New FHA Rules Present a New Challenge for Agents

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soldI guess I wrote yesterday's blog about needing help navigating through a myriad of new housing provisions a bit too soon.  Today, FHA announced new rules that flesh out HUD Secretary Shaun Donovan's announcement in December that buyers would soon have to put more skin in the game.

Some of the rules will require lenders to maintain more reserves and make responsible loans, while being more accountable for bad decisions in the past.  Lenders with sloppy underwriting practices could lose the ability to write FHA backed loans.

Other part of the announcement more directly affect borrowers, will need to have better credit scores (580 or above) when their down payment is only 3.5%; those with lower credit scores will  may have to put 10% down.  In addition, the Mortgage Interest Payment (MIP) will increase to 2.25% at the beginning of the loan.  Seller contributions to closing cannot exceed 3%, half the current 6%. 

These regulations are intended to strengthen an FHA weakened by an avalanche of delinquent loans and insure further access to the program.

The lender provisions take effect immediately but the remainder will be activfe until the late spring-early summer.  People hoping to use the tax credit will still go by the old rules.  Once the credit is done, buyers will be faced with higher credit requirements and less help - a double whammy, especially since the credit is unlikely to be renewed again.

As I have said here before, a responsible agent should not oversell the benefits of homeownership to a shaky buyer.  For those potential buyers who are wavering, now is a great time to buy.

Comments (6)

Andrew Monaghan
The Monaghan Group - Glendale, AZ
CRS, GRI, EPro Associate Broker

We need to remember that home ownership is a privilege not a right, in this day of instant gratification is it too much to ask that a buyer actually can afford what he is buying


Jan 20, 2010 02:57 PM
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

Bob, I can easily see both sides of the coin. It's imperative that we quit making marginal loans, but many buyers are marginal.

Jan 20, 2010 02:58 PM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

So many changes.. I hope all this ends up being better for the consumers... it is making everyone else crazy.

Jan 20, 2010 03:09 PM
Bob Corcoran
Corcoran Consulting & Coaching - Swansea, IL

I am not necessarily saying the changes are bad in the long run, Short term they they may sting as people have to save 65% more for the down payment & pay more at closing.  Considering some people have more trouble pulling together the down payment than paying month to month,the rule may hurt this groups but may not solve the problem unless more thorough underwriting is done.

Apparently the loans will still be made in "underserved markets" so poorer citizens won't be closed out.

Jan 20, 2010 03:30 PM
David Saks
(retired) - Memphis, TN

The FHA changes are good, Bob. I believe that the changes are improved with contingencies in place, i.e., lender accountability, to insure the integrity of the financing process.

Jan 20, 2010 05:25 PM
Bob Corcoran
Corcoran Consulting & Coaching - Swansea, IL

No question about that on the lender changes, David. As for the consumer changes, they are probably necessary to maintain the integrity of FHA.  However, as I monotoned,they will hurt in the short run.

Jan 21, 2010 02:35 AM