Nevada Real Estate >> Las Vegas Real Estate Specialist: Get out your permanent markers, HUD seeks public comment on three main issues for FHA loans

Thank you, again, for your astute thoughts.  I will work on this now.  First, by reblogging.  And, then working the rest of your suggestions.  As Arnold said,  I'll be back. 

Thank you for bringing this to our attention.  FHA manual underwrites used to be a wonderful thing that many talented underwriters utilized.  Those with a Direct Endorsement will be much more cautious since they are protecting what is theirs.  It will certainly not make the situation any easier. ~ Doug

Thank you for this information. I will be sending in some comments

SUZANNE... .  my pleasure... here is the one time to where the government and HUD can hear our voices loud and clear.

DOUG... . well, FHA manual underwrites in my opinion are still good now. We have a few talented underwriters in-house that still try to make deals work... thinking outside the box. I know what you mean, that it has been much tougher because of those investors who purchase these deals.... but I am most worried about the reduction of the seller's concession to 3%.  thanks

DAVID... . my pleasure...  please pass this along to others...

Jeff, Thanks for the post. Little has been done in the financial community to stimulate sustainable growth in the housing sector and this is yet another example. I have been in business for 27 years and I have worked with many buyers who exercised the option to receive seller concessions beyond the three percent cap, with less than 580 FICO scores and with compensating factors that probably wouldn't pass muster today. Yet, these buyers who have been in their homes for the last twenty plus years have not contributed to the foreclosure epidemic. The proposed changes would have prevented them from becoming home owners. The call to action is absolutely essential to demonstrate that the pendulum is going too far to the right.

Good one Jeff - it is definitely time to roll up the sleeves and say NO MORE! Stop crippling middle America on their home buying and home selling ability. Many months ago you and I talked about how the government would over-react and go through the motions to make people think they were being "protected" by Congress. Now the pendulum has swung too far and people who deserve to buy and sell homes are being punished for the sins of their predecessors.

P.S. I like William's common sense perspective.

You always have great info to give us....YUP...tightening belts, tightening criteria and these points show the consumer just what is possibly changing in the way of FHA loans.

Jeff ... We could possibly disagree on number 2 on FHA questionnaire re reduction of seller concessions from 6% to 3%.  That's OK from my perspective and should help this government loan program provide money for qualified buyers who don't need so much credits from sellers.

WILLIAM.... .  very good answer about home ownership in general. But some of these studies are true in regards to the higher risks with those under 600 and 580. But I am sure there were many that had low scores that still make their payments.  The biggest issue, jobs...and many items costing more. But I do agree, if these proposed changes happened back then, there would be a lot less in homes... and I think that would have hurt our economy even more.

KEN... . I think you hit the nail on the head, in regards to gov't hurting the middle class per se. Overall, I agree, that many will suffer because of those that screwed this up from the past... those that got greedy, got their money, and ran for the hills.  And thanks for that very polite compliment.  thanks

SALLY.... . thank you very much for those kind words. First off, I think many of us have to tighten our belts... but this move could hurt those more so with lower incomes and lower prices areas.  thanks

HARRISON.... . I think it can be okay in some situations. I understand FHA's perspective on this, but what are the appraisers for then?  A lot of what happened was that values dropped quickly, the economy got bad, and some borrowers became irresponsible and walked away from their houses just because they were upside down. This could very well hurt the housing market than help it.  More thought has to go into this, at least in my opinion.  Well, if the gov't wants to help, create more jobs and don't tax as much in some areas, which would free up more money. Thanks for your honest feedback.

Jeff, I've been waiting for these changes.  I tend to agree with your take on these and will give my opinions on their website. 

Jeff, 

Thanks for the information and the links.  Like you the Second Item is of the greatest concern to me as well.  I will be sharing the links with other. 

Thanks for the link, I will definitely send my thoughts to FHA.

I completely agree with you on the response. I work with a lot of buyers in the 150,000 and under range and it will have a big impact for most of them. 

Great one again my friend. Looks like we might could have some lively discussion about this.

You know I agree with you, and I'm even more comfortable with #3. The decrease in seller contributions is just counter productive though and will likely result in greater early payment defaults.

Gerry Suarez, Jr.

Your FHA Loan Pro!

Jeff thank for your incite.  Also a great opportunity for people in the real estate and mortgage indutries to add a voice.

I agree Jeff, below 580 score is just foolish to lend on anyway, always was, always will be!

and the 6-3% will not hurt my market, in some price ranges it is hard to spend all 3% as it is, but Agree again, in the lower priced markets the 3% will be an issue, perhaps they could do a graduated scale based on sales price, similar to how the max mortgage was calculated out in the old days of FHA

Jeff:

I would like to see spot approvals re-instated. Here in San Diego they have done away with that option and it takes quite a bit time to get to get townhome and condominium communities approved.

Thanks for the post.  It helped me solidify my opinion.  I'll go to the site.

Nice RELEVANT post! I will be making comments. I find the 3.5% vs 5% down to me a mute point. If you think someone will tough it out over $ 2-4K more in the home, you must be living under a rock.

GABE... . I think many of us have been waiting on these changes... I actually was hoping they forgot.. lol  Yea, right...

TIM... . I know in many parts of Ohio, where you are at, that this will hurt many... it will be interesting to see the impact of this change about 6 months later... thanks

CRISTA.... . my pleasure and don't hesitate to send this to other agents..

DARRELL.... . I think many of us will agree with that issue.  thanks

GERRY aka Thomas Mortgage ... .  it will be interesting to see the impact on the lower end markets in the next 6 months, once this takes place.  And yes, it could result in early defaults... I would rather have the borrower save that extra 3% then spend it now.  And thanks for the kind words..

