Foreseeably Harder Approvals: FHA gets tough
Thanks Ken!
As usual, Ken Cook, does a great job breaking down some of the latest expected changes to FHA loans. I find it shocking that everyone ran around saying we need to help clear the inventory by extending and expanding the First Time Home Buyer Tax Credit and now they're thinking about making it tougher to buy a home. So which is it? I thought it was odd when they raised FHA down payment requirements from 3% to 3.5% while saying they needed to get the housing market moving again. A jump from 3.5% to 5% will most certainly eliminate a larger pool of ready, willing, and able buyers.
Although the theory of "having some skin in the game" is a commonly accepted idea, this reeks of an attempt by Secretary Donovan to save himself at the expense of home buyers and possibly the housing market recovery. When the federally mandated reserves started to slip, we should have been talking about solutions, not when they are 1.47% below where they should (the law requires the FHA insurance pool to be maintained at 2%, Secretary Donovan reported it was at 0.53%). Maybe we should have learned a lesson from the banks that didn't notice how low their reserves were getting before then announced (seemingly overnight in many cases) that they were broke.
How does someone not notice these things? Ugh.
Thanks again Ken!
For many years home mortgage insured by the Federal Housing Administration (FHA) have made home ownership possible for millions of home owners. During the "boom" FHA loans lost a lot of ground in the marketplace because non-conforming loans were often easier to get and cost the borrower less scrutiny and often less out of pocket. (More on Examiner.com from my article this morning.)
Welcome the day when Housing and Urban Development Secretary (HUD) Shaun Donovan stood in front of Congress and reported the reserves of the FHA insurance pool to be only .53% - far below the federally mandated, by law, 2% reserves. As you may imagine Mr. Donovan, in an effort to save his job, is now scrambling for good ideas to get those reserves back to the minimum legal level. Let us all observe as the fireman tries to put out a big fire while his own pants are on fire.
Here are some of the recommendations thus far:
- Raise the required minimum down payment from 3.5% to 5%
- Lower the maximum seller contribution from 6% to 3%
- Establish a required minimum credit score
- Eliminate the ability to finance the Up Front Mortgage Insurance Premium (UFMIP) into the loan
- Raise the cost of FHA mortgage insurance (higher premiums)
Currently it is much more difficult to be approved for a home loan, purchase or refinance, than it was two years ago or even six months ago. Mortgage brokers are not dropping like flies they have already dropped like flies and the remaining small percentage are having great difficulty getting loans underwritten and closed when they involve lower credit, lower income borrowers. Mid-level lenders are now the ones who are disappearing as they still lose warehouse lines of credit at an astonishing rate. This week saw the demise of LendAmerica.Judging from the applications I have accepted and closed over the last few months these changes will absolutely impact at least 25% of the borrowers who have successfully purchased or refinanced their homes in the last few months. In fact I have two borrowers today who easily qualify who will likely not qualify if these changes are made. Considering I'm one out of tens of thousands go ahead and do the math.Just wait ... it's not only FHA - it's Fannie, then Freddie and Ginnie. We predicted it a few months ago that it would not be long until buyers would need a minimum of 5% down, a minimum of a 640 credit score and rates would start to rise.Are you ready to pay attention even if you don't get CEs for participating in the conference calls? If I were an agent I would be - I would want to be ahead of the curve!Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
Comments(1)