FHASECURE

This Program has been discontinued by HUD effective 12/31/08

 Additional Information About the FHA Secure Initiative

• Maximum FHA loan-to-value ratios 

The maximum loan-to-value limits are shown below and are applied to the appraiser’s estimate of value, exclusive of any upfront mortgage insurance premium. 

Calculating the Maximum FHA Mortgage Amount

The amount of the FHA Secure mortgage may not exceed either the geographical maximum mortgage limits or the loan-to-value ratios shown above.  FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges.  FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount provided the arrearages arose after the reset.

If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the new or existing lender may execute a subordinate lien at closing to pay the difference.  This new subordinate lien does not have to be supported by the value of the property. The combined amount of the FHASecure first mortgage and any subordinate non FHA-insured lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount.  If payments on the new subordinate lien are required, they must be included in qualifying the borrower unless payments have been deferred for no less than 36 months.  If payments on the new subordinate lien are deferred for 36 months, underwriters should consider the repayment terms to ensure that when the payments begin they do not exceed the borrower’s reasonable ability to pay.

While it is permissible to establish equity sharing agreements or other similar arrangements for providing a subordinate lien, the terms agreed to must not trigger a default on the FHA-insured first mortgage.  Therefore, FHA has established the following conditions:  

• The terms of the subordinate lien(s) must not provide for a balloon payment before ten years, unless the property is sold or refinanced;

• The terms must permit prepayment by the borrower, without penalty, after giving 30 days advance notice;

• The required monthly payment under both the new FHA-insured mortgage and the subordinate lien(s) – regardless of when payments begin – plus other housing expenses and all recurring charges, cannot exceed the borrower’s reasonable ability to pay; and

• Any periodic payments due on the subordinate lien(s) are due monthly and are essentially the same in dollar amount.

FHA is also simplifying its policies involving combined loan-to-value (CLTV) ratios to make them as consistent as possible regardless of the type of refinance transaction.  The following chart provides additional guidance to mortgagees regarding CLTV ratios for refinance transactions, including cash-out and FHA-to-FHA refinance transactions.