FHA Modifies Mortgage Rate Rules
Some borrowers do not realize that the FHA and HUD do not set or regulate mortgage rates for the FHA loan program, except to require that such rates be “reasonable and customary” for the market they are offered in.
However, there is new guidance from the FHA concerning mortgage rates as they apply to home loss mitigation/foreclosure avoidance programs as described in FHA Mortgagee Letter 2013-17. According to the new rules in the mortgagee letter, there are new interest rate standards for those who need to apply for FHA Home Retention programs.
“The purpose of this Mortgagee Letter is to provide guidance for determining the interest rates to use when implementing FHA’s Loss Mitigation Home Retention options,” the document states, adding that the new policies described in ML 2013-17, “are to be implemented by mortgagees for Trial Payment Plans offered on or after July 1, 2013.”
The new mortgagee letter clarifies mortgage loan rate policies for Loss Mitigation/Home Retention programs. “This Mortgagee Letter amends the definition of “Market Rate”, and supersedes where there is conflict, the policies described in Mortgagee Letters 2012-22, 2011-28, and 2009-35.”
What are the new policies?
FHA is putting a specific definition on the mortgage loan rate for the affected programs. “...the term “Market Rate” is now defined as a rate that is no more than 25 basis points greater than the most recent Freddie Mac Weekly Primary Mortgage Market Survey (PMMS) Rate for 30 year fixed-rate conforming mortgages (US average), rounded to the nearest one-eighth of one percent (0.125%), as of the date a Trial Payment Plan is offered to a borrower.”
These rules are directed at lenders; borrowers may have trouble making sense of the basis points and other details, but the bottom line in all this is quite important. There is now an FHA-directed definition for the calculation of mortgage rates for the FHA loss mitigation programs. Additionally, the FHA has created the following guidance for lenders:
“The Interest Rate for a Trial Payment Plan must not be greater than the aforementioned Market Rate.” Also, there is a direct instruction to the lender for permanent modification payment plans: “A borrower’s monthly mortgage payment including principal, interest, taxes, and insurance (PITI) under a permanent modification must not be more than the borrower’s mortgage payment, (including PITI) under the Trial Payment Plan.”
If you need to know about how these rules may affect you or your application for a home retention program, contact the FHA at 1-800 CALL FHA or contact your lender.
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