Dispelling myths about FHA changes

Real Estate Technology with Content, coding, marketing, host.

Changes always make for great conversation. Just a few years ago that conversation was relatively limited in reach to inner office or group communication. With the advent and proliferation of the Internet and all it brings information truly spreads at the speed of light. With everyone having the same amount of reach regardless of having the same knowledge and experience the "playing field" for readership is equalized.

The Federal Housing Administration, the arm of the Department of Housing and Urban Development which insures mortgages on millions of home, recently adopted some changes and announced a smattering of proposed changes which have the potential of making it more difficult for struggling Americans to enter the housing market or make a change in housing.

FHA home loansAccounting demonstrates FHA loans to be in default or foreclosure 18% of the time when the standard is 14%. Numbers like these are massive compared to the levels of just 6% and 4% of a couple years ago. Obviously it is important for every lender and insurer to take steps to protect their own ability to continue in business and providing employment for the families who depend on them. Since the FHA is one of the only government programs which operates at a profit without taxpayer assistance it is important to the organization, industry and people it remain that way.

Some of the announcements by HUD are scheduled take effect while others are still open for public comment even though they have been "reported" as final and factual.The following intends to dispell the myths.

FHA down payments has been increased to 5% FALSE

HUD has proposed raising the minimum down payment to 10% for borrowers with a minimum middle credit score of lower than 580. Proposing this change HUD will place it into the Federal Register for open comment in February. Open comment means if you think this is a bad, or good, idea you need to make your input known during the comment period instead of voicing your opinion after it goes into effect.

FHA upfront mortgage insurance is increasing TRUE

Effective for FHA loans for which the case number is assigned on or after April 5, 2010, FHA will collect an upfront mortgage insurance premium of 2.25 percent. This includes both types of streamline refinances whether credit or non-credit qualifying. Case numbers are assigned at the time of full application when the lending process begins.

The HUD anti-flip rule has been waived TRUE

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

* All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
* In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
* The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Seller concessions have been decreased by 50% FALSE

More than anything this is a throw-down to the appraisers of the nation. The proposed change, to be placed into the Federal Register for open comment in February, intends to decrease the allowable seller contribution from the existing level of 6% of the sales price to a maximum of 3%. This is another one of those opportunities you have to make your professional experience known during the open comment period instead of waiting until after it goes into effect.

Do yourself, your clients and your industry a favor and make sure you fully understand or work with a trusted FHA professional who comprehends changes like these. Many industry participants rush to blog or otherwise pontificate about changes without taking the time to digest the changes, speak with a representative of HUD or engage an experienced FHA mortgage professional.

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I started writing on Active Rain in 2006 when I was representing the mortgage industry. I am no longer in that industry and many of the older posts contain outdated information. Please do not contact me for LENDING or MORTGAGE questions but rather contact a licensed mortgage professional from your area. I have always been in marketing and branding and that is still what I do. Thanks for reading!

Comments (11)

Sandy Wagner
RE/MAX Professionals 253.225.8322 - Gig Harbor, WA
Short Sale Specialist Tacoma, WA, and Gig Harbor,

Thanks for posting this. It's a good blog to pass along.

Jan 23, 2010 02:42 AM
Pat Champion
John Roberts Realty - Eustis, FL
Call the "CHAMPION" for all your real estate needs

Thanks for taking the time to fully explain the new FHA changes and letting us know we do have an opportunity to voice our opinions before the changes take effect. Well written post.

Jan 23, 2010 02:44 AM
Suzy Morris
The Morris Team - Carlsbad, CA

Thanks for the clarification.  The articles I've been reading have stated that these are policies going into effect in the Spring and Summer, not just open for comment. 

Jan 23, 2010 02:48 AM
Dennis Duvernay Broker/Owner
Hillview Realty - Northbridge, MA

Good explanation Ken...I need to Bookmark this...

Jan 23, 2010 02:51 AM
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Hi Ken,

Thank you for sharing an informative and helpful post.

John Pusa

Jan 23, 2010 03:15 AM
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator

Sandy - feel free to reblog or link.

Pat - please do take the time to express your comments to HUD on any and all subjects when offered the opportunity to do so.

Suzy - exactly the reason I have posted this. Some blogs do not even mention these are proposed for summer but give the impression they are already in effect.

Dennis - feel free to save, share or redistribute.

John - I hope it does help.

Jan 23, 2010 03:46 AM
Thom Abbott
MyMidtownMojo.com |770.713.1505 | Intown Atlanta GA Condo Living - Atlanta, GA
Midtown Atlanta GA Condos For Sale

Thanks Ken...some great information here! I had someone in my office say to me the other day the down payment had increased. But then again, he also told me a major condo building went into foreclosure, and that was false.

I've never really listened to him....and you gave me even more reason not to.....

See you on Thursday!


Jan 23, 2010 12:12 PM
Ken Cook
Content, coding, marketing, host. - Marietta, GA
Content Marketer/Creator

Thom - some people just like to talk. They have no idea the damage they do to their self and/or others.

Jan 25, 2010 09:06 AM
Lyn Sims
Schaumburg, IL
Real Estate Broker Retired

Good info and updates, thanks.

Jan 26, 2010 12:32 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Ken... nice job with this... I especially liked the myth about the percentage of FHA defaults and or foreclosures. I am including this post of yours in my blog post today, We should abolish FHA loans. Your statement is one reason to why some people are saying abolish FHA, yet it is more important than ever before. Thanks for the blog.

jeff belonger

Jan 26, 2010 02:32 AM
Julia Odom
Select Realty Professionals - Chattanooga, TN
Chattanooga Homes for Sale

In response to your comment on my blog (and perhaps this would be a fortuitous topic for a post all of its own), where can I put in my 2¢?

Jan 26, 2010 12:41 PM