How Will the New FHA Requirements Affect You
January 23, 2010
The FHA has decided to change some of their lending requirements. The is due to falling below their required reserves. The changes the Federal Housing Authority are making will not affect most borrowers. Only borrowers with the lowest credit scores are going to be affected and the changes should help build the FHA’s capital cushion.
Just a few years ago, the government agency was just insuring around 3% of loans. With lending practices still much more liberal than conventional loans, the agency is insuring over 30% of loans today. FHA lending practices allowed borrowers to finance home purchases with as little as 3.5% down while conventional mortgage without the government backing costs a buyer from 10%-20%. With the rising number of FHA loans in default, the agency’s reserves have falling below the requirements set by congress.
One of the steps taken to increase the FHA reserves is that the upfront mortgage insurance premium has been raised from 1.75% to 2.25%. The won’t affect most borrowers since the upfront MIP is frequently rolled into the mortgage amount. On a median prices home, this will increase a borrower’s payment by less than $10 per month. They have also asked permission to increase the annual premium which is currently as high as is allowed by law.
The second step taken is to raise down payment requirements. The really isn’t going to affect most buyer’s. The increase is only for those borrowers whose credit score is below 580. Anyone below a 580 will now be required to make at least a 10% down payment. Anyone with a score above this will still be able to get an FHA backed loan with the normal 3.5% down payment. With the average credit score of conventional borrowers currently being in the mid 700′s, this is still a great program for most borrowers. One thing to keep in mind with the increased down payment requirement is that most banks are not currently loaning money to borrowers with credit scores under a 600. So the change to the down payment requirement really won’t affect current lending practices.
The final step taken that directly affects borrowers is that the seller concessions allowed has been reduced from 6% to 3% of the sales price. This will affect how much of the closing costs a seller can pay for the buyer.
Other steps that the FHA is taking is to monitor its approved lenders more closely to make sure they are following the agency’s guidelines. The FHA will start including lender scores on its website in February. Some congressional leaders are still pushing to tighten the FHA’s lending requirements even further. However, most feel that the changes that have already been made are a great step for the agency to secure its finances without impacting the housing market adversely.
With the changed the FHA has made to the 90 flip rule and their move to make sure they have the finances to continue insuring mortgages, the future looks great for the long term. Many analysts believe we have seen the bottom of the current housing market crisis. We are still in a great buyers market and rates are still at or near all time lows.
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Mortgage Woes of the Wealthy
January 21, 2010
I’m usually not in the ‘mood’ to talk about the problems the average wealthy American has when there are so many middle class Americans struggling to get by. However, this bit of information caught my attention.
Around 12% of U.S. mortgages of $1 million or larger were late during the Fall of 2009. Thats double the rate for loans under $250,000 and almost triple the default rate on million dollar mortgages 12 months earlier, according to First American CoreLogic Inc., a California-based research firm.
Lenders have tightened on standard conforming loans, but have tightened even more on the jumbo and non-conforming loans. Banks can’t sell these loans through the traditional means of Fannie Mae or Freddie Mac. Lenders consider these the highest risk and are now requiring as much as a 40%-50% down payment. Even the borrowers with the down payment, perfect credit and plenty of income are having problems.
A lot of these loans made over the past few years were adjustable rate or had balloon payments that are now coming due. The wealthy had been able to get loans with payments that didn’t even cover the interest due with the promise to make higher payments later. Although rates are lower, some jumbo loan borrowers are facing catch up payments. With the decline in home values hitting high end homes even harder than the average home, these borrowers are faced with the decision to take a loss, foreclosure or try to refinance in a market that is almost impossible for them to do so. Currently, more than 73% of interest only loans are underwater. The rich are finding it easier and more financially beneficial to walk away from a lot of these bad loans.
Wealthy Americans have the kind of financial privileges…… and problems…. that the rest of us can only dream about. Granted, the most difficult problems the wealthy are having with mortgages is on second and vacation homes.
One important fact to keep in mind: the top 20% of U.S. earners account for 60% of consumer spending. The is a huge fact as we continue to face economic recovery. If even a small percentage of the wealthy are having trouble paying their mortgages, that affects what they can purchase in general consumer goods.
Aren’t most of us so relieved that we don’t have that problem to deal with.
Scridb filterFHA Suspends 90 Day Flip Rule
January 21, 2010
Looks like FHA has suspended the 90 day flipping rule for the next 12 months. Starting February 1st, FHA borrowers can get loans to purchase homes recently bought by investors. So for the next year…. investors won’t have to wait 90 days to resale to FHA buyers. Of course there are some rules to this…
Scridb filterObama Plan Falling Short
January 21, 2010
President Barack Obama’s plan to fix the foreclosure crisis has not quite worked out as intended. Hopefully this won’t put the housing recovery at risk.
Last February in Arizona, President Obama unveiled his plan to slow foreclosures and help the housing market get back on track. Looks like that plan was a bit over hyped. Here we are almost a year later and just a fraction of the original 3 – 4 million that were projected to get help, have actually been helped. Most are having trouble even completing the application process. Those that are trying can’t get help from the bank that is supposed to be helping them. The more borrowers that can’t be helped, the more foreclosures we will be seeing in the months and years to come.
RealtyTrac reports that 2009 foreclosure notices were up 20% from 2008. In addition, home prices are down 30% from their high mid-2006. If the current estimate of foreclosures this winter happens, the average price will continue to fall. Foreclosures still are the biggest threat to our housing market and to our economic recovery.
Obama’s plan was to help borrowers by lowering their interest rates and making their payments more affordable. The temporary modification was supposed to become permanent after the borrower made three payments on time and completed all the required paperwork. As of December, only 7% of those who are in the program have completed it, according to the Treasury Department. Another 5% have dropped out of the program entirely because they missed a payment or were found to be ineligible otherwise. The rest are still waiting for an answer from their lender.
Of course the banks are blaming the homeowners for not getting paperwork returned on time, but of course from what we are seeing, banks tend to ‘misplace’ a lot of paperwork or you can just never get through to the department you need.
Bank of America, has completed modifications for less than 2% of the estimated 200,000 borrowers that have enrolled in the program. Wells Fargo, another large lender, is aslo having very little success in converting their borrowers that have been approved for modifications.
Most lenders are approving very few of their applicants. However, Ocwen Financial Corp. and Carrington Mortgage Services, have modified loans for 40 percent of their enrolled borrowers and rejected only a few. So is this a problem with the government formula for loan modification or a failure of the lenders?
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