JENNIFER... . if there is a time for our voices to rise, it's now... thanks

ROBERT... . I sometimes wish I was in your market... ;o)  But correct, it will hurt the lower end market..  I am glad to hear another mortgage person that I respect and chime in. I am sure some would disagree with fighting # 2. I see HUD's point, but as pointed out, how about some graduated scale... something other than eliminating 100%.  thanks

LORRAINE... . I am sure many would love to see spots approvals re-instated... but I think the reduction in seller concession is a bigger issue right now. But lenders can get a whole condo complex approved.  And in all honesty, yes, there is a little more paper work or elbow grease needed, but in reality.. it can be done.  thanks

Thank you so much for this post and the link!  I'm going to definitely give them my comments on this.  In my moderately-priced market, a lot of people have the credit to be approved, and they have the means to make the monthly payments, but they don't have a huge amount of savings to cover all the closing costs without seller contributions.  Many closing costs are the same and don't fluctuate with the price of the house.  So in a high-priced market this change doesn't have much effect - the total amount of closing costs becomes a tiny percentage of the price, relatively speaking.  But in a moderatly or lower priced market, it could really make a difference.  Thanks again for posting this!

Thanks for bringing this to our attention.  I work with a lot of first-time buyers in my market, and every little bit will help.  Folks don't realize just how much this segment contributes to the overall market.

Jeff, filing comments in regulatory proceedings is an important way to have an impact here in Washington.  I'd advise anyone to take some time, read the actual notice, and then write comments. Glad you alerted us!

Jeff, the  reduction to 3% in closing costs in our area would be a significant blow especially when the average purchase price is below $200,000. Many times almost 3% of the costs are taken up with the prepaid taxes that need to be included. This deserves a re-blog as well

ALLEN aka Team Honeycutt.. .. my pleasure and thanks...  we need many others to chime in with their opinions..

MARK... . I agree with your comment, hence why I wrote those 2 posts about having 5% down and skin in the game.  We need to let our voices heard on this one.

VIRGINIA.... . that is a point not talked about as often, that there are good qualified people that will make the payments, yet they don't have the money.. and as you and I mentioned, in the smaller markets, this will hurt many because that extra 3% will stop them from buying.. thanks for your feedback and input..

TAMARA... . well, I give it 6 months to possibly a year after this goes into effect, that people will see the difference... when the market gets worse with less buyers... and more foreclosures...  thanks

PAT.... . I think it's extremely important... we just need to get people off their butts and to do it, and not just agree with this or talk about it.  Thanks for chiming in..

I'm with Harrison.  In this market, 3% covers nearly all the closing costs of the buyers.  Anyone asking for 6% is not going to get an offer accepted because sellers know they are trying to buy down a rate severely, and likely, really can't afford the home. 

Well.  One way to make defaults less likely is to severaly limit the number of borrowers.  This should work just fine. 

Closing in Montgomery and Prince George's County MD is about 4.5-5.5%. 

So, without the volume of FHA loans, more homes will go to foreclosure, prices of bank owned homes will come down further depressing area values,

With the demans for housing not satisfied by homes for sale, consumers will just have to rent and rents will skyrocket. 

Thank you Jeff for posting that. I sent in my comments. Regulations.gov is a great way to respond so whether we agree or disagree at least it is easy to be heard on this important subject.

There aren't many properties that qualify for FHA financing in my area so it rarely comes up.  However, if I'm considering the overall health of the nation, I'd opt for having the more restrictive criteria.  It seems to me that if someone is so marginal in buying a home that $3000 (approx 3%) makes a difference, then they're probably not a good risk.

Moreover, a credit rating of 620 is really poor.  I've never had a client with anything less than the mid 700s and most are in the high 700s or low 800s.  I'd say bump the credit score up a bit (at least 650) so we don't have as much chance of a meltdown again.  It would put pressure on people to be more responsible with their money.

Bryan Robertson - congratulations. You obviously live in an area where about 5% of the upper crust of borrowers live. That's awesome for you. For the rest of the nation where people are moving from homes they had to bring money to the closing table just to sell and who's income has diminished even though they have never been late with a payment, have been on the job for 15 years and have a credit score of 630 or so this change could be a very unreasonable limitation.

For many years I dealt mainly with borrowers with 700 scores plus and that's closing up to 400 loans a year. Life has changed ... for them, me and middle America.

Personally I had not had a credit score below 700 in many years but today it is. In fact today I am the perfect FHA borrower. I spent most of my liquid reserves to keep my 10 year old business afloat, moved my office spending even more reserves but lower my monthly overhead and still needed to buy a smaller, less expensive home even though I had to cover the difference between sales and pay-off. Reserves were gone, incomes still good, DTI acceptable.

Do you think it's a bad idea for me, and we are talking about me personally, to be able to purchase a home for 3.5% down and have the seller contribute enough to cover the closing costs on a $185,000 home? (that's less than the average sales price in my area by about $100k by the way)

This is great, the way you have explained each step - I am going to re-post this to be sure my clients all read it!

Thank you for this timely and informative post

I think there are going to be issues with #1. If their credit scores are low, more than likely they don't have 10% to put down because they've skipped on some bills in the past.  I think 5-7% would be a good "punishment" if they don't qualify for the 3.5% down, but think 10% is going to knock a lot of people out, especially if they only get 3% help from the seller.

Got my Sharpie out.  #2 will hurt the Metro Detroit area greatly.  Most sales are under $100,00, with many under $50,000.  Lowering the sellers assistance won't even cover proration of taxes on the HUD, let alone anything else.  I always try to get 6% for my buyers so they don't have to spend every penney.  I want them to have a cushion for emergencies, at least 2 house payments or so...

