Housing Today
Summer 2004

Information by State  Print version  Email this to a friend       in this issue:     Zero Down Loans Expected to Increase Minority Homeownership   HUD Offers New Adjustable-Rate Mortgage Products   HUD Provides Elderly with One-Stop Information Center   Technology Update   Rules and Regulations Update   Links You'll Like

Zero Down Loans Expected to Increase Minority Homeownership

Many American families who pay their bills on time and have the income necessary to support a monthly mortgage payment have difficulty saving up for a downpayment. HUD recently proposed adding a zero downpayment option to complement the traditional Section 203(b) mortgage insured by the Federal Housing Administration (FHA), which requires a 3 percent downpayment, as part of its FY 2005 budget request. The Zero Downpayment Initiative will enable creditworthy but cash poor families to borrow the full purchase price of a home as well as finance their closing costs.

“Offering FHA mortgages with no downpayment will unlock the door to homeownership for hundreds of thousands of American families, particularly minorities,” Secretary Alphonso Jackson said. HUD developed the proposed program as one part of the Bush Administration’s efforts to close the minority homeownership gap and create 5.5 million new minority homeowners by the end of the decade. With an estimated 150,000 families becoming homeowners as a result of the Zero Downpayment Initiative during the first year alone, this program would help achieve that goal.

The Zero Downpayment program would be available only to first-time homebuyers for the purchase of one- to three-unit properties. Borrowers taking advantage of the program would be required to meet the same underwriting requirements — such as payment-to-income ratios and credit standards — as all other FHA borrowers. They would also be required to meet additional requirements designed to protect the Mutual Mortgage Insurance (MMI) Fund and minimize defaults.

All Zero Downpayment applications would be subject to evaluation using FHA’s TOTAL (Technology Open to Approved Lenders) Mortgage Scorecard risk assessment tool. The TOTAL Scorecard helps predict whether a borrower is a good or bad risk based on creditworthiness. This system is already used by FHA lenders in conjunction with an automated underwriting system (AUS). About 75 percent of current FHA-insured loans are risk-assessed by the TOTAL Scorecard through an AUS.

Borrowers would also be required to participate in a one-on-one housing counseling program before entering into a sales contract. HUD-approved housing counseling agencies provide a wide range of services designed to help individuals and families improve their housing situations. They can provide potential homeowners with information on preparing household budgets, saving for a downpayment, developing or improving credit records, and avoiding predatory lending practices. Recent studies, such as one conducted by Freddie Mac, indicate that housing counseling has a very positive effect on reducing mortgage delinquency. As part of its FY 2005 budget request, HUD increased funding for housing counseling by $5 million. John C. Weicher, Assistant Secretary for Housing–Federal Housing Commissioner, estimates that about half of the requested increase will be spent in conjunction with the Zero Downpayment Initiative.

Finally, buyers taking advantage of the new program will be subject to a slightly higher mortgage premium, which will offset the greater risk to the MMI. Currently, FHA borrowers pay an upfront insurance premium of 1.5 percent of the loan value and a 0.5 percent annual premium. Zero Downpayment borrowers would pay an upfront premium of 2.25 percent and annual premiums of 0.75 percent. Zero Downpayment borrowers can expect to pay about $50 more per month on a $100,000 mortgage than traditional FHA buyers for the first five years. After five years, the annual premium drops back to the 0.5 percent level for the remaining life of the loan.

Federal Housing Commissioner Weicher summed up the benefits offered by the program, stating, “This initiative would not only address a major hurdle to homeownership and allow many renters to afford their own home, it would help these families build wealth and become true stakeholders in their communities.”

Disclaimer: All information contained in the above article is provided for information purposes only. No warranty is either expressed or implied. This program is pending Congressional approval and funding. Under no circumstances will HUD be liable for any loss or damage caused by a user's reliance on information obtained through this article.

HUD Offers New Adjustable-Rate Mortgage Products

HUD recently expanded its offerings of adjustable-rate mortgage (ARM) products on FHA-insured mortgages in an effort to increase opportunities for homeownership, particularly for minority families. An estimated 40,000 families a year are expected to take advantage of the new hybrid ARMs.

"President Bush challenged all of us to work to close the minority homeownership gap," Secretary Jackson said. "This will be an important tool to help create such opportunities for minorities and all Americans who are on the doorstep of homeownership."

Under the new rule that went into effect on April 10, potential homebuyers can choose ARM periods of three, five, seven or ten years, depending on their needs. The interest rate for three-year and five-year Arms cannot change by more than 1 percent per year after the fixed-payment period is over, with a maximum change of 5 percent for the life of the loan. For seven-year and 10-year Arms, the maximums are 2 percent annually and 6 percent for the life of the loan.

