Wednesday, January 27, 2010

Article by Laura Everett

New Policy Guidelines for the FHA

One of our best #AREFchat discussions to date was on the proposed changes to the FHA guidelines. Currently, most first-time home buyers take advantage of the FHA loans because of their low down payment requirements, only 3.5%. Well, to prevent foreclosures, the Federal Housing Administration has decided to become more stringent on the lending requirements for these loans. There were many ideas being thrown around, including raising the down payment minimum to 5%. Well, with most of the market being comprised of first-time home buyers, many real estate professionals were not supportive of the down payment boost.

So, we are happy to report that the Federal Housing Administration has passed new guidelines for FHA loans, but they did not raise the down payment requirements to 5%. Instead, they have raised the insurance premium from 1.75% to 2.25%. The way an FHA loan works is that he Federal Housing Administration insures the lenders against defaults on these loans. The FHA is not actually the lender. Due to the FHA-support, the borrower must pay an upfront insurance premium, which is currently set at 1.75% of the total loan amount.

Now, they will be raising the insurance premium to 2.25%, which is the second increase over the past two years.

While the 3.5% down payment will stay in tact for most borrowers, the FHA will require a 10% down payment from high-risk borrowers (those with a credit score below 580).

The new guidelines also have reduced the amount of money seller can kick in for closing costs. The current level is 6% of the sale price, but with the changes to the FHA policy, sellers will only be able to contribute 3%.

All of these amendments are an attempt to boost the FHA’s reserves, which have been steadily declining over the past year. For more details about the reserves and the policy changes, read this article from the Wall Street Journal.

Thursday, January 21, 2010

HUD Lifts 90 Day Rule!!

Measure to help bring stability to home values and accelerate sale of vacant properties

WASHINGTON - In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

"As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization."

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

"This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said.

In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."

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.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD's website.

Wednesday, January 13, 2010

by Kenneth R. Harney

The drop in the latest pending home sales index got a lot of press attention, but that blip downward shouldn't be your guide on what to expect for real estate in 2010.

The 16 percent decline in November pending sales from October's unusually high index was due almost entirely to buyers' behavior confronting what they thought was an expiring tax credit.

In October the pending sales index went off the charts. Buyers were scrambling to sign contracts before the $8,000 credit program expired at the end of the month.

In November, buyer behavior was just the opposite. When Congress extended the credit through next April 30, the pressure was off. Nobody needed to rush to sign contracts.

Not surprisingly, the November index hit the skids.

Meanwhile, even November's pending sales number was a solid 16 percent above November 2008. That suggests that even without the extra incentive provided by the credit, the home sale market is gaining strength for its own fundamental reasons: huge pent-up demand, low prices and great financing.

But keep this in mind: Those fundamentals are dynamic - and buyers and sellers need to stay on top of them as they change in the weeks ahead.

For example, as we've noted before here at Realty Times, with the economy climbing slowly out of recession, and the Federal Reserve expected to throttle back on its mortgage securities purchases , interest rates are now trending upwards.

Last week's thirty year average fixed rate for new mortgages hit 5.2 percent, according to the Mortgage Bankers Association. That's still very low by historical standards, but it's up nearly a quarter of a percentage point just since mid December.

Fifteen year fixed rates averaged 4.6 percent -- a rise of one third of a point in the past few weeks.

Home prices are also beginning to trend upward in key markets, according to the latest Case-Shiller home price index. In San Francisco and Minneapolis, the index is up by about 15 percent since the low point earlier in 2009, according to an analysis by Bespoke Investment Group.

The same analysis found the Case-Shiller index up 8.3 percent from last year's low point to the latest month in metropolitan Washington DC, 7.6 percent in San Diego, 7.2 percent in Denver, 6.9 percent in Chicago and Phoenix, 6.8 percent in Dallas and 6.1 percent in Boston.

With reports of fewer layoffs plus significant new gains in manufacturing outplut and retail sales don't be surprised to see prices-and mortgage rates -- continue to rise in the months ahead.

Published: January 12, 2010


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