Dagnabit.  This is getting ridiculous.

Thanks for the info Jeff.

Jeff,

You are 100% correct, 3% is not enough for the lower loan amounts. It is bad enough that they get stuck paying higher interest rates and now they get kicked harder.

It is obvious that the decsion makers don't live in the same world of the people they serve.

I will comment to FHA.  I am in agreement than lending to poor credit risks is STILL risky, no matter whether we up the downd from 3.5% to 10%.  No brainer.

Then I think that seller contribution should be hands oFF FHA.

THanks for the thoughtful post.

If No 2 becomes a rule I hope they al least will still allow 6% if the borrower has sufficient reserves. I remebr the old days of the more you asked for closing cost the higher the down payment. I understand the need of have the fund secured but at a time when I believe the housing industry is still very wobbly and could have another downtrun, the time is not right.

This is very interesting indeed.. The only issue I see with the 580 is most lenders already require a 620 credit score. If I'm correct, if a 580 is still there, it will cost points.

 Jeff would you agree that in the proposal and Request for comments where they say "VA Limits Sellers concessions to 4%" that they are making a misstatement?  It appears to me that FHA and VA are using the same term "Sellers Concessions" to mean two different things.   On the VA site is says "There is NO Limit" to Sellers assistance on certain items.   In practice the investors that I deal with limit Closing costs assistance up to 6% and what VA terms "Sellers Concessions" are not permitted.  

Here are the VA GUIDELINES  http://www.homeloans.va.gov/pdf/82207Handout2.pdf

SELLER CONCESSIONS

For purposes of this topic, a seller concession is anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide.

Seller concessions include, but are not limited to, the following:

 • payment of the buyer's VA funding fee
 • prepayment of the buyer's property taxes and insurance
 • gifts such as a television set or microwave oven
 • payment of extra points to provide permanent interest rate buydowns
 • provision of escrowed funds to provide temporary interest rate buydowns, and
 • payoff of credit balances or judgments on behalf of the buyer.

 Seller concessions do not include

 • payment of the buyer's closing costs, or
 • payment of points as appropriate to the market.

Example: If the market dictates an interest rate of 7½% with 2 discount points, the seller's payment of the 2 points would not be a seller concession. If the seller paid 5 points, 3 of these points would be considered a seller concession.

Any seller concession or combination of concessions which exceeds 4% of the established reasonable value of the property is considered excessive, and unacceptable for VA-guaranteed loans.

Do not include normal discount points and payment of the buyer's closing costs in total concessions

Thanks for the heads up.  This is now worth a reblog.  Can't get enough out there to the public and to the pros. 

I have to agree that #2 is the biggest issue. Many buyers rely on the additional help. For higher loan values, its not a big deal. The buyers purchasing lower priced homes will see the effects of this change mainly.

ED.. comment #24.. . pre-paids can be a big part of closing costs on many deals, depending on what state you are in.  In PA, 11-13 months of taxes need to be escrowed.  So yes, a 3% reduction could be very critical. thanks

CHRIS.. . real estate is local... on the average, this change to just 3% will hurt many markets.. thanks

LENN... . bingo. HUD's thinking and the gov't is that this should limit foreclosures... but yea, who will buy them when the average homeowner who will be very qualified and be able to make the payment, but don't have all the funds.. what happens then?  Does the gov't then come out with another idiotic bailout plan?  thanks

HELEN... . my pleasure and thanks... we need to let our voices be heard.. again, thanks

BRYAN...comment # 29... . just as I told someone above, real estate is local. And I value opinions, but aren't you not thinking this through clearly?  Do you know how many people have good credit with 600 scores, but might have had some dings 2 years ago... and might be 80% maxed..  Okay, so they are maxed.. but if they have a great track record and haven't gone out to get new credit.. and have made their mortgage payments or rent payments with no lates for the last 2 + years.. and with their new mortgage, won't be increasing that mortgage payment by more than 10%, that they should have a credit score of 700 +??

Sorry, but I strongly disagree with your thinking. FHA mortgages have been around since 1934... not just those with FHA loans with only 3.5% down have foreclosed, but many with 700 credit scores who put 20% down... or 10% down. Our economy is distraught... we are in major turmoil now... people are losing jobs or have lost income.. Prices have risen on produce and some other important items... The cost of living has increased... the gov't need to focus on that and jobs... that would certainly have helped some of the foreclosure issues. Reality is, it shouldn't always be based on very high credit scores.  Please read Ken Cooks comment below, because he is a prime example of what you are attacking in a way.  I have known Ken for almost 2 1/2 years now, and he has tried... please read what he wrote.As he stated, you don't live in the norm.. your examples are not the average American... but I do thank you for your input and feedback. thanks

KEN... . thank you very much for sharing what has happened to you recently.  I know you and your character, how great you are with your clients, and the pride that you take in helping people.. and doing a better than average job. We need more like you... and I am glad that your previous issues didn't knock you out of the mortgage industry, like it did to so many other good to very good loan officers. Sure, it has knocked out some bad...  but a lot of good also. Overall, people need to realize what is going on and how some of these proposals will absolutely hurt many real estate markets.

BARBARA JO... . thanks for the compliment and for making your voice heard.  And thanks for reblogging this..

BERNADINE.. comment #32.. .my pleasure and thanks for stopping by... I hope your voice your opinion. thanks

DONNA... comment # 33... . in my opinion and many in the lending community thinks that #2, the reduction of the sellers concessions to max out @ 3% is going to be the biggest issue.  You said this...

