Nancy West
Marketing and Outreach Specialist, Housing and Urban Development (HUD)
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This week Bruce is joined by Nancy West. Nancy is a marketing and outreach specialist for the Department of Housing and Urban Development. She has been working in the mortgage industry since 1977. Nancy joined in 2004, and in 2006 she accepted one of four nationwide marketing and outreach specialist positions.
Nancy works primarily on educating industry partners to utilize FHA programs. She also explains the finer details of FHA programs to congressional leaders. She participates in many industry conventions, and she also outreaches to consumers through foreclosure and loss mitigation workshops.
Nancy said someone could have worked in the mortgage industry from 2002 to 2007 and never worked with an FHA loan. This was because of the loan limits at that time. The FHA loan limit at that time was $362,790, and the average sale price was over $500,000. Consumers didn’t want to put down over $200,000 to cover the deference between the purchase price and FHA insured loan limits.
Nancy spent a good portion of her career underwriting loans for Fannie Mae, Freddie Mac, FHA, VA, and stated income option ARMs. Nancy noticed many of stated income loans she was receiving appeared to have over-stated income. She turned down many loans as an underwriter, but some lenders were not concerned with quality control.
People can make income documents look very real now because of technology. However, if you used your with, you could search incomes for certain job positions within specific areas. The average income amount you found for the borrower’s job would give you a good idea of whether or not someone was committing fraud on their stated income.
Nancy works in California, Arizona, Nevada, Washington, Oregon, Nevada, Alaska, Hawaii, and Idaho. Arizona, Nevada, and California are three of the most damaged states.
FHA was not a big participant when subprime loans were booming. This prevented HUD from taking the same level of losses. Bruce would imagine that HUD has had some delinquencies from 2008 and 2009. Nancy claims that this is not true. In California, HUD’s delinquency rate for 2008 and 2009 is only at 2.7 percent. Bruce considers that very healthy. FHA never had a stated income program. Over the last two years, FHA has insured over 500,000 loans.
Regardless of the down payment, you always have to qualify for a mortgage. An effort was recently made to raise the FHA down payment limit, but it did not pass. A new bill is passing through congress which would increase down payment requirements according to FICO scores. Right now, FHA is looking to stabilize the market, and FHA is weighing risks and not sure if increasing the downpayment will help in stabilizing the market.
The loan limit in California is $729,760. This will last through December 31, 2010, but we are not sure if this will be extended. There is some legislation out right now which can increase the loan limit for high priced areas.
The down payment percentage does not increase as the price increases. In California, you can go up to 4 units, and you could then get a loan limit of $1,403,400. As long as you are owner occupied the down payment would remain at 3.5 percent.
The higher loan balance has changed who borrows money. The average FICO score for borrowers has increased from 660 to 680. There are a lot of refinances being made right now.
When someone is buying an owner occupied residence, a 100 percent gift fund is allowed to family members, employers and a HUD approved non-profit organizations.
Non-owner occupant loans are only allowed if the individual is buying a HUD REO with 25 percent down. It is also okay for non-owner occupants to streamline refinance on a home that is already owned.
If a borrower has had a bankruptcy, they must wait a minimum of 2 years before being considered. For foreclosures, short sales, or deeds-in-lieu, they must wait 3 years. However, there are exceptions for documented, extenuating circumstances. For example, if there is a death of a child, and the borrower could not pay for expensive medical bills, then they may be considered an exception. For these people, they may only have to wait 1 year.
Sometimes lenders are not aligned with the policies of FHA. FHA’s guidelines are considered minimum guidelines. Almost every lender has extended guidelines. FHA does not have a FICO score requirement, but most lenders have a minimum of 580 FICO score. There are various reasons for lender’s adding overlays to FHA guidelines. Stating that to protect themselves from their own mistakes does not give the full picture of what I said or meant. That is only one of the possible reasons, others include examination of own portfolio to determine risks associated with certain types of borrowers and programs, as well as what the investors purchasing these loans in the market want as added layers of protection.
FHA does not actually make loans, it only insures the mortgage. The difference between FHA and private mortgage insurance companies is that FHA insures 100 percent of loans. Because of this, the lender does not have to worry about suffering from a loss. The reason for extended lending guidelines is to protect themselves from their own mistakes.
FHA audits a portion of all their mortgages up front. FHA audits 100 percent of all reverse mortgages, because they are very protective of senior citizens. If fraud is found on a mortgage, then they can ask for an indemnification. If a pattern of fraud is found, then they will remove the lender. FHA has stepped up its auditing of lenders. It now has the ability to pursue lenders more quickly than in the past.
People have a misconception about the home conditions required for FHA. FHA only demands that a house be safe, sound, secure, and free of health issues. FHA does not mandate termite or septic reports.
FHA does not require the use of appraisal management companies, but the lender may require use of such company as it is their right to add overlays and require it. These appraisers are approved by taking a test online, and if they are successful then they are made an FHA appraiser.
All homes repossessed through HUD are listed online. There is a place called Statistics where you can check on what bids have been made on which houses, so you can feel comfortable with the process. Owner occupants are given a ten day priority bidding period for buying HUD REOs. Investors can participate in the bidding process after ten days. In the future, HUD may allow investors to bid on these properties in less than 10 days depending on the condition of the property, but this has not happened yet.
An investor is not eligible to buy an investment property and use FHA 203K loans under current guidelines. However, 203K loans have never gone away for investors on HUD REOs. Bruce did not know this. Unfortunately, investors are still required to put down 25 percent.
When Bruce talked to Nancy two years ago, investors were still required to wait 90 days to resell their houses. There are cases where flipping houses can encourage fraud, but for the most part, investors involved in flipping are doing honest business. However, it should be noted that if a property resells within 90 days and is resold for more than 20% of the investor’s purchase price at auction, there are added requirements and may perhaps not be eligible for FHA financing.
Bruce and Nancy will cover more on HUD approved non-profit agencies next session.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.