Currently, the only FHA-insured ARM that is available has a one-year fixed payment period, with caps of 1 percent a year and 5 percent for the remainder of the loan. That loan will still be available.

"For the first time ever, more than half of all minority households are now homeowners," said Federal Housing Commissioner Weicher. "President's Bush initiative will continue the growth we have seen over the last three years and continue to close the minority homeownership gap."

HUD Provides Elderly with One-Stop Information Center

Assisted living is one of the fastest growing segments in the overall housing industry, and the need for affordable assisted living options for elderly public housing residents is a priority for many rural and low-income communities.

Assistive health care and daily living services — such as nursing, nutrition and meals, case management and homemaking — help seniors to avoid institutionalization and remain independent as they age. The complexity of designing, financing and operating senior housing that incorporates assistive services can stymie the efforts of nonprofit organizations whose mission is to meet the needs of very low-income seniors.

Recently, HUD kicked off the Senior Housing Information Center to provide a set of tools to help public and tribally designated housing authorities (PHAs and TDHAs) — to build or modernize housing projects that allow the elderly to age in place and avoid unnecessary institutionalization.

Michael Liu, HUD’s Assistant Secretary for Public and Indian Housing (PIH), launched the project in 2001 by forming a senior housing committee to provide technical assistance for PHAs and TDHAs. A Call Center Committee began responding to inquiries from PHAs and TDHAs in that year. A committee of assisted living experts from around the country helped design the website for the Senior Housing Information Center unveiled earlier this year, according to David Fleischman, PIH, Call Center Committee Chairperson.

The website includes step-by-step information on assisted living operations, real estate development, and state and federal healthcare agency financing requirements, including the following tools:

• A Financial Feasibility Analysis Model, provided by NCB Development Corporation. The free model provides a preliminary spread sheet analysis of operating and real estate development costs and requirements based on best practices models of affordable assisted living. PHAs and TDHAs can customize the spread sheet with specific local information — such as facility size, state reimbursements for publicly supported tenants, and local costs and labor rates — to determine financial viability of projected projects.
  
• Internet links to state Medicaid agencies and the specific steps PHAs and TDHAs have to take to get funding for health care services for elderly residents from the state and the federal Centers for Medicare and Medicaid Services (CMS), an agency of the Department of Health and Human Services (HHS). In May, the HUD website included a link to a new CMS grant program supporting integrated health and housing demonstration programs.
  
• Descriptions of 11 state programs that were chosen as Best Practices Innovative Models by the Call Center Committee. The PHAs involved with these programs describe the real-world challenges they faced and lessons they learned in developing assisted senior living programs. The PHAs used both competitive and discretional funding in developing these model programs. According to Fleischman, the 11 PHAs receive information requests on their projects and experiences from around the country on a regular basis.

As chairperson for both the senior housing initiative and Call Center Committees, Fleischman has been screening and referring calls to appropriate committee members. He added that the website mailbox and the toll-free call center duties were being transferred to an independent contractor this summer.

Technology Update

The Partnership for Advancing Technology in Housing (PATH), with the support of HUD as well as partners in public and private sector, promotes the development, introduction and adoption of innovative building technologies and processes that improve the affordability, safety and efficiency of the nation’s housing stock. These technologies reflect the most up-to-date approaches to increasing housing quality and durability, affordability, energy efficiency, environmental performance and safety. In addition, PATH offers visitors to its website access to online tools to help them improve the energy efficiency of existing structures undergoing renovation and select the most durable and cost-effective materials for individual building and renovation projects.

The Energy Efficient Rehab Advisor is a web-based tool designed to help contractors, homeowners, facility managers, and public and private sector housing organizations identify and incorporate energy efficient materials and systems in the renovation of existing residences. The tool provides recommendations based on user-provided information concerning the type of building, local climate and age of the structure.

Users can request information for whole house improvements, individual room remodeling or measures related to specific systems, such as wiring, plumbing or window replacement. Recommendations include estimates of up-front costs related to individual projects, the resulting annual savings and payback time. Icons categorize individual measures based on their contributions to comfort, durability, ease of maintenance, indoor air quality, operating cost savings, noise reduction, increased control of energy usage, environmental impact and water conservation.

The National Economic Service-life Tools (NEST) website offers online tools being developed in conjunction with the National Institute of Standards and Technology to help consumers identify durable, cost-effective building components, such as roofing, siding and windows.

