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Mortgage and Lending with Gateway Funding NMLS#133257

The opportunity you waited a lifetime for has arrived. That's right you paid your taxes now get your monies worth and tell your government officials what you think. Before you respond understand what the FHA has done for the industry lately. Then consider that the credit score as it relates to down payment is a mute point because investors don't buy loans with 580 scores. However limiting the seller assist will cause a great deal of borrowers to no longer qualify for loans.

 As you may know, the FHA has really stepped up to the plate in the last few years.

 This unique program is part of HUD, and operates in the fashion of insuring mortgages (not issuing or purchasing them), thus making the loans very attractive to investors.  Currently FHA-insured mortgages are at lower rates than either Fannie Mae or Freddie Mac rates.

 Borrower's with a job and credit (traditional or otherwise) can borrow up to 96.5% on a purchase and 97.5% of the value of their home on a refinance.  On a single family home, in some markets, borrowers can obtain loans up to  as much as $729,750.  You do not need to be a citizen to obtain these loans.  And you can utilize the income from family members and others (so called non-occupant co-borrowers/co-signers) that you have a demonstrated relationship with, to qualify income/asset-wise.  All of your 3.5% down payment can be a gift from another person with whom you have a demonstrated relationship.  The program also allows you to withdraw up to 85% of the value of your home in a "cash-out" transaction, well above the standard 75% guides at Fannie and Freddie.

 FHA has always been about "responsible" home ownership, and fair lending.  It is remarkably, self-funded with the premiums charged to borrowers!  (You read that correctly.)  While the likes of AIG and GM have taken 100 billion dollar federal hand-outs, FHA has managed its business risk quite well and not cost taxpayers a dime.

 FHA-insured mortgages have risen to their largest level ever in terms of the dollar amount of insured mortgages outstanding.  As a result, of this and a declining home value environment, FHA is for the first time ever, dipping below their statutory minimum capital held in reserve.  The little known "fund" called the Mutual Mortgage Insurance Fund ("MMIF") that actually holds the premiums that borrower's pay (2.25% one-time up front and .55% of the base loan amount every month), now needs to be replenished.  Rather than selling bonds, or borrowing money, or soaking the taxpayer, HUD has suggested tightening some of it's standards, in an effort to remain self-funded and non-reliant on the taxpayer/Government.  Refreshing, right?

 To that end, HUD has proposed reducing the amount a seller can give to the buyer of their home in a FHA financed transaction, from 6% to 3%.  This will mean that many buyers will, in effect, have more "skin" in the game.  Secondly, HUD is going to require minimum credit scores for the minimum down payment. This is something the "secondary market" has already done.  The hope is that by tightening these underwriting standards, loan performance going forward will improve.   There is a comment period until August 16, 2010 and after that the changes will go into effect October 1, 2010.

 To be heard please: Make comments Here.

Comments (5)

Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

There was a time when you saved money to buy a home, or you did not get a home. 25% of the sale price savings. There is nothing wrong with more commitment, savings, a stake in the property where to walk away hurts. And saving for the home hurts too, causes priorities, living below means. Too Walton like? It used to be real world, the norm.

Jul 19, 2010 03:57 PM
Robin Dampier REALTORĀ®
Coldwell Banker King - Hendersonville, NC
Hendersonville & Western NC Real Estate Source

I feel saving for something you really want makes it so worth while and you can really appreciate it when you reach your goal.  I can remember (I'm 69) saving to buy a skirt on layaway and that fantastic feeling when I could walk into the store with the last payment and claim my skirt.  Sometimes I would worry that I would outgrow it before I could claim it!  Just kidding.

Than credit cards came along -- end of story.  Well, not quite.  Look at the mess many folks are in now and the government keeps spending.  I think it is important to work for what you get and I can see a problem for people wanting to purchase if they haven't saved anything with the new rules -- and maybe not good for us but good overall.  Home buyers should have some "skin" in the game.

Sue of Robin and Sue

Jul 19, 2010 04:16 PM
Peter Buchsbaum
Gateway Funding - Horsham, PA
A relationship you can trust is an investment we a

Andrew,

Interesting response. I will say that thankfully you were not a decision maker in 1934 when the FHA was born to lead us out of the first depression.

The creation of the Federal Housing Authority successfully increased the size of the housing market. By convincing banks to lend again, as well as changing and standardizing mortgage instruments and procedures, home ownership has increased from 40% in the 1930s to nearly 70% today. By 1938, only four years after the beginning of the Federal Housing Association, a house could be purchased for a down payment of only ten percent of the purchase price. The remaining ninety percent was financed by a twenty-five year, self amortizing, FHA-insured mortgage loan. After World War II, the FHA helped finance homes for returning veterans and families of soldiers. It has helped with purchases of both single family and multi-family homes. In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When the soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA's emergency financing kept cash-strapped properties afloat. In the 1980s, when the economy didn't support an increase in homeowners, the FHA helped to steady falling prices, making it possible for potential homeowners to finance when private mortgage insurers pulled out of oil producing states.

Jul 19, 2010 04:18 PM
Mary Macy
Top Agents Atlanta Metro - Roswell, GA
Top Agents Atlanta Metro

It is not about the first leg down in this depression, it is about the second.  Markets never go straight down and most of us who have been in the business for awhile know the huge inventories of vacant homes sitting in our marketplace that the government has not foreclosed on for whatever their reasons may be.  We are all watching what will happen when the next shoe falls.  It is hard to console a buyer right now and promise them this is the bottom of the market knowing that it may just be the first step down!!!

Jul 19, 2010 04:33 PM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Seems to me that, with the wealth of data at their disposal and the glut of analysts and economists in-house, the FHA knew that, by limiting seller assist to 3.5%, a percentage of prospective buyers would not qualify to buy.  If they didn't know, they should have known or they should have listened to those who do know.  So, I see the consequences of this proposed change to be a deliberate move to restrict home ownership opportunities.

In areas like MD suburbs of DC where closing is very high, real estate transfers are a source of revenue for the state and many counties in MD.  I wonder if the functionaries at FHA understand that????

There will be no "unintended consequences" of this change.  It is, IMO, fully intended.

 

Jul 20, 2010 01:13 AM