In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting Federal Housing Administration (FHA) Commissioner Carol J. Galante will extend FHA’s temporary waiver of the anti-flipping regulations.

With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, FHA temporarily waived this regulation through January 31, 2011, and later extended that waiver through the remainder of 2011. The new extension will permit buyers to continue to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. It will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

The extension is effective through December 31, 2012, unless otherwise extended or withdrawn by FHA. All other terms of the existing Waiver will remain the same. The Waiver contains strict conditions and guidelines to prevent the predatory practice of property flipping, in which properties are quickly resold at inflated prices to unsuspecting borrowers. The Waiver continues to be limited to sales meeting the following conditions:

  • All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
  • In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the Waiver will only apply if the lender meets specific conditions and documents the justification for the increase in value.
  • The Waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

On Thursday, March 3, 2011, the House Financial Services Committee voted to end two Federal Housing programs. The two seemingly unmanageable programs sought to be eliminated include the FHA (Federal Housing Administration) Short Refi Program and the program initiated through the Dodd-Frank Reform Act last summer which provided a “bridge loan” for those who lost their jobs. The bills to terminate these programs will go to the full House for debate.

In the Las Vegas housing market, financially distressed properties rule the day and many borrowers have turned to different federal programs in order to offer some relief. Despite their hope that these programs would provide meaningful assistance, it appears that many do not. The “unhelpfulness” of these programs is now the party line as the Federal Government has lost interest in backing programs targeted at assisting the financially distressed property owner. The Feds allege that many of the programs do not work and some even create more problems than solutions. In fact, Financial Services Committee Chairman Spencer Bachus did state, “In an era of record-breaking deficits, it’s time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners.” Considering that a significant portion of the Obama administration’s estimated $28.1 billion net cost for Troubled Asset Relief Program is vested in housing relief programs, why not create programs that have some “teeth,” rather than simply ending programs that haven’t proven successful?

Carlos L. McDade, Esq.
Kelle L. Kuebler, Attorney*
*Licensed only in New York and Connecticut

The Obama administration released its “white paper” outlining the winding down and replacement of Fannie Mae and Freddie Mac.  The goal of the proposals is to decrease the government’s involvement in the mortgage industry.  The first proposal presented by the administration would create a government backstop under a federal reinsurance model.  In the second proposal the government backstop would only be triggered in event of a crisis.  The last option presented has no government backstop beyond existing federal agencies such as the Federal Housing Administration (FHA).

The paper also proposes reforming the current industry standards. The paper recommends raising the fees that Fannie and Freddie charge to lenders in order to make mortgages that are not government-backed more competitive.  Another proposal includes a gradual increase in minimum down payments so that Fannie and Freddie can buy loans with a minimum 10% down payment.  Lastly, the paper recommends slowly reducing the maximum loan limits Fannie and Freddie can purchase but does not specify to exact loan limits.

As part of the recommended reforms to the current mortgage industry, the paper also recommends reducing the role and financial exposure of the FHA. The administration says it will increase the annual insurance premiums borrowers of FHA backed loans pay later this year.  The administration is concerned with phasing in any reform gradually to prevent increased chaos in the fragile mortgage and housing market.

Joshua D. Carlson, Esq.

Qualify for a mortgage with bankruptcy

Contrary to popular belief, acquiring a mortgage after filing for bankruptcy is not impossible.  The Federal Housing Administration insures mortgages despite bankruptcy, with seasoning requirements.

Time Frame

  • Per the FHA Guidelines, a debtor must wait at least two years after a Chapter 7 or 13 is discharged before you can qualify for a mortgage.
  • FHA makes an exception to the two-year waiting period for Chapter 7 filings. If you had to file due to extenuating circumstances beyond your control, such as a medical condition or physical disability that kept you out of work, you may qualify after a 12-month waiting period post discharge. FHA requires you to document responsible financial management in the interim.
  • You must obtain court permission to enter into the mortgage transaction after a Chapter 13, according to the FHA Handbook. Chapter 7 filings have no such requirement, although you must have reestablished good credit without incurring new credit obligations.

In closing, while bankruptcy will significantly impact your credit, you are able to obtain a mortgage within two years if the above requirements are met.

Randy M. Creighton, Esq.

