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CHANGES AT FHA Direct from HUD - My comments follow:

Reblogger Kirk Williams

Mortgage and Lending with Private Venture Capital

January 23, 2010 06:41 AM

Via David H Stevens (United States Dept. of HUD):

I wanted to take a moment to make sure you are familiar with events surrounding a sweeping set of policy changes for FHA announced earlier this week. The announcement details the changes that Secretary Donovan promised to deliver by the end of January when he testified before Congress last month.

The new policies are designed to strengthen the FHA's capital reserves so we can continue to fulfill our mission of serving underserved communities. In addition, we were determined that these changes should support, not disrupt, the nation's housing market recovery. Bringing these changes to market has been the result of a lot of hard work and long hours. And, I am proud to have worked with so many of you on this initiative.

What changes will be implemented? We announced the following on January 20:

Increase the up-front mortgage insurance premium (MIP) to 2.25%;

Update credit score and down payment requirements for new borrowers;

Reduce seller concessions to three percent, from six percent; and

Implement a series of significant measures aimed at increasing lender enforcement.

When combined with the risk management measures announced in September of last year, these new changes are among the most significant steps ever taken by FHA to address risk. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.

Let's go into more detail:

Announced FHA Policy Changes:

1.      Increase the MIP to build up capital reserves and bring back private lending.

o    The first step will be to raise the up-front MIP by 50 basis points to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

o    If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.

o    This shift will allow for the capital reserves to increase with less impact on the consumer because the annual MIP is paid over the life of the loan instead of at the time of closing.

o    The initial up-front increase is included in Mortgagee Letter 2010-02 and will go into effect in the spring.

2.      Update the combination of credit scores and down payments for new borrowers.

o    New borrowers will now be required to have a minimum credit score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 credit score will be required to put down at least 10%.

o    This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

o    This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

3.      Reduce allowable seller concessions from 6% to 3%.

o   The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.

o   The change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

4.      Increase FHA lender enforcement.

o    Publicly report lender performance rankings to complement currently available Neighborhood Watch data which will be accessible via www.hud.gov on February 1.

§ This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

o    Enhance monitoring of lender performance and compliance with FHA guidelines and standards.

§ Implement Credit Watch termination through lender underwriting ID in addition to originating ID.

§ This change is included in Mortgagee Letter 2010-03 and is effective immediately.

o    Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.

§ Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

o    HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:

§ Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.

§ Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative.

Note: This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.

In addition to the changes I have outlined, we are continuing to review FHA's overall response to housing market conditions, to evaluate its mortgage insurance underwriting standards, and to improve its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

I know this is a lot of information to absorb. Listed below are links to some of the major stories about the announcement. I promise to keep you aware as we implement these changes going forward.

Wall Street Journal (Nick Timiraos, 1/20) "FHA Sets Tighter Lending Requirements" The Federal Housing Administration is implementing more-stringent lending requirements and higher borrower fees to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency. LINK



Washington Post (Dina ElBoghady, 1/20) "FHA plans to require borrowers to produce more cash for downpayments" The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials. LINK



Chicago Tribune (Mary Ellen Podmolick, 1/20) "FHA homeownership rules to change" The Federal Housing Administration announced changes Wednesday that will make it more expensive for homebuyers to secure agency-backed mortgages while some consumers will be priced out of the housing market. LINK



CNNMoney.com (Tami Luhby, 1/20) "FHA loan requirements will make it harder to get a mortgage" It's going to be harder to get a government-backed mortgage from now on. LINK

CNBC.com (Diana Olick, 1/20) "FHA Boosts Insurance Premiums to Cushion Defaults" In a move to shore up the FHA's beleaguered balance sheet, Commissioner David Stevens on Wednesday announced big changes at the government mortgage insurer that now backs about half of all home loans to the nation's minorities. LINK

I want to thank you for your efforts to keep this housing system on track. The role of the Real Estate Agent, Mortgage Lender, Settlement Service Provider, and all who make the dream of homeownership a reality, is critical to stabilizing this economy. Your work is for a good cause. We really are making a difference in people's lives. Thanks for the partnership!

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Craig Bynum

First Choice Loan Service - Charlotte, NC

The Get it Done Lender

The changes that have been put forth by FHA are there to benefit FHA and not the consumer. I hope that we can have some broad changes made to actually help the consumer. Thanks for the post.

Jan 26, 2010 03:51 AM

Kirk Williams

Private Venture Capital - Everett, WA

I could not agree with you more Craig...Below is the response I sent to HUD regarding the above changes....

