Mortgage settlement and the FHA reserve crisis

The  $25 billion mortgage settlement with banks last week over fraudulent foreclosure practices might help more than struggling homeowners. Part of the money is slated to go to the Federal Housing Administration (FHA) to help their projected shortfall in the reserves , according to The Washington Post. The major banks involved are Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial.

Shaun Donovan, secretary of HUD, said that the major banks involved in the settlement agreed to provide up to $1 billion to shore up the capital reserve fund of the FHA. The FHA provides mortgage insurance on loans made by approved lenders across the country.

It is estimated that the FHA’s capital reserves could drop this year, leaving an almost $700 million shortfall and it could potentially force the self-funded agency to seek aid from the Treasury for the first time since its inception in 1934.

Even though the government is legally required to ensure that the FHA’s emergency reserve fund does not drop below 2 percent of outstanding FHA loans, the agency’s reserves have fallen below that mark in recent years due to the housing crisis. The law states that if the FHA’s reserves were depleted entirely, the FHA would automatically receive payments from the Treasury to make up for the deficit. Up to now,   the agency has never needed help from the Treasury.

 In addition to the settlement payments from banks, the secretary of the HUD said the FHA would increase its mortgage insurance premiums again this year, according to Brady Dennis from the Washington Post.

For more on the multi-state mortgage settlement  read my other recents posts:

How the Mortgage Foreclosure Settlement will affect Florida

 

Forty nine state agree on Mortgage Settlement

Mortgage giants --biggest settlement since Big Tobacco?

 

See the entire Brady Dennis on the FHA and the Settlement article on the Washington Post

Buying a Condo? Check to see if it is FHA approved.

Buying a condominium is getting much harder for anyone wanting to put down 3.5 percent and have the government insure their mortgage, in other words, finance through the Federal Housing Administration (FHA).   The issue isn’t just the borrower’s financial wellbeing. It also means looking at the building’s financial wellbeing and many  condos no longer get approval from FHA.

Since Feb. 1, 2010, condo buyers have not been able to secure approval for FHA-backed mortgages for their condo if an entire building was not certified. Instead, the federal government set criteria to determine the financial viability of an entire building before deeming the project as FHA-approved, even if it had previously been certified. An FHA approval will only lasts two years for a Condominium building.

The number of rejected condo buildings is increasing, due to incomplete or bad paperwork and balance sheets, as an increasing number of condo associations struggle with rentals, short sales and foreclosures. It is jeopardizing the plans of condo sellers who rely on the FHA’s stamp of approval as a marketing tool and condo buyers who either want or need an FHA-approved building.

Since Oct. 1,2011, 38 percent of condominium communities that have gone through the certification process have been rejected by the FHA. The effects of those rejected condos  are likely to linger and could hamper the recovery of the housing market.

You can look up a condomium to see if it is FHA approved by checking it against the FHA’swebsite of approved condo buildings.

To see Orlando Condos for sale go to my Orlando realestate condo website.