A bill introduced in the U.S. House of Representatives would waive withdrawal penalties on certain retirement plans if the funds were used to buy a house that has been in foreclosure for a year or more, HousingWire reports.

The bill, introduced recently by congressman and real estate professional Bill Posey, R-Fla, is expected to apply to Roth IRAs, 401(k) plans, and company pension plans.

The legislation’s aim is to promote REO home purchases by owner occupants or second home owners rather than investors just looking to “flip” a foreclosure for fast money. According to the bill, purchasers must agree to hold the property for at least two years to be exempt from early retirement plan withdrawal penalties.

“It’s just another idea to help the housing market,” says press secretary George Cecala.

The bill has been sent to committee for further consideration.

A recent survey by Zillow Mortgage Marketplace found that borrowers who received a home loan in the past five years spent, on average, five hours researching their options. That’s about half the amount of time borrowers spent researching a car purchase (10 hours). What’s more, nearly one-third spent two hours or less, according to Zillow.

While a home purchase is typically one of the largest investments people make, the lack of mortgage knowledge can be a costly mistake, experts say.

Here are a few basics about home loans that more customers need to know about.
1. What type of mortgage do you have?
Alarmingly, some people aren’t even aware if they have a fixed-rate mortgage or adjustable-rate mortgage. Unlike a fixed-rate mortgage, an ARM can have low rates early on that later rise significantly over time, which from a financial planning perspective can become a costly surprise if the borrower isn’t even aware they have one.

2. Do you have mortgage insurance?
Home owners who purchased a home with conventional financing and a down payment of less than 20 percent may not even realize that they likely are paying private mortgage insurance, which costs about $25-$100 extra a month. Once home owners have sufficient equity in their home (20 percent), they no longer need to pay mortgage insurance and should contact their lender for some savings.

3. Do you understand all of your loan options
Many borrowers don’t understand all of the loan options available to them — conventional loans, FHA, VA, USDA, etc. Experts recommend researching and comparing various mortgage rates and loan types to see what works best for their situation.

4. Is there a prepayment penalty?
Some loans have a prepayment penalty if a borrower pays off the loan earlier than intended. Typically, prepayment penalties are charged when borrowers sell or refinance their homes in the first few years of the mortgage. FHA, VA, and USDA loans do not have prepayment penalties. But it’s important home owners with other mortgages become aware whether their loan has a prepayment penalty and understand the pros and cons of accepting such a penalty, experts note.

Source: “5 Things to Understand About Your Home Loan,” Zillow.com (April 19, 2011)

For the third consecutive month, the number of delinquent home mortgages insured by the Federal Housing Administration has declined.

The delinquency rate is still high – 8.5 percent in April – but that is down from 9.4 percent in January.

The FHA was unwilling to applaud this as good news. “We’re not declaring victory by any stretch,” says David Stevens, the FHA’s commissioner. “There’s plenty of room for caution.”

But outside analysts were more positive. “It’s a very important trend to the extent that we’re not continuing to get worse,” says Thomas Lawler, an independent housing economist in Leesburg, Va.

The National Association of REALTORS® applauded the House for overwhelming passage of FHA reform legislation that would allow the Federal Housing Administration to adjust monthly premiums on mortgage insurance.

This bill, H.R. 5072, FHA Reform Act of 2010, would strengthen the FHA loan insurance program while keeping it available and affordable to responsible home buyers. Allowing FHA to raise the monthly insurance premium would let FHA lower the up-front premium that places a burden on cash-strapped borrowers at closing.

“As the leading advocate for homeownership and housing issues, NAR is very pleased that FHA will be allowed to play its intended countercyclical role to provide qualified borrowers with access to prime credit. FHA is a critical part of our nation’s economic recovery,” said NAR President Vicki Cox Golder.

En route to passage, the House defeated an amendment that would have increased the FHA down payment from 3.5 percent to 5 percent, which would have disenfranchised more than 300,000 potential homeowners and would not have contributed significantly to FHA cash reserves.

“The current 3.5 percent down payment represents a significant financial commitment and sufficient investment to insure a borrower’s seriousness about homeownership,” said Golder. The proposed change could have an especially harsh impact on African American and Hispanic borrowers, who traditionally have much lower accumulated wealth and have benefited from the opportunities offered by fully documented, standard FHA loans with low down payments.

Missing the tax credit deadline might have seemed like a big mistake to some home buyers, but waiting could have been the smartest thing to do.

Interest rates have fallen so dramatically since April 30th that the typical purchaser of a $350,000 home, financed with a $280,000 mortgage, would have saved a bundle by waiting until May.

At April’s average rate of 5.34 percent, a home buyer would have locked in a 30-year fixed rate loan with a monthly payment of $1,561.82.

The same borrower could have snagged a 30-year fixed rate loan at a rate of 4.625 percent in May and paid $1,439.59 per month.

That’s a $1,467 annual savings. Over 30 years, it’s a $44,003 savings, dwarfing the tax credit.

Did banks prey on unwitting consumers or did borrowers go into foreclosure because they stretched further than they should have?

