RISMEDIA, December 11, 2009—(MCT)—The Federal Housing Administration (FHA) is about to beef up the borrowing requirements for home buyers, a move that could dampen the fragile housing market’s recovery.

Among the steps scheduled to be outlined are greater down payment requirements and higher credit scores for consumers who seek FHA-backed mortgages.

Well, earlier this morning I received an update stating that HUD asked Congress to raise FHA requirements up to 5%.

Enter FHA Taxpayer Protection Act of 2009…

Basically because of all the financial issues the Federal [...]]]> On a recent FHA post that I had, I wrote about how FHA is, bluntly speaking, up shi*s creek.

Well, earlier this morning I received an update stating that HUD asked Congress to raise FHA requirements up to 5%.

Enter FHA Taxpayer Protection Act of 2009…

Basically because of all the financial issues the Federal Housing of Administration has been having some $$$ issues, they are wanting (and rightfully so) to tighten up the guidelines, and this is a prime example of it.

The NAR (National Association of Realtors) president Vicki Cox Golder has testified to Congress and is saying to not make any sudden changes to the current down payment requirement because that would really hurt the housing market and borrowers ability to qualify for homes.

Honestly, what is another 1.5%? An extra couple grand in the STABLE housing markets and about an additional $5k+ in the high cost areas? Deal with it folks. Stop getting your “Mocha-Choco-Latta” Lattes each morning and put that money into a savings account.

I personally think that FHA should be changed as such:

1. Down payment to 5% (increase it another whopping 1.5%)
2. Change UFMIP to 2.5% (will increase net equity in property and assist in FHA capital reserves-see below)
3. Bump up credit score minimums to 640 (with more demand, comes less supply- simple economics)

If you think about it with the current situation, the difference between the purchase price and the loan amount on an FHA loan is basically like the borrower is putting down only 1.75%. Now while the option of paying the UFMIP is available, many do NOT pay it up front.

Where does this leave the bank IF they foreclose?

1.75% net equity when trying to resale? Not that much better than 0%, and if you add attorney and Realtor fees in there, you’re in the red before you know it.

2.5% net equity isn’t much better by any means, however this would help the capital reserve amount increase by 30% and its just a small enough bump not to rock the market or borrowers.

Maybe I’m totally off, but again, just voicing my opinion.

Acceptable situations are:

1.) Instances of divorce, after which the vacating spouse will buy a new home, or 2.) One of the co-borrowers  will vacate the existing property

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Basically what’s going on right now is that there are justifiable rumors that the FHA’s reserves (capital) are hovering around dangerous levels.

Congress requires that the [...]]]> Just this morning, I was reading an article that I came across regarding a couple things that are going on with the Federal Housing Administration (FHA)….and it wasn’t pretty.

Basically what’s going on right now is that there are justifiable rumors that the FHA’s reserves (capital) are hovering around dangerous levels.

Congress requires that the magic number FHA needs to be at is 2%. At the moment, its speculated to be down to about 3% (down from 6.5%  in 2007) and if it falls below that mark, Uncle Sam has to come in and save the day once again. (Is it just me, or is this a never-ending cycle? Has anyone seen AIG’s stock quote recently?)

At the moment, FHA’s defaults (90 days+) are nearing 8% and depleting a good portion of FHA’s reserves. While that number may not seem that HUGE, you have to see how all this links together.

Several high-cost areas in the US got hit pretty hard the past couple of years. What goes up, must come down, right?

Well because of those declining markets, FHA decided to increase their loan limits and availability to accommodate the supply/demand in those areas. Who has $140,000 stashed under their mattress in CA to buy that $700,000 home? Not too many people. Well, who has around $25,000? Get the point?

And while this WAS needed to help stimulate buyers, you have to think of what happens on the flip-side. When that $5,000 (est) payment can’t be made anymore, and its time to jump ship, and who gets stuck with the bill? FHA.

FHA then has to tap into their reserves to make good on this.

Think about this for a moment:

In Texas, about 4-5 homes have to foreclose to match that ONE home in California. The odds of 4-5 consumers simultaneously defaulting is not that likely, unless they’re Madoff’s advisors.

The point I’m trying to make is that the high-cost areas are affecting FHA a little bit more than other more stable areas. While I am not saying that FHA lending shouldn’t be available here, I think it would be a good idea (especially now) to implement some more stringent measures before approving every Tom, Dick, and Harry that apply. Last thing we ALL want is to wave bye bye to FHA.

The remainder of the year will be quite interesting. An important incentive is coming to an end ($8k Tax Credit), and as for interest rates, well, let’s just hope they keep steady. Too many good things coming to an end is not a good thing.

Tommy’s 2 Cents

I would safely venture to say that FHA credit score requirements will be going up here in the upcoming months, as well as a larger down payments later down the line. While FHA loans have been the hot product, I wouldn’t be surprised to see Conventional loans start to SLOWLY creep back in and create a “2nd hand FHA loan” if capital continues to diminish as it has.

Remember what happened with Sub-Prime loans? High Demand, High Supply, POOF- they’re gone! History always repeats itself, let’s just hope we’ve learned our lesson the first time, and we don’t screw up FHA, especially for Dawson’s sake.

Here are the conditions:

1. You must be back on the job for at least 6 months 2. You must be able to document a 2 year [...]]]> Did you know that once you leave your current employer for an extended period of time, we can still use your income when you start to work again?

Here are the conditions:

1. You must be back on the job for at least 6 months
2. You must be able to document a 2 year work history prior to leaving

An example of this is saying a person had to take off several years to raise his/her kids, and then returned working again.

Happy Holidays everyone!