"I think there are going to be issues with #1. If their credit scores are low, more than likely they don't have 10% to put down because they've skipped on some bills in the past.  I think 5-7% would be a good "punishment" if they don't qualify for the 3.5% down"

Sorry, but I totally disagree with that statement. As I have stated in this post and the other 2 that I linked to, most lenders can't do below a 620 credit score anyhow.  Secondly, the few that can go down to 580, will more in likely want at least 5% down. Lastly, I don't know anyone doing below 580 credit scores anyhow, so this becomes a mute point... wouldn't you agree?  In any case, thanks for your input and feedback.

KRIS.... . is it a very big Sharpie?  Do you need some of us to help you make your comments large?  Seriously, I know you have many sales in your area that are below $100,000, and yes, this will hurt that kind of market tremendously.  I guess time will tell, but I think a good solution is to possibly have 2 appraisals if you need from 3% to 6% seller help? One of the things that HUD was always worried about is that the home prices were inflated to make these deals work... how about 2 sets of eyes and a few other things... but to just cut it off?  hhhmm

RON.... . my pleasure and thanks for stopping by

MICHAEL... .  I agree, that many don't live in the same areas that this will take place in.  But I am semi confused by your first part of the comment.  It's bad enough that 'who' gets stuck with higher interest rates.  Not sure where that one came from. thanks

JEAN...comment #37.. . many of us will agree that lending to those with very poor credit scores is not the way to go... but yes, that FHA needs to rethink the reduction of the seller concessions. Please read my comment above to Kris, about possibly bringing 2 appraisals into the mix to justify the value... thanks and yes, voice your opinion and spread this around your office.  thanks

JOE... . that partially makes sense... but then again, if they had it, they could use it.  There would be many more that wouldn't have that extra 3% than would.  Let me take it a step further... let's say it's a $180,000 purchase price... that would be an extra $5,400 if getting 3% more.  On that kind of mortgage, depending on the taxes and haz, let's say that monthly mortgage payment is $1,450..  2 months in reserves would only be about $2,900. My question to you would be what is a succifient amount of reserves?  Please read my comment to Kris Wales.  I think having 2 solid appraisals would be good then, to solidify the value.  I do know that we need solutions and not just take this away.  Thanks for your input.

ROLAND>.... . not only will a 580 require a lot more pts... but the rate would usually be 1% to 1.5% higher. this alone would make a big different in qualifying... not to long ago I could do down to 580 and 600... I still advised clients to just work on it until they got to 620. The penalty was to great and HUD just changed the FHA streamline with no appraisal process in the beginning of the year, to wear you can't roll closing costs in... well, in one scenario you can, but you have to take the lower of the two, which would usually result in not allowing closing costs to be added.. well, that would kill that idea to get into the house, get your score up, and then streamline, not unless you had a lot of equity so you could do a FHA streamline with an appraisal. thanks

TIM.. .  yes, I would partially agree with that... because with VA loans, you have seller concessions of 4 percent plus points...   HUD really wanted this to be more conforming, just like conventional loans.  But aren't those loans foreclosing to?  thanks for the feedback.

DON... . my pleasure and thanks for reblogging this, to get this message out there, so more can read it and make their comments.  thanks

JOHN.. comment # 42... . many of us agree on this.. it just seems to be common sense, unless some loan officer is charging points and lender fees plus pre-paids that would add up to like $15,000 on a $400,000 house, not to include down payment... I have seen this, where the loan officer would take advantage of the seller concessions as a larger profit.. thanks

One other proposed change not being discussed here is the plan to increase the Annual MIP from 0.55% to 0.85%.  This may be in conjunction with a decrease in the Up Front MIP, but regardless, will have a negative impact on borrower qualifying in many cases.

On the points in your blog, Jeff, I agree with you 100%.  Having done FHA when every loan was a manual underwite, I think that point #3 will end up being interpreted ny intelligent underwriters as no different than today.

Great info!

Thanks for the update. Good to know , advise clients and calm them down somewhat.

I wish there could be some condo finance programs out there to help the glut.

Regards

Ron Maruca Pa

Charles Rirenberg Realty

Ft Lauderdale Fl

I still think there should be some consideration of seller contribution to closing costs being 4, 4.5 or 5%.  Why does it have to be cut in half?  Good post and just re-blogged.

Thanks Jeff for bringing this to our attention.  I still think that 6% seller concessions is too much $$ to be handing the buyer.  That's a real chunk of change if the buyer needs all of that total to qualify.  To me, that makes them an iffy buyer IMHO.

Jeff, Thank you for the input and location to vote. Young couples are struggling to gather their down payments. The 6% Seller contribution has been a great help to their future fianancial stability.

Jeff:  Where do I start?  How about here:

1) If the FHA allows someone to use a loan for 96.5& of the appraised value...and the property value doesn't "appreciate" by 10% prior to the close of escrow...

THE LOAN IS ALREADY UNDERWATER BY 10%...RIGHT?  Broker Fees, Closing Costs, Credits to the Next Buyer, escrow closing period.

2) What difference does it make if the Seller Credits are 3%, 6% or 20%...it's all added to the loan and financed by the buyer (they could have negotiated a lower price except for the reserves). The RISK OF DEFAULT increases with every credit because the property is sold farther and farther underwater at closing.

3) RESERVES ARE A FAIRY TALE...that even the Grimm brothers wouldn't have the moxie to tell.  The minute the loan closes the reserves are decor or toys, right?  Impound the reserves and have them ready for the tough times ahead.

PARADES RAINED ON DAILY...complements of Tom

BRIAN.. comment #46 ... . this was proposed in the beginning of the year and I talked about it.  But it wasn't on HUD's list in the press release and I can't seem to find it on the pages in the Federal Register that I linked to above. Can you find it and tell me what page it's on and where? thanks and thanks for that polite compliment.