Researchers at the University of Arkansas found that most households in foreclosure were relatively affluent and highly educated people with few or no children, living in geographical areas that experienced extremely rapid real estate appreciation.

The researchers divided U.S. households into 21 life-stage groups, using data from a variety of sources. Then they identified which groups experienced the most foreclosures. The group with the highest foreclosure percentage was one they dubbed “Cash & Careers,” affluent adults born between the mid-1960s and the early 1970s.

Members of this group had high household incomes, high education levels, high home values, and none to only a few children. Also, members of this group were classified as aggressive investors, most of whom lived in areas – California, Nevada, Arizona, and Florida – with rapid real estate appreciation.

“The policy implication from our results is that strong consumer protection laws, though necessary to prevent Wall Street banks from offering high-risk loans to the most vulnerable – will not be sufficient to prevent another financial crisis like the one the U.S. economy experienced in 2007 and 2008,” says Tim Yeager, associate professor of economics and lead author of the stud

Beginning in July, Fannie Mae will allow financially troubled home owners to complete a “deed in lieu of foreclosure” or a short sale and be eligible to apply for a new Fannie-backed mortgage in two years.

Currently, borrowers who have completed a deed-in-lieu must wait four years to apply for a loan that Fannie will purchase. Home buyers who go through foreclosure must wait five years.

All these waiting periods can be reduced further, if the potential buyer can show extenuating circumstances. “We are beginning to think about post-recession, how you address borrowers who became unemployed through no fault of their own … and now deserve the right to re-enter the housing-finance system,” said Federal Housing Association Commissioner David Stevens.

Add-on fees have been a source of confusion since a U.S. District Court last year ruled that these fees violate federal law when the bill doesn’t detail specific services for which the fees are being billed.

Recently, Helen R. Kanovsky, general counsel for HUD, released some more detailed guidance about the court ruling. She wrote:

Commissions may be quoted “using a flat fee, a percentage of the sales price, or a combination” — all listed on the revised HUD-1 sheet. But Kanovsky said that if the total charges “exceed the amount of the commission for listing and selling the home that is reflected in the real estate broker’s or agent’s listing agreement,” then HUD has the right “to determine whether additional services were provided” to justify the add-on.

If few or no services appear to have been performed, HUD can consider these charges a violation of the Real Estate Settlement Procedures Act. Such a violation is subject to significant penalties.

Kanovsky also warned against charging fees when there is no contract or other agreement that permits the levying of these charges. For instance, an administrative fee with no contractual language could be considered by HUD as an illegal fee.

Now is not the time to raise the downpayment requirement on a Federal Housing Administration loan, warns FHA Commissioner David Stevens.

Stevens, testifying before a committee of the U.S. House, said his agency would probably insure 300,000 fewer home loans per year if the mandatory down payment was raised from 3.5 percent to 5 percent — a 40 percent increase.

Congress has been considering various ways to put FHA on a sounder financial footing. Besides increasing the downpayment requirement, another suggestion under discussion is raising the upfront mortgage insurance premium to 2.25 percent of the loan amount, up from 1.75 percent currently.

The National Association of REALTORS® also opposes the proposal to raise the mandatory down payment for an FHA loan. The FHA remains financially strong because it has taken steps to ensure solid underwriting standards and responsible lending practices, said Charles McMillan, NAR immediate past president, in testimony before the House Subcommittee on Housing and Community Opportunity.

“As the leading advocate for housing issues, NAR believes that one of the best ways Congress can help strengthen FHA is to quickly consider and pass legislation that would make current loan limits permanent,” McMillan said. “It’s important to note that higher balance FHA loans perform better than lower balance ones. While some argue that higher balance loans put taxpayers at risk, such loans actually strengthen the program and reduce risk to the fund.”

Explaining that FHA has played an important role in the recent housing and economic crisis by filing the gap left by private lenders, McMillan said FHA insured almost 30 percent of single-family mortgages in 2009 and more than 50 percent of first-time buyer loans. “Historically, FHA’s market share has hovered between 10 and 15 percent of all loans. And when the private market is strong enough to return, we welcome a reduced FHA market share,” he said.

McMillan said NAR was also concerned that FHA wanted to decrease seller concessions to 3 percent. Reducing seller concessions could put homeownership out of reach for many buyers, he said, because it could require buyers to pay more at closing.

Will people who currently face foreclosure or short sales or who walk away from their underwater properties ever be able to get financing to buy another home down the road?

Banks haven’t been very forthcoming on this issue. However, knowledgeable observers of the situation say that while it may take some time, the situation will right itself for most people.

Because bankrupt borrowers have eliminated their debts, they should “constitute attractive fodder for mortgage lenders,” says University of Michigan law professor John Pottow, whose specialty is bankruptcy.

As home prices and the mortgage market stabilize, lenders will be motivated to lend to people who previously had financial troubles if they look like they can pay the next time around, says Alan Riegler, a consultant with CCG Catalyst, which advises banks.

“The lender who figures out how to do more of this case-by-case stuff cost-effectively is going to end up ahead of the pack,” Riegler says.