The Durability Doctor was one of the first tools developed. Visitors to the Durability Doctor section of the site begin by entering information about their building, such as number of stories, square footage, age, roof and siding types, number of windows and doors, and construction material specifics. Using this information, the Durability Doctor allows users to compare the roofing, siding, windows and garage characteristics of their residences with those that would have the lowest installation cost, lowest monthly cost and greatest durability. Estimated monthly costs over the life of the product are also provided. Additionally, the website provides estimated installation costs (materials and labor).

The Nest Builder is another tool available on the site, which uses information about a house to analyze durability options. Anticipated additional tools include a replacement calendar for major components, a natural hazards risk assessor and a sealant wizard.

Rules and Regulations Update

HUD issues Mortgagee Letters to inform lenders of changes in FHA operations, policies and procedures.

Mortgagee Letter 2004-19, issued April 30, updates Mortgagee Letter 2003-03, issued February 25, 2003, and its instructions concerning Title I and Title II Nonsupervised Lenders/Mortgagees and Loan Correspondents. It further announces that HUD will no longer accept a paper audit report for recertification except under the certain circumstances.

Mortgagee Letter 2004-20, issued June 9, changes Mortgagee Letter 2002-09, dated May 3, 2002, to reflect the correct addresses for First Preston Foreclosure Specialists in its various territories.

Mortgagee Letter 2004-21, issued on June 15, provides interim guidance on the submission of form HUD-9807, Insurance Termination Request for Multifamily Mortgage. It also streamlines HUD field office and Headquarters staff review of requests for insurance termination.

Mortgagee Letter 2004-22, issued on June 16, updates Mortgagee Letter 2003-17, issued October 16, 2003, which discussed several changes that HUD implemented to simplify both the origination and claim filing processes. The instructions did not specifically address HECM mortgages, and Mortgagee Letter 2004-22 corrects this oversight.

Mortgagee Letter 2004-23, issued on June 18, announces enhancements made to the Neighborhood Watch Early Warning System since the issuance of Mortgagee Letter 2003-15, Enhancements to the Neighborhood Watch Early Warning System, dated September 17, 2003.

Mortgagee Letter 2004-24, issued on June 18, reminds mortgagees of the additional financing opportunities FHA makes available to qualified veterans.

Mortgagee Letter 2004-25, issued on June 23, clarifies the housing counseling requirements of the HECM Program.

Mortgagee Letter 2004-26, issued on June 23, announces that lenders may now file conveyance and pre-foreclosure sale claims electronically using the FHA Connection.

Mortgagee Letter 2004-27, issued on July 21, updates Mortgage Letter 2004-25, which issued guidance to mortgagees and housing counseling agencies to comply with FHA requirements for the HECM Program.

Mortgagee Letter 2004-28, issued on July 21, provides additional guidance to mortgage lenders regarding FHA policy for accurately estimating property taxes on newly constructed homes, the correct manner of completing form HUD-92900-PUR when building a home on land already owned by the borrower, gift funds documentation, interest rate buydowns and use of hybrid adjustable-rate mortgages for streamlined refinance transactions.

Mortgagee Letter 2004-29, issued on August 2, provides additional guidance concerning the issuance of the FHA inspector roster final rule, published March 10. The rule, which became effective April 9, established HUD's policies and procedures governing the roster.

Mortgagee Letter 2004-30, issued on July 30, announces the FY 2003 annual lender performance scores for loss mitigation.

Mortgagee Letter 2004-31, issued August 12, announces the development of the FHA Connection Business-to-Government specification, designed as a means to streamline access to FHA's business functions. The specification allows lenders to transmit data directly from their own internal loan processing systems to FHA without re-keying data into the FHA Connection or functional equivalent.

Mortgagee Letter 2004-32, issued August 16, was issued as a reminder to mortgagees of the availability of FHA single family programs for victims of major disasters, including victims of Tropical Storm Bonnie and Hurricane Charley.

Mortgagee Letter 2004-33, issued on August 24, explains that legislation to amend Section 224 of the National Housing Act was included in HUD's appropriation act for FY 2004. This change provides that interest paid on single-family mortgage insurance claims will now be paid based on the debenture rate in effect at the time of the mortgage default, rather than the rate in effect at the time of mortgage origination.

Lenders, bankers and others associated with mortgage loans will be interested to know that HUD's business partners page contains links to a wide variety of resources available on HUD's website including what's new, online tools and a listing of all FHA Mortgagee Letters.

Links You’ll Like

HUD has partnered with FedStats and the U.S. Census Bureau to provide key government-wide statistical data and information about cities, counties, states and the nation on an enhanced MapStats section of the FedStats website. MapStats provides information on housing, income, poverty, births and deaths, crime, employment, businesses, retail sales, education levels, travel time to work, minority-owned firms, weather and a host of other community indicators.

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