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.
Accounting 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.