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Pursuant to the new guidelines released December 28, 2010, servicers are expected to put into place the revised guidelines on or before February 1, 2011.  As a part of the updated guidelines servicers are now required to complete and send a Short Sale Agreement (SSA) to the borrower within 30 calendar days from the date the borrower responds to the HAFA solicitation. If the borrower requests HAFA consideration, the servicer must respond within 30 days.

Another major change under the revision is the removal of the HAFA requirement that the borrower must occupy the home.  Now, a borrower who no longer lives in the property is eligible for HAFA as long as the property has been vacant or rented to a non-borrower for no more than 12 months prior to the date of the SSA and the borrower has not purchased a new property during the 12 month period prior to the SSA.

Servicers are no longer required to verify a borrower’s financial information to determine a borrower’s HAFA eligibility, nor is it necessary to determine if the borrower’s total monthly mortgage payment is more than 31 percent of monthly gross income.  Servicers are also are no longer limited by the 6 percent cap with respect to payments to the subordinate lien holders.

While the above mentioned revision to the HAFA guidelines are in the right direction, the revisions to HAFA do not apply to first lien mortgages that are owned or guaranteed by Fannie Mae, Freddie Mac, or insured by a federal agency such as the Federal Housing Administration.  Moreover, servicers are not required to implement the new rules to any loans retroactively.

Joshua D. Carlson, Esq.

The Obama administration is trying to convince Fannie Mae and Freddie Mac to join a program run by the Federal Housing Administration (FHA) that allows banks to hand over mortgages if the bank and investors agree to a write-down on the principal.  The administration hopes that the participation of the mortgage giants would put additional pressure on other lenders to participate in the FHA program.

Currently, Freddie and Fannie rarely reduce principal balances.  According to the Office of the Comptroller of the Currency, only 10 of the 120,000 loans modified during the second quarter of 2010 came with a principal reduction.  It is of note that the FHA program is only available to homeowners who are current on their mortgage.

Joshua D. Carlson, Esq.

Negative Equity Refinance Program

Starting September 7, 2010, the Federal Housing Administration (FHA) will offer a new refinance program to qualifying underwater homeowners.  To be able to participate in the program you must be current on your home loan, your credit score must be 500 or above, and the home must constitute your primary residence.  Further, all lien holders related to the property must agree to the refinance and agree to write off at least ten percent (10%) of the unpaid principal balance.  As most borrowers know, lenders are loathed to write off any of the principal regardless of the possible incentives.  The program does, however, offer more incentives beyond new FHA-insured mortgages.  The program contemplates certain incentives for any second lien holders to provide a full or partial extinguishment of the lien.  HUD says interested homeowners should contact their lenders to determine if they are eligible and whether or not their lender agrees to write down a portion of the unpaid principal.  Keep in mind that the present loan must be a non-FHA loan.

Tisha Black Chernine, Esq.

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FHA Program for Underwater Homeowners

Beginning September 7th, the Federal Housing Authority (FHA) will offer FHA-insured mortgages to qualifying borrowers who have a non-FHA mortgage.  To be eligible, the borrower must owe more on the mortgage than the home is worth, be current on the mortgage, occupy the property as a primary residence, qualify for the new loan under standard FHA underwriting requirements, and have a credit score of at least 500.  Similar to the under-performing Home Affordable Refinance Program (HARP), the FHA program will have limited affect on the current housing situation because so many borrowers are behind in their payments and lenders are reluctant to write off a portion of the principal.

Lenders are hesitant to write-off mortgage principals because then they would have to pay the investors for the amount of debt forgiven and it might establish a precedent that loan contracts can be changed due to market fluctuations. HUD recommends that borrowers contact their lenders to inquire about eligibility and whether the lenders will write down a portion of the mortgage.

Joshua D. Carlson, Esq.

FHA’s new principal reduction program

A new program issued by the Federal Housing Administration (FHA) requires lenders to reduce the principal by at least 10% for qualified borrowers.  Borrowers can qualify for the FHA principal reduction program if they are current on their payments and their loan was acquired from a failed bank seized by the FDIC.   Additionally, the program is open to borrowers whose mortgages are not currently insured by the FHA.   The maximum allowed loan to value (LTV) of the combined loans is 115%.  Principal reductions must bring the new FHA loan’s LTV to 97.5% and make the new payments account for 31% of the borrower’s gross monthly income including second lien mortgages. 

Tisha Black Chernine, Esq.

