If this stuff gets implemented, it's one additional challenge for the real estate industry, at a time when many agents (the ones still left, of course) are struggling to stay afloat. This makes me sick to my stomach.
For many years home mortgage insured by the Federal Housing Administration (FHA) have made home ownership possible for millions of home owners. During the "boom" FHA loans lost a lot of ground in the marketplace because non-conforming loans were often easier to get and cost the borrower less scrutiny and often less out of pocket. (More on Examiner.com from my article this morning.)
Welcome the day when Housing and Urban Development Secretary (HUD) Shaun Donovan stood in front of Congress and reported the reserves of the FHA insurance pool to be only .53% - far below the federally mandated, by law, 2% reserves. As you may imagine Mr. Donovan, in an effort to save his job, is now scrambling for good ideas to get those reserves back to the minimum legal level. Let us all observe as the fireman tries to put out a big fire while his own pants are on fire.
Here are some of the recommendations thus far:
- Raise the required minimum down payment from 3.5% to 5%
- Lower the maximum seller contribution from 6% to 3%
- Establish a required minimum credit score
- Eliminate the ability to finance the Up Front Mortgage Insurance Premium (UFMIP) into the loan
- Raise the cost of FHA mortgage insurance (higher premiums)
Currently it is much more difficult to be approved for a home loan, purchase or refinance, than it was two years ago or even six months ago. Mortgage brokers are not dropping like flies they have already dropped like flies and the remaining small percentage are having great difficulty getting loans underwritten and closed when they involve lower credit, lower income borrowers. Mid-level lenders are now the ones who are disappearing as they still lose warehouse lines of credit at an astonishing rate. This week saw the demise of LendAmerica.Judging from the applications I have accepted and closed over the last few months these changes will absolutely impact at least 25% of the borrowers who have successfully purchased or refinanced their homes in the last few months. In fact I have two borrowers today who easily qualify who will likely not qualify if these changes are made. Considering I'm one out of tens of thousands go ahead and do the math.Just wait ... it's not only FHA - it's Fannie, then Freddie and Ginnie. We predicted it a few months ago that it would not be long until buyers would need a minimum of 5% down, a minimum of a 640 credit score and rates would start to rise.Are you ready to pay attention even if you don't get CEs for participating in the conference calls? If I were an agent I would be - I would want to be ahead of the curve!Ken Cook - Georgia - FHA, USDA, VA and Conventional Home Loans (678) 439-8683
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I would like to see a compromise here. Leave the FHA guidelines in place with one exception....
Raise the reserve requirements so people are not house poor and they have an emergency fund. There really are quite a few people who manage to get an FHA loan but who probably should not be homeowners.
Jason, another challengefor those of us still in the business. In addition the buyers who should be able will not reach the American dream.
Wow, scary! I still think that some buyers are getting loans with 3.5 percent down and they are house poor, though.
Love the doctored-up picture! Hilarious!
Here we go again.
It's a tough pill to swallow. And we've already swallowed a handful.
I attended a Wells Fargo FHA/VA class just yesterday and they were discussing this exact thing. I just don't get it! The one that really makes my blood boil is lowering the seller contribution from 6% to 3%...that just makes no sense to me at all!
Seems like they are trying to over correct now!
If they gave us the choice to pick from that list which one would you pick?
I would pick the credit score... that one to me seems like the easiest one to buyers to fix.
Yikes! And people wonder why real estate is still not stabilized. And THIS is just another reason why I love Active Rain! I get the hard truth from the people who are willing to tell it like it is.
Wow! I guess the olden days of the American Dream, meant to work hard & save some money for a down payment... It's tough just to shut the faucet off.
Jason, those must be the blood sucking fangs of someone who doesn't have a clue. And, yes, I believe that is exactly the case. Don't over-correct in the midst of a housing crisis. The point of the tax credit is to get rid of some of these darn foreclosures and create a bit of friction within the home market. To turn around and start putting up obstacles mid stream, is, how you say this?... dumb?
While I support buyers having a greater investment into their property, I think all these new guidelines defeat the purpose of getting an FHA loan--making it easier for families to purchase a home who will have no problem making the mortgage payment. I bought my first house in college via FHA and wouldn't have been able to do it any other way. I saved up my own downpayment and still own this house today but it is a rental. I think the other proposals will definitely restrict buyers ability to purchase and not sure I understand the "why" unless perhaps FHA has just backed so many loans that they need to tighten restrictions to limit exposure. I admit that a 6% concession is pretty high for a seller and I have had sellers baulk at it but they don't have to accept it either.
While it may be tougher it is probably a good thing. We need to get back to the days where less people were able to get a loan.