RON.... .  my pleasure... in regards to the condo issues. I know many have panicked, but a lender can still approve a whole complex. They just can't do the spot approvals... and Condo complexes have to be updated more often when it comes to the approval list. I just think this is not as serious of an issue, but just more of an inconvenience.  Then again, I am not in a major condo area either.. thanks

DANA.... . I agree... please read my comment in #44 to Kris... I think that if we had more checks in balances in keeping the 6%, that would be better than killing it. As I mentioned to Kris, having 2 appraisals signed off on if you go above 3% in seller help.

LYN.... . I would disagree that you would think 6% is to high.  I am not sure what the average home prices in your Northwest Suburbs of the Chicagio market are... but think about it.. on a $300,000 house, yes, 6% is to much. Anyone paying $18,000 in closing costs has been duped... but what about a $80,000 home? That is only $2,400 in help.  The down payment alone would be $2,800...  depending on taxes, how many months that must be escrowed, etc, etc, you could be looking at $3,400 to $4,000.  In the state of PA, 12-13 months of escrows must be escrowed and there is either a 1% to 2% stamp tax that must be paid by the buyer. So you add that into this equation, that is another $800 to $1,600. And I would rather have the borrower keep at least $2,000 or more in their account as cash reserves.  You take that away from them for the costs, then you have nothing... something happens, then what? Just food for thought...thanks for stopping by.

PAT....comment #50... . my pleasure and I think many of us would agree on this topic... we need to really think about this so-called change. thanks

I went to the site and commented:Comment Tracking Number: 80b1b9ce.  Thank you for a thoughtful, and cogent explanation of the situation.  I am also re-blogging.

This will definitely directly affect our business...My partner and I closed 33 sides last year at an average of just over 120K...That's our market...I'll let my feelings be known...Thanks for the post and enjoy the day.

Great post and discussion.  I just wish they would open up for comments the appraisal issues we are facing.

Impound the reserves and have them ready for the tough times ahead.

This is perhaps the best idea since Social Security.  While we're at it, let's propose the government to just take more money out of every paycheck and send it to the Uncle Sam to save for us.  Maybe we should just go to work everyday and wait for handouts.

Jeff, great post!  Thanks for the information.  I also have to agree that #2 is the issue here, and we can give them #1 and #3.  These are more unusual times and people are in need of maintaining this money in reserves for financial well-being.  My average loan amount has decreased $50-60k from just 2 years ago, and they are now typically between $110k-150k, just because of economic downturns; my average borrower is a 640-680 credit score.  These are the FHA's borrowers.  Limiting concessions to 3% would harm these consumers; if they really feel the need to limit concessions, I like the idea of either a graduated amount, as suggested before, or at least picking a number closer to 4-4.5%.  I'm going to reblog this post and submit my comments to FHA.

My proposals to HUD/FHA -

Issues regarding the 3% seller help proposal by FHA - Can we fight FHA Loans with solutions?? - YES !!!

Please read this and help pass it along.... thanks

Thanks for your post. I think the 6% needs to remain. This can lower the rate and pay closing costs. It helps the buyer with a lower payment. Less stress.

Jerry Gray CRB,CRS,GRI,SFR / Allen Tate Realtors / Winston Salem, NC / 336-918-2433

Mortgage Lenders may be out of business soon anyway because of the Safe Act & the requirements on MLO's to have perfect credit when they work on commission ONLY........so eventually every one will have to go to the bank to get a mortgage.......more control to the banks is bad b/c they can't even handle the responsibilities they have now......it makes no sense at all to eliminate the competition. 

2009 was the worst year ever for Mortgage Loan Originators as HUD & FHA changed guidelines 9 different times in one year!  Now these professionals that struggles to stay int he business may not have a license NOT FAIR at all, if you work at a Bank as an MLO you are EXEMPT from the SAFE ACT!!!

NOW HUD wants to REDUCE the seller CREDIT!!!!  Who is the genuis that thought that one up????  That's like nailing the coffin shut and handing the match to the BANKSERS!!!!  I feel sorry for the MLO's that work for lender's this SAFE ACT is an UNFAIR law!!!! 

A credit score under 580 with 10% down sounds like a good idea but wasn't that the reason a lot of people foreclosed because a credit score as low as 580 is technically bad credit.  I think teaching people how to have good credit with 10% down would be better.  Maual underwriting that sounds awesome.........Try getting the banks to approve that deal!!!!  I have NEVER had a manual underwrite approved at a bank but give it to a mortgage lender and it can get CLOSED!!!

WE NEED TO MAKE our Congress AMEND the SAFE ACT on the credit requirements for mortgage loan originators and delete that requirement especially if the MLO's credit was good prior to 2007 before the big resl estate bust!!!

I WONDER if CREDIT SCORE was a requirement to be a POLITICIAN how many politicans would be fired and how many millions that would save AMERICAN TAX PAYERS!!!! 

I agree, cutting it to 3% would not be good.....I'm with most of you, it would be best to leave it alone at 6%, but if they really feel the need to cut it, I don't think they should go below 5%........anything further will have too much impact on potential buyers......

It was darn near impossible for a first time buyer to get even 3% during our recent inventory crisis so leave it alone and let the markets decide.  Sometimes contributions to discount points can make a big difference in buying and purchase power.  Now that the tax credit is expired and the crickets are chirping in many markets - we are going to need the extra 3%

I used the link you provided and posted a comment suggesting that the 6% allowable seller contribution be kept.  Thank you for your diligence and time in getting the word out.  It will surely benefit many people especially us in the real estate business.

TOM.. comment #51... .  I am still trying to understand part of #1. But yes, you can consider any house to be underwater once bought with a FHA mortgage from day one, because of the upfront mortgage insurance. Forget about everything else, such as realtors commissions and such.

