FHA tightens their reins on it's guidelines

The FHA just announced tighter guidelines (January 20).

Insurance premiums increased from 1.75 to 2.25 percent. Seller concessions are limited to 3 percent, down from 6 percent and new borrowers with a FICO score below 580 will need a 10 percent down payment instead of the 3.5 percent now required. GASP! We have a choice. We can choose to support what they are trying to do, or we can complain loudly and keep the buying public confused.

We are not going to get everything we want or think is needed. In down markets like this it isn't interest rates and terms that will pull us out; it is buyer and lender confidence in the market.The FHA does not live to prevent the recovery. Let's make sure we don't do anything to prevent it either.

Perspective helps in times like these.

When the Florida Condominium Act was made law in the 70's, it was going to 'kill the condo industry." In fact, confidence in the concept and stronger condo documents gave the consumer more confidence in the concept.

When the Florida Timeshare Act came along, it was going to 'kill the timeshare industry.' In fact, the public started trusting the concept and buying. Major hotels came into the business, which confirmed its credibility, and timeshare sales took off.

When interest rates were twenty percent and builders were paying six to eight points to buy down fixed mortgages to 12%, the industry and its experts all agreed on two things: “It was going to kill the industry" and “this country would never see single digit interest rates again. It didn't happen. One result: adjustable mortgages were born.

In 2006-2008 our onsite sales team did about seventy million dollars as broker of record for five condominiums. It was great. Interest rates were low, buyers were living in fear it seemed that they may not get in on the opportunity to own at least one condominium.

Condominium developers, Realtors, lenders and appraisers made a ton of money riding a condominium bullet train that was rapidly derailing down a slippery slope. It was almost embarrassing not to own at least one piece of real estate.

Lenders and real estate agents did not complain about the 'if you can fog a mirror you are qualified to buy real estate" or the feasibility studies that agreed that if you owned land, your project was approved. Or so it seemed.

Fast profits were made by no- risk investors buying a condo one day and selling it for a profit the next. This was reported and explained to the public as presales, when the market knew this was only a paper market.

For the first time in memory, interest rates did not stop sales, lenders and high prices did. But not to worry.

When sales stopped, and cash flow dried up, where better for developers to find money to make mortgage payments than condominium association funds. And who can forget those investors who purchased rental conversion units and never make a mortgage payment or an association payment. Or those who purchased presales in high rise condominiums, then baled before the condominium developer was able to close on the sales, leaving the lender and developer in one of worse cash flow positions imaginable.

Lately it dawned on me. I need to button it. I need to learn to work with HUD and the FHA. I am a marketing consultant and onsite sales broker with tons of experience. Just because I am out of ideas and frustrated does not mean the FHA is a bad program.

The government basically got us into this mess, through its permissive 'don't ask, don't tell' qualifying process, a system process was so loose, it was practically impossible to not qualify for at least one home if not two. And the closings just kept coming.

It's a new year. It is a good time to rethink our thinking. We are professionals in real estate. We need to understand the times and know how to respond. There will be more changes coming, just like there will be in your business or any growing business.

Here's a thought. Let's agree that we need to sell what we have to sell. It doesn't matter what the rules are, we can work within them. We always have.

We need to stop complaining to the public every time we don't get what we want.

Remember: The FHA is in business to protect you and me, the taxpayer. While many of us, including lenders, real estate brokers, mortgage brokers were making record breaking commissions, they were being set up to lose billions of dollars.

The best way for them to serve us is to do everything possible to restore credibility to the condominium and residential industry, prevent as many foreclosures as possible, and help qualified Americans afford to purchase a home, if that is there choice.

The condominium market is as mixed up a yard dog's breakfast. Unscrambling it will take time, but it will also take good ideas and the support of Realtors, homebuilders, lenders, and mortgage brokers.

Here's a challenge. No one expects us to agree with everything or each other on what needs to be done. We can agree that until guidelines are tested, their effectiveness will not be known.

Therefore, when the FHA announces new policies and guidelines, let's at least give them a chance, and while we are at it, try to figure out how we can sell what we have to sell.