deny subordination where it is no greater risk than they are already assuming in the present position. The FHA Secure does not necessarily ratchet up the CLTV all that much from their present position, upside down. Granted the values have declined, but would you want to the the second behind one of these toxic puppies and have nothing, or go behind a reasonable chance at survival. I will take the reasonable chance of survival, in this case I would close the HELOC if I were the 2nd to no further draws, and subordinate my happy self.

Sorry I am so hard on Brokers, there are good ones out there, but I get so tired of what I see day in and day out. Some of the situations are just down right awful and an embarrassment on the industry.

Mocha - are you telling me that I should go back to origination in the Mortgage World? Believe me with what I have seen here, I am tempted, the situations that people have been put in are down right awful. I was one of those though that told the borrower, no you do not want that product it will set you up for failure. Wait, lets get things fixed and then even if it takes a year, which sometimes it did, we will get the loan through on a safe loan. Got out of origination cause I could not compete with the liars, scammers, frauders, would not sell these products....take your pick. Everyone wanted everything NOW, not later and jumped on these S*&%%# loans, I gave up.

[californiagrape]

poppy:

which banks are you having success with on subordinating to a new FHA Secure 1st. i have spoken to a lot of LO and they are telling me that they are not having any luck with the subordination even though the numbers are in line.. i personal spoke with Sun Trust and they said they will not subordinate above 95% they rather take the house back.. (well the original 2nd mtg today is at 110% based off the value dropping) their rational is $%&..

can you help.. and is their a special verbage are something we are missing.. the numbers dont lie with a refi they see it all.

[sevendipity]

How does one find an FHA specific person vs a broker? I called the FHA Secure hotline and they gave me banks that do FHA loans, but not many of them do the FHA Secure, they do the basic FHA loans. So I had to call a bunch of them and when I finally found someone who knew what the FHA Secure was, she baited and switched me and I got denied for what ever she switched me to. Then no mention was made of the FHA Secure. Does anyone know any FHA specific people?

[mochalover]

When I called the 800- number for FHA that I listed in this discussion earlier, the customer service person asked where I lived and gave me the number of Flagstar bank. However, the person I spoke with has not been good about returning phone calls. The first day they connected me to him, he said he had a dr.'s appt and he would call me back, well he didn't. I waited two days and called him again and he told me he had a fever of 102 and could he call me back. Then last night he finally texted me back and told me to call him when I got a chance. However, living in Michigan I am having my doubts that my home will still appraise at the $101,000 that it did in November. Just out of curiosity does anyone know if FHA appraisals are different from other appraisals?

Yes FHA Appraisals are different, they now do not require some of the old forms and "stuff" that they used to, but they do require that all sanitary, mechanical and certain issues be determined as habitable and in good working condition/order.....broken windows and peeling paint must be repaired, roofs must meet a 10 year life standard, etc..... There has to be a certain standard on FHA properties that FHA requires to be met, the reason is that they are chartered to make loans to a low and moderate income sector of the population, often first time home buyers and the loan is insured by them a government agency. So for this reason they are more restrictive in the condition of the property.

Value is value, a subjective issue at best and valuation should be no different for an FHA refinance transaction or a Conventional transaction. Now the problem that has occurred is that the appraisals during this time of hyper inflation of property were just that INFLATED in their value with some questionable grid adjustments on the comps.

Without going into the entire manual these are the highlights.

[californiagrape]

Try:

Wells Fargo Bank, Flag Star Bank or First Horizon Mtg: these are the banks i use as a broker here in California for the FHA Secure program.

Good Luck

[californiagrape]

Poppy:

i have a client that is in a 3/1 ARM with Countrywide (resets in Oct 2008) and they have a BofA HELOC (zero balance). the property is upside down here in Cali, what do you think if the client pulls cash out of his unused HELOC and pays down his first to allow a new FHA cashout(due to HELOC pull) and asks BofA to subordinate. this is his only hope....

CW did offer to freeze his rate for two years: they told him to call back in August. (timely with the BofA merger to complete in the 3rd Q; meaning will BofA support that offer then): plus in two years his rate will reset and he will still be underwater due to RE mkt (all a guess but probably relatively accurate)

PS: he has two rentals (i believe either underwater of close to it )

thx