Now, this is not true of those homes that actually are worth a lot more, but bought for less. Sellers sell at what price they want and need... or you have some that are foreclosures and the bank needs to get rid of it.  Just 2 weeks ago I had a house appraise for $8,000 more than the purchase price. All I can say is that HUD is just trying to keep it's losses at a minimum because of the big housing boom from 2002 to 2005, when home values sky rocketed.  That is where I think HUD will kill the real estate market because I don't see that boom happening and for the fact that many markets have bottomed out for the most part. But there is so much involved.. protecting FHA's insurance fund, that politics are involved, lack of common sense at times, and so much more.  thanks

GARETH... . THANK YOU very much for going to the comment page... and thanks for reblogging this..

ERNIE.. . the reduction in my opinion will certainly hurt your market.  Thanks for voicing and I saw the reblog, so thanks for reblogging this.

JIM... . thanks for the compliment and for stopping by.  In regards to opening it up for appraisals, maybe that will happen another day.  thanks

DAVID... comment #57... . this could be something to add to our comments as a proposal, in regards to what you suggested. If you could place your suggestion at this post, I would appreciate it.  Our own solutions for the proposed reduction of seller concessions on all FHA Loans. In regards to the other part of your comment, don't get me started.  ;o) Thanks again.

 I agree with your position on number 2. There is no doubt.

BRETT.... .comment #57.. .  I think some sort of graduated scale would work. I think we need to mention this to them.  As I mentioned to David above you, please go to that link and make any suggestions so I can send it to FHA/HUD. And thanks for the polite compliment.

JERRY... . it certainly can help pay closing costs and maybe pay down the rate some.  And thanks for the compliment.

JENNIFER... .. many good loan officers are already out of this business... and more to come. And yes, many of us are angered by the fact that Federally Chartered Banks are exepmt from the new licensing requirements. Many of these larger banks have call centers with loan officers that aren't that good and definitely not experienced.  This will hurt us a lot more and has already started to happen. I especially loved your last statement when you said.

."I WONDER if CREDIT SCORE was a requirement to be a POLITICIAN how many politicans would be fired and how many millions that would save AMERICAN TAX PAYERS!!!!"  bravo.. and thanks for your input and feedback.

LINDA.... . I think many of us would agree with your comment, but we need to give them reasons why we think this... solutions.  Just as I wrote about here.  Our own solutions for the proposed reduction of seller concessions on all FHA Loans. Thanks for your comment.

RENEE.... .  I think you lost me in your first sentence.. Are you saying, because your housing market was a sellers market, that to even get 3% from a seller was hard?  Yet, people should just leave all of this alone, because the markets, just like what you had, is different now?  And that people will need help?  But yes, with the tax credit gone, even though I didn't really like it, it has changed the playing field now. thanks for your input as always.

ELIZABETH..comment # 63... .my pleasure... and thank you for actually taking the time and to voice your opinion. It's easier to sit back and not say a thing, yet to complain. Thanks for making an effort.

Jeff, just what we need is more meddling in folks attempts to live the American Dream.  I too can understand #1 and 3 but 2 is going to make it really hard for folks. 

Thanks for getting the word out, as well as the links.  I wish my local lenders were as pro-active as you!

thanks for this wonderful information. Appreciate it greatly.

Lisa

Jeff:

I honestly don't know where to find it (the increase in Annual Premium from .55 to .85), I just know it is being proposed, and actually just heard it again from our local Association of Realtors' Government Affairs Specialist (who happens to be very sharp, indeed) a few days ago.  I'll let you know if I find where it is posted.

Regarding the seller assist discussion: there have been a few opposing viewpoints here, but the reality is that 6% is rarely used in our market (unless, as Jeff suggested, the LO is charging up and padding their pockets...come on, we all know it happens).  In PA, where I have been closing FHA loans for 17 years, the average total cost to the buyer on an FHA purchase is about 8% or so (3.5% down payment, plus about 4.5% in closing costs and prepaids).  With FHA's statutory minimum buyer investment at 3.5%, that typically leaves about 4.5% which can be covered by the seller.  This is, of course, without points. Adding a couple if points can quickly get you to the magic number, but in our market, 0 points is often where we end up.  I recently closed a transaction at $167,000 where we struggled to find a use for the negotiated maximum seller assist (they insisted on 6%!).

So, my point is that reducing the seller assist max to 3% would place an unwise burden on the market at this time.  Maybe capping it at 4.5 or 5% as was suggested earlier would help.

One last thought on the post #51 - value is subjective for the most part, so a seller who is willing to accept $190K but receives an offer for $200K with 10K seller assist is really in the same place.  A 5% "swing" in value should be acceptable in a normal market (of course, with the current appraisal climate that may not always work). If the buyer is in for a long-term investment, it should be a minisclue issue several years down the road, whereas without the FHA with seller assist option, they may never have owned a home in the first place.  

 I think I have to disagree on point #2, especially with people who are claiming it will lead to quicker defaults.  That is just nonsense.  Will it keep some good people out of a home?  Maybe... or maybe they just have to wait a little longer.

I have a concern that the 6% seller concession has, in the areas that use it, effectively created an artifically inflated pricing structure.  The home is really _only_ worth, say, $100K (and the seller could afford to concede 3%), but surely we can convince an appraiser that someone is willing to pay $103K (close enough to $100K that it won't raise any red flags), except that they are really doing nothing more than playing a trick on the lender.

No, I'm afraid I believe there are too many people abusing the system that strongly outweigh the few good people who will be locked out as a result of the change.

