About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs
Filed under Government Mortgage Financing Programs News

While the FHA loan limits have been increased, banks are not always thrilled about lending the higher amounts. A recent article in the WSJ online discussed this issue. Here is an excerpt:

Demand for FHA loans has jumped as other types of mortgages have become more expensive and harder to obtain.

J.P. Morgan Chase & Co.’s home-mortgage unit this week informed lenders that sell loans to the big bank that it will require “price adjustments” on the new, larger variety of FHA loans. The adjustments will add about half a percentage point to the interest rate on those loans, mortgage executives said. A spokeswoman for J.P. Morgan Chase declined to comment.

Lou Barnes, a mortgage banker at Boulder West Financial Services, Boulder, Colo., said other big lenders appear to be making price adjustments roughly in line with those announced by Chase. Mr. Barnes said he could offer a rate of about 6.375%, with no fees or “points” paid to reduce the interest, on the new “jumbo” FHA loans, compared with about 5.875% on smaller FHA loans.

Kevin W. Lynch, a mortgage broker at A. Anderson Scott Mortgage Group in Rockville, Md., said he has been quoted rates of nearly 7% on jumbo FHA loans. The loans are so expensive they “aren’t going to sell,” Mr. Lynch said. “It’s a waste of everybody’s time.”

The higher rates largely reflect muted demand from investors for securities backed by jumbo FHA loans, traders say. Those securities are expected to be less actively traded than ones backed by smaller FHA loans, and the larger loans may be apt to refinance faster, reducing the value to investors.

Meanwhile, many banks also are requiring minimum credit scores for borrowers seeking FHA loans. The FHA doesn’t set a minimum, but many lenders recently have begun requiring scores of at least 580 on the standard scale of 300 to 850.

That is shutting out some people who otherwise would qualify for an FHA loan, said Daniel H. Jacobs, chief executive of 1st Metropolitan Mortgage, a nationwide broker based in Charlotte, N.C.

At a time when Congress wants the FHA to provide more help to the mortgage market, “this is taking a major step backwards,” Mr. Jacobs said.

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