This is an excellent opportunity for everyone to now start taking advantage of these interest rates. They have not been this low in YEARS, and now [...]]]> Starting January 1, 2009, all rate and terms will be 100% LTV (Loan-to-Value) including the UFMIP. Streamline Refinances will be at 98.5% and regular FHA refinances will be 98.25%.

This is an excellent opportunity for everyone to now start taking advantage of these interest rates. They have not been this low in YEARS, and now is a perfect time to see how much you can save.

Also remember, as I wrote in my previous post, that the new down payment requirement will now be 3.5% for all purchase transactions of the lesser of the appraised value or sales price. This is in addition to any closing costs incurred by the borrower.

The agency said borrowers with payment- and debt-to-income ratios over a certain threshold must complete a three-month trial period in a new loan [...]]]> WASHINGTON — The Department of Housing and Urban Development launched a program Wednesday to help underwater borrowers refinance their mortgages, but its details appeared to pose fresh challenges for servicers and lenders.

The agency said borrowers with payment- and debt-to-income ratios over a certain threshold must complete a three-month trial period in a new loan before the Federal Housing Administration would insure it. Some analysts said that stipulation could cause problems.

“Some folks thought the credit ratios would have been a little more liberal, particularly in light of the Federal Deposit Insurance Corp.’s experience with the IndyMac portfolio,” said Brian Chappelle, a partner at Potomac Partners LLC and former HUD official.

The Hope for Homeowners program allows borrowers to take out FHA-insured mortgages, relieving the owners of the old mortgage of a delinquent loan in exchange for writing its value down to 90% of the current home value and waiving any prepayment or late payment fees. The FHA in turn will pay off the old loan and give second lien holders a share in the possible future appreciation of the home’s value.
Though the program was created by a bill passed in July, it left most of the details to HUD and an oversight board of federal regulators.

Under those details, which were released Wednesday, the borrower’s payment-to-income ratio cannot exceed 31%, and the debt-to income ratio cannot exceed 43%, for the FHA to insure a new mortgage immediately. Borrowers with higher ratios — up to 38% for payments and 50% for debt — may still participate, but the FHA would require the three-month trial.

Rod Dubitsky, the head of Credit Suisse Group’s asset-backed securities research division, said the requirement that servicers try a payment plan before turning the borrower over to an FHA-insured loan left room for the original servicer and the new lender to clash over decision-making authority.

“There’s a ‘he said, she said’ potential from the borrower’s standpoint,” he said. The setup “requires the servicer and the FHA lender to work hand in glove.”

Observers said the FHA’s underwriting procedures for the program are also strict. New lenders must obtain two year’s worth of tax returns on the borrower from the Internal Revenue Service, among other things.
The eligibility requirements released Wednesday also dictated that loans be originated before this year. Borrowers must have made at least six payments and must not be able to make more. Borrowers are banned from participation if the mortgage is not on their primary residence or if they own a second home. The new loans cannot exceed $550,440.

At a press conference announcing the details, HUD Secretary Steve Preston said it was open to improvments. “We will continue to listen to the industry as they adopt the program and experience homeowner needs.”
HUD officials and observers said they were hoping that the passage of a bailout bill for the financial industry would make the program more efficient.

Under the existing program, lenders considering making new loans to struggling borrowers would not have any up-front financial incentive. They would only be able to share in the possible future appreciation of the borrower’s home. The bailout bill, which the Senate was expected to pass Wednesday, would authorize the FHA to pay the new lender up front instead. The bill also would encourage servicers to use the program for eligible loans purchased by Treasury as part of its proposed facility to buy $700 billion of troubled mortgage assets.

FHA Commissioner Brian Montgomery would not comment specifically on the fate of the two changes to the plan that are in the bailout bill, but he said HUD was still making improvements to the plan.

“We’re kind of flying the plane and fixing it at the same time,” he said. “Our work doesn’t end today. A good bit of it does, but this product is out there for the next three years, so as we go forward we’ll adjust as we need to.”

By Emily Flitter

We have seen first-hand, and taken hundreds of applications on, homeowners that are vacating their current residences to purchase another property. Due to rising fuel costs, most people have been relocating to be [...]]]> The FHA is now taking steps to respond to “unhealthy” practices regarding the housing market, especially with FHA and FHA Approved Lenders.

We have seen first-hand, and taken hundreds of applications on, homeowners that are vacating their current residences to purchase another property. Due to rising fuel costs, most people have been relocating to be closer to their work and other great home buying opportunities in their local areas, and in turn, do not want the responsibility of having to pay 2 mortgage payments per month. This being said, the average consumer is under the impression, that with FHA, their rental income should count in qualifying for the NEW home that they are buying- but that MAY not be the case in the near future.

Essentially what is happening is that the Federal Housing Administration is cracking down on their guidelines in regards to potential home buyers that are planning on qualifying on the new home by using the rental income from their current house. Effective immediately,  RENTAL INCOME from their current residence cannot be used in order to qualify for the new home.

We are closely monitoring the temporary underwriting change to see if this will soon evolve into a permanent rule.

There are 2 exceptions to this, however, and they are :

1.) Relocations – The home buyer is relocating with their current employer, or being transferred to an area not within reasonable and locally recognized commuting distance.

2.) Sufficient Equity in Vacant Property – The home buyer has at least 25% equity in the property, as determined by a residential appraisal no more than 6 months old.

If the applicant ALREADY OWNS rental properties that are disclosed on the application, that is OK; this rule ONLY applies to a principal residence being vacated in favor of another principal residence.

Rest assured that you will be the first to know on the ongoing process of guideline changes, as we at FHALoanHouston.com are your FHA Loan Experts!