Robert Boyer
WJB Home Loan
Investment Property Search
San Diego Real Estate Homes for Sale

Thanks for the post - but seller concessions are alreay 3% limit in South Dakota and its working fine. HOWEVER HUD discriminates against homeowners on their repo houses. We have some great HUD homes that only investors can buy - even though owner occupants gets first dibs - they never get the house because of catch 22 policies of HUD. I have sold 2 to owner occupants and I lost money because of all the constraints...they were friends whom I was helping so I rationalized the work. A co-worker says he has sold 19 HUD homes....all to investors and says its impossible to sll to owner occupants. I am thinking of suing HUD.....

Great summary of what's going on.

I don't have a problem with #1.  People should show some financial responsibility before they buy a house and if they haven't, then they need to put more of their own money at risk.  I would not want the minimum dp raised to 5%.  I don't think that the additional 1.5% would keep more loans from going bad, but I do think that you may reduce the number of people buying a home a bit.

Reducing seller concessions would be difficult in my market, since we have an average sales price is $126,000.  With taxes = to 3.5% of the property values, the 3% would barely cover the amount collected for the escrow account.

I don't think I would have a problem with #3, but I would need more information.

Ultimately, homeownership is great for our country and it fuels the economy.  In these hard times, you have a lot of good people out there who deserve to own a home.  Common sense underwriting is all we really need.  If someone has a steady job, decent income, and good credit, they should get the opportunity to own a home.  We shouldn't demand that they have $15,000 - $20,000, before they buy a home, unless you want to completely stifle the housing market.

Thanks Jeff for keeping us updated.  Well written call to action!

BOB... comment #65... . thanks for the comment and for stopping by... I think many would agree.. thanks

JUNE... . well, the gov't has been very good lately in stepping in when they don't belong or have no idea. But this is FHA that is wanting to change this. But who knows if there is pressure coming from the gov't.  thanks

WOODY... . my pleasure and thank you for your support. Question, where is your local area?  thanks

LISA... .

BRIAN.. comment #70. . no, thank you and my pleasure.  Just make your voice heard.

ROBERT... . I know this was first brought up back in January.  Here is HUD's comment. - FHA Announces Policy Changes to Address Risk and Strengthen Finances - I wrote about it here - Important changes about FHA loans -

Now, I know you value your one source, but if HUD was pursuing the changes in monthly mortgage insurance, wouldn't you have thought they would have mentioned it in their new press release that was just mentioned. - FHA announces policy changes to address risk and strengthen finances - I will try calling a friend of mine who is close to HUD and see if I can find out from him... thanks and thanks for coming back to add to this conversation.

Good points.  You right on about the impact of reduction of seller concessions on smaller loans.  It will result in more cash from the borrower or higher interest rate, so the lender can pay some of the costs.

LORA... . I didn't know this... so is this a law in South Dakota, that supersedes any lending guidelines? In regards to your comments about HUD repos and such, I am not familiar with it. It is interesting though, Please keep me posted on the situation.  thanks

TINA.. . thank you very much and for stopping by.

TOM... . I really don't think anyone should have an issue with #1. There was a realtor or two that thought differently. Not sure why, but hey, we all have opinions, right? And no, I don't think an extra 1.5% down would limit foreclosures and such. I wrote about it here. - FHA laons to 5% down??  -  Followed by this post.. - I want your skin in the game. Give it up !!  -

Yes, reducing the seller help to 3%, as many have stated, would hurt many markets. As far as #3, they talk about the underwriting guidelines here. - Federal Register for HUD changes and the reasons why. - They want underwriters to address more issues when doing a manual underwrite. And yes, it should come down to common sense underwriting and that you shouldn't need 10% to 20% down.  thanks for your input and feedback.

LEE & PAMELA..comment # 75.. . my pleasure and thank you very much for the kind words.

LEE...comment # 77... . I think many of us do agree with this. And correct, it could result in higher interest rates to the borrower, so the lender could pay some of the costs. It has to come some where.  thanks and thanks for the compliment.

Jeff, I followed your blog back from Missy.  I am concerned about #2 also.  There are not many people who have the 3.5 required downpayment and an additional 2-3 percent for closing costs. 

I think they ought to loan to people that prove they can pay (like they used to).  If your mortgage is equal to or less than a rent payment you have been making you should be good for it.

Jeff,  

I agree with you on #1.. Minimum credit score. There is already a standard out there with investors.  This will not change anything.

#2-  minimum downpayment. In most cases, we are unable to use up the 3% concessions. I could see where this could impact homes purchased at 100k and below in a negative way.  A 100k home would carry approximately $2.078 in closing costs (that includes origination, UW, credit report, flood cert, and appraisal and survey).   Prepaids may cost an additional $1,565 (this includes property tax reserves based on 6 months at $1500 per year, a year insurance premium and insurance reserves and 15 days interest). We have title charges (or title opinion, abstract, depending on the state) of 1/2 of the transaction. In our state this would add up to approx $438.  Additionally depending on the transaction, there may be inspection costs and warranty that may be added on, radon mitigation, termite treatment, ect. These costs could add on average another $850, conservatively. We now are up to a total cost of $4,931.00.   The borrower is required to invest 3.5% of their own funds which is $3,500 for this transaction and the seller would be contributing $3,000.  3.5% is also the downpayment, this takes care of the required borrower's mandatory investment from FHA.  This leaves $1,900 of the closing costs and prepaids left over after sellers contributions are subtracted for the borrower to come up with out of pocket. under today's rules it would be covered with the up to 6% sellers contribution.

