Welcome Back Readers! I apologize in advance for the negative tone of this post, but it is information that people who plan on buying this year need to have. There are many solutions available to this problem, there are other programs that allow cash poor buyers to still purchase homes. Call me if you want to find out how those programs can benefit you, in the meantime please be aware of the following info.
FHA has announced policy changes today that will potentially have a negative impact on the housing market. Read on after the jump to see excerpts from a release by NAR:
"In October 2009, FHA announced that its capital reserve fund had fallen below the congressionally mandated level of 2 percent. The drop in capital reserves has led Congress and the Administration to call for changes to strengthen FHA.
On January 20, 2010, FHA announced major changes to ensure its long-term financial soundness. FHA is trying to balance three fundamental objectives: 1) financial soundness of the FHA insurance fund - ensuring that its capital ratio returns above 2 percent, 2) fulfilling its mission of serving borrowers not adequately served by the private sector and 3) facilitating the recovery of the housing industry and the over-all economy.
FHA announced changes in the following areas:
The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FHA will continue to allow the financing of the UFMIP.
Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.
FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the up-front premium.
Seller concessions will be reduced to 3 percent from 6 percent."
OK, first off, I have to say it, how in the world do these changes do ANYTHING to help FHA's problems with liquidity? How does allowing the upfront MI to be financed put money into a capital reserve fund? That higher payments stemming from it each month don't go to FHA.
How does lowering seller assistance put more money into FHA's capital reserves fund? Anyone?
I understand that FHA made bad decisions. I understand that the default rate is hurting liquidity. These decisions that were made in the past will continue to affect how FHA's books look for years to come, but how do these changes make them look better.
FHA is hurting tomorrow's buyers for the mistakes of yesterday. What's going to happen is very simple, they will say they made changes, go and get their postive PR and their books will still look bad.
The changes will however have an impact on cash poor first time buyers that utilize FHA. Lowering the seller assist to 3% means that now buyers have to come to the table with more money. What that will do is keep borrowers who don't have that money from coming to the table at all.
Where's the problem in that you say? Well, how about fewer homes selling?
Also, how does making a buyer come to the table with more closing cost money out of pocket help economic recovery? Now the buyers who do make it to the table have less money for repairs, painting, furniture, etc. so less money will get put into the local economy.
You can argue that buyers without "skin in the game" are the reason for the default rates and that this will prevent future problems. You would be wrong though. Look at the defaults happening across the country. How many of them are people who had skin in the game choosing strategic defaults? How many of them are related to job loss? How many of them are related to people who got greedy and took out negative amortization loans just so they could "trade up"?
Now tell me how many of those defaults are first time buyers. The ones who are responsible, who have good credit scores, the ones who pay their bills, who pushed and saved to be able to achieve the dream of homeownership, the same buyers who now as owners take care of their homes, pay their mortgage, make improvements to their homes. The same buyers who the first time buyer tax credit was supposed to entice into the market.
The same buyers who needed 6% seller assist because otherwise they could never have bought a home. Those responsible, deserving buyers won't be buying a home now.
I ask again, how does shutting them out of the market help FHA liquidity or economic recovery?
As always, I'd like you to be part of the conversation, so if you like what you read here please comment, forward The Lancaster Connection.com to your friends, subscribe and if you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-490-8999!
Your Friend in Real Estate,
Jason Burkholder
Weichert, Realtors - Engle & Hambright
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