Thank you for being accessible and your service. I hope you take my comments in the spirit they are intended. First off I sincerely believe there is a huge disconnect. HUD is running around making changes that do not impact the consumer positively and in fact doing harm.

The revised Good Faith Estimate is the first item. Explain to me what the problem was with the previous format. To me the purpose of this "improved" document is to regulate how much a mortgage professional can make (nothing to do with consumerism) even though every other profession in the world including the medical community do not have to show how much they make on each transaction. No other industry is required to itemize with precision or within tolerances the exact costs etc. The consumer should take some responsibility to shop as they do with everything else that is consumed and HUD it seems is trying to 'protect' the consumer in a manner that is not possible, ackward but also ineffective and for sure confusing to everyone including HUD itself.

The notion that a document as it is designed will safeguard the consumer from bad behavior or their own stupidity is baffling to me. This document should be scrapped and I sincerely believe you instinctively know this. Humility is not a bad thing in fact it is a sign of character and integrity. I ask HUD to exercise it.

Oversight has been the problem and continues to be the problem and unfortunately all the agencies have dropped the ball including congress (obviously). HUD should be focused on policy to bring the real estate market back to include programs that really do assist the struggling home buyer not these ineffectual non-solution solution programs that continue to be pitched across America only to fall on their face as evidenced by the increasing foreclosure rate.

"Reduce allowable seller concessions from 6% to 3%....o The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions."

The above change at least is consistent with the other changes in that it is meaningless and in fact it harms or is yet another nail in the coffin of what is a very dead and more bad news to come real estate market. Where is the magic with the number of 3% vs. 6%? No magic.

This policy is based on a false premise that was first offered up by New York Attorney General Cuomo and that is the appraiser is the problem here and the result of such bizarre analysis is the gutting of an entire sector - banks and "AMC's" coming in gutting the modest fee the appraiser receives in the name of making sure the report has integrity and accuracy. The AMC's are vultures in an economy that is in peril. Since HUD likes disclosures so much you could add a form for the borrower, appraiser, realtor and lender to sign that simply says he was not influenced by anyone. There...we all are covered ...kind of like the lead paint notice if you will.

My point to the appraisal issue is in today's market as it had been up until the year 2000 (before the repeal of the Glass Steagall act of 1933)appraisals were and are underwritten by underwriters so any report that has irregularities can be picked up by an underwriter...that is their job. 2nd, all the major lenders have an automated system they run the appraisal through with the sole purpose to dumb down a reports value even though the data they glean from electronic sources may be flawed which is why we have an appraiser in the field in the first place. This secondary check is a direct result of the nonsense created by Cuomo and friends as a defensive move for cover in case Barney Frank & friends decide to offer up punitive ridiculous regulation or penalties.

How can you inflate an appraisal in a declining market anyway? I suppose the next thing you will do is decide to increase the down payment. From the beginning of time the folks with the gold wanted to lend only to those that could pay back the loan. For the folks that put 30% down three years ago and since lost their jobs sure wish they had the cash in the bank now wouldn't you agree? So down payment is not the issue here which is why HUD should BRING BACK THE DOWN PAYMENT ASSISTANCE PROGRAM!!! For heaven sakes... a cost neutral incentive and yes the appraiser will have to do their job ... they can do it...!!!

I am not a fan of HUD right now and the less tinkering the better. Please re-consider the approach. Take a step back and bring in some mortgage professionals. We can help and we are not the enemy even though we are made out to be.

I have been doing this for 25 years and I have been successful because my clients have been treated fairly and that is why they continue to come back. The mortgage professional has developed systems and education for the consumer over the past 25 years that the banks never considered offering or delivering yet the regulation favors the banks. And Mortgage Brokers are being wiped out and the Mortgage Banker is next because there is no way to make a living the way things are going so what's left are the banks just like it was 30 years ago. Higher costs (terrific profits - undisclosed of course) and it will take months to close. I REMEMBER, I WAS THERE, I WORKED FOR A BANK.

You buy a loaf of bread at a store that has to tell you how much they make on the bread yet the other store sells the same bread at the same price and doesn't have to disclose what they make and on top of it points to the other store to note how much they are making .... the result is the consumer is then wondering if they are taken advantage of because the profit is disclosed? Why do the banks get a pass on this?

Increasing the upfront MIP back to 2.25% is the smart thing to do and should have been done years ago so not all is bad or wrong and I do believe we both want the same thing however HUD must revisit the approach....we the people beg you to do so!

That's all I have for now. Thanks for listening. I wish us all well.

Jan 26, 2010 03:57 AM