#3- disagree.   Manually underwritten loans are already being played "safe" by underwriters. I see underwriters today playing more on the safe side with all the mortgage scrutiny going on. This is not always bad, but when most things are left up to interpretation, sometimes a borrowers circumstances that were out of their control overrule a conservative underwriter who would prefer to keep his job secure than underwrite to the rules and "interpret" correctly. I have seen this happen with borrowers that should have had loans but are not getting them because an underwriter will not 'count" compensating factors.

And to Lora's comment, how sad is this?  VERY SAD.   It is tough to purchase those HUD repo homes. HUD is not helping the dream of ownership when they are selling their homes to investors that simply profit from that sale by flipping the home at a higher price to the consumer.

The issue that is most important for my area is the inability to get any more spot approvals.  This is a big problem in an area where up until the last 2 years there were bery few FHA loans.

Marcy

In response to post #70 I think this might help with were the idea of the MIP being increased from .55% to .85%...I found a bit of information... (this is not written by me)

...HUD is seeking congressional authority to raise annual mortgage insurance premiums from .55% of the loan amount per year to .85% (or .9% if the down payment is less than 5%). This request is outlined on page 346 of the budget’s analytical perspectives. On a median transaction[1] in Minneapolis, Minnesota, this translates to 35.64 dollars per month. This may not seem like much but it means that if this same family were approved for this sample purchase with a sales price of $123,850 with the current premium costs, they’d lose $5,910 in purchasing power under the new premium costs. Any reasonable person would conclude that this will apply downward pressure on home values and downward pressure on home ownership in the affordable housing sector... (WRITTEN BY: Charles Dailey)

Oreginal post link: http://activerain.com/blogsview/1482581/fha-annual-mip-increase-and-reduction-in-seller-paid-closing-costs-a-letter-to-congress

Copy and paste to read Mr. Dailey's post.

My oppinion, I think what is happening not only within the mortage and real estate industries but with in the whole "government trying to save America" is going way to far.  I am not sure why common sense just can not be used when it comes to running our country.  Anyway, I better stop here... ;) I could probably go on and on and on and on...  Thank for the insite!

Virginia

I like the information you're giving out. Your examples are excellent and written in a way that someone not familiar with real estate terms can understand. Very interesting reads!

Thank you for the call to action. Margaret C

FHA was established to help low-middle income citizens achieve the American dream.  The proposed changes do nothing to accomplish that, and will further limit citizens' ability to buy homes.  Requiring more down-payment and reducing the sellers' abilities to make a deal work will further erode home values, homeowners ability to prosper in the sale of their homes, and further reduce the traction needed to get this great economic engine moving up hill.

Twenty-five years as a mortgage loan office convinces me that these moves are absolutely in the wrong direction.  Housing default have more to do with foolish and greedy politicians than with struggling and financially-strapped home owners.

When the goverment gets out of the way, we will grow.  Inthe meantime, we have to struggle to overcome (1) a depressed housing market, (2) cash-strapped & credit-challenged consumers, (3) a screwed up appraisal system, and (4) over-paid beuracrats that don't know hard times because the have over-blown benefits provided by tax dollars extracted from the same cash-strapped consumers they claim to be looking-out for.

Be of good cheer...election day draws near!!!  Let us VOTE!!!

BRIAN... comment # 46 & 70 ...  Not sure what you found out from your person, but Gerry Suarez sent this to me the other day...

Great Post Thank you for this infomration.  I appreciate it. 

Hello Jeff, and thank you for your kind words regarding my previous comments (#87).  You asked if I was following the comments: yes I am, and some of the remarks suggest there are REALTORS® in this discussion (and they have every right) who only know one thing about FHA--how to spell it.  Twenty-five years as an FHA/VA mortgage loan officer has led me to disagree strenously with those who think the borrower is the problem and needs a lobotomy.  God help us!

FHA is the backbone of the national housing market.  If someone thinks the FHA applicant needs to put at least 5% or 10% down, then by inference I, as a veteran am a deadbeat for not having to make a down-payment.  Friends, the size of the down-payment has very little to do with the likelihood of foreclosure.  A greater percentage of well-to-do 20% down buyers have over-extended themselves and ended up in foreclosure.  It was NOT the FHA applicants who diclosed "imaginary" income on their application.  It was NOT the FHA applicants who claimed "mystical" assets on those applications.  And it was NOT the FHA applicants with sub 600 scores that were able to by-pass reasonable underwriting guideline because they had high FICO scores.  So lets get this strait: it was the hoity-toity crowd that allowed greed and arrogance to take pieces of the cake (their eyes, and egos being bigger than their stomachs/wallets.  It was the power-hungry democrat leadership in Congress [Barney Frank and Chuck Todd] that refused to allow the Bush Department of Justice to investigate Fannie Mae and Freddie Mac.

Joe American didn't make this mess; but God knows he is the one who will have to pay for it, and he is the one who will bail us out.  I proudly stand with the common FHA borrower/homebuyer, and prayfor those who don't want to soil their hands (minds) with FHA loans.  FHA is not a communicable disease, it it is the premiere loan of America.

Item #2 should go to FHA.  There does need to be more "skin in the game."  If borrowers are allowed to hold back funds they will spend the money.  It's historically provable.  Now, if the borrowers agree to put an amount in a CD for a year or other retirement account, then items 2 and 3 could go away completely.   Equally important to the equation, in my opinion, is the ability for the seller and borrower to negotiate freely on seller financing.  The current banking legislation discussion has included a debate about whether to eliminate seller financing options altogether, thus putting institutional lenders in complete control of the lending of money for real estate transactions.  That would be crinimal and quite possibly unconstitutional. 

I waited til the end, but here is my comment to HUD. Comment Tracking Number: 80b2d256 

This is a good common sense article. Very helpful to one who is just finding the resources about this part. It will certainly help educate me. credit issues,credit problems credit repair