New Mortgage Program for Unemployed

The Home Affordable Unemployment Program (UP) takes effect July 1, 2010, offering eligible unemployed borrowers an option to temporarily reduce or suspend mortgage payments for a minimum of three months.   Applicants must qualify for the Home Affordable Modification Program (HAMP), currently receive unemployment benefits, and must request the option before missing three monthly payments.   Homeowners, previously determined to be ineligible for a HAMP modification, may still request the UP plan if they meet the other requirements.  The UP plan lasts a minimum of three months or until the homeowners gain employment, whichever is less.  Servicers can extend this period according to investor or regulatory guidelines.  UP plans are reevaluated 30 days prior to the expiration date or reemployment, whichever occurs first.   Eligible loans include first lien mortgage loans that are not owned by Fannie Mae or Freddie Mac or insured or guaranteed by the Federal Housing Administration (FHA).

Tisha Black Chernine, Esq.

Republicans Want to End Fannie and Freddie

On Wednesday, Republicans announced a plan to wind down bailed-out mortgage-financing giants, Fannie Mae and Freddie Mac.  This proposal has the potential to create some political headaches for Democrats and the Obama administration which have bet heavily on the companies’ futures.

Republicans submitted the measure as an amendment to the financial-regulatory bill in the Senate.  It outlines steps to get rid of Fannie and Freddie during the next five years.  However, the proposal neglects to include an alternative to replace the two mammoth organizations which is no small detail.

Last quarter, Fannie and Freddie funded two-thirds of all U.S. home loans.  Added to the loan volume of the Federal Housing Administration, the government backed a total of 96.5% of the country’s loans.  If shut down, Fannie and Freddie would transfer their burden to the FHA, an organization with much more lax standards and even fewer resources to deal with the added volume.

Tisha Black Chernine, Esq.

Lawyer vs. FHA

New Orleans residents are challenged often with the task of tracing home titles back potentially hundreds of years. With a community rich with history stretching back over two centuries, houses have been passed along through generations of family, making it quite difficult to establish ownership.

Here’s a great letter an attorney wrote to the FHA on behalf of a client that I thought was absolutely priceless. This is one lawyer you gotta love, and it’s too good not to share!

A New Orleans lawyer sought an FHA loan for a client. He was told the loan would be granted, if he could prove satisfactory title to a parcel of property being offered as collateral. The title to the property dated back to 1803, which took the lawyer three months to track down.  After sending the information to the FHA, he received the following reply:

(Actual letter):

‘Upon review of your letter adjoining your client’s loan application, we note that the request is supported by an Abstract of Title. While we compliment the able manner in which you have prepared and presented the application, we must point out that you have only cleared title to the proposed collateral property back to 1803. Before final approval can be accorded, it will be necessary to clear the title back to its origin.’

Annoyed, the lawyer responded as follows:

(Actual letter): 

‘Your letter regarding title in Case No. 189156 has been received. I note that you wish to have title extended further than the 194 years covered by the present application.  I was unaware that any educated person in this country, particularly those working in the property area, would not know that Louisiana was purchased, by the U.S. from France in 1803, the year of origin identified in our application.

For the edification of uninformed FHA bureaucrats, the title to the land prior to U.S. ownership was obtained from France, which had acquired it by Right of Conquest from Spain. The land came into the possession of Spain by Right of Discovery made in the year 1492 by a sea captain named Christopher Columbus, who had been granted the privilege of seeking a new route to India by the Spanish monarch, Isabella.

The good queen, Isabella, being a pious woman and almost as careful about titles as the FHA, took the precaution of securing the blessing of the Pope before she sold her jewels to finance Columbus ‘ expedition.

Now the Pope, as I’m sure you may know, is the emissary of Jesus Christ, the Son of God, and God, it is commonly accepted, created this world. Therefore, I believe it is safe to presume that God also made that part of the world called Louisiana. 

God, therefore, would be the owner of origin and His origins date back, to before the beginning of time, the world as we know it AND the FHA.

I hope you find God’s original claim to be satisfactory. Now, may we have our damn loan?’


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Tisha Black Chernine awarded for
Mountain States Rising Stars 2011

Michele T. LoBello awarded for 
Nevada Super Lawyers 2007

Black & LoBello is an AV® Preeminent rated, locally owned, full service law firm in Las Vegas, Nevada.