Nevada Real Estate >> Las Vegas Real Estate Specialist: Our Declaration of FHA Financing !!! - Issues regarding the 3% seller concession proposal - Can we fight FHA Loans with solutions?? - YES !!!

Jeff - thanks, I re-blogged this one too! Having expert information is always great!!!

I don't like solution #1 primarily because it would raise the closing costs. In addition, I don't want to have to worry about any more FHA appraisals than I already do.

I wouldn't be opposed to #2 or 3, especially if it could be an either/or scenario (i.e. if you don't have the credit score you can show the reserves; if you don't have the reserves you have to show a higher credit score).

In my comment to HUD, I recommended a sliding scale for seller concessions: 6% for sales under $125,000, 5% for $125,000-150,000, 4% for $150,000-175,000, 3% for $175,000+

As you pointed out, the appraisal alone is going to account for 1% on a $50k home, add in the origination and a few other rock bottom fees and you're way over 3% before you even get started.

BARBARA JO... thanks for the kudos and for reblogging this... thanks

JULIA... . okay.. so you raised it by $450 more, but you get another 3% in seller help. Even if you bought a $100,000 house, you can now get another $3,000, which $450 of it would go to a 2nd appraisal, leaving you with $2,550. I think that would be a fari trade off in my opinion.

In regards to your other statements, I think it would be good to add one or the other in there, or even to flip it as you suggested. Overall, thanks for your input and feedback.

Please read the post below before you read the above post... thanks

Get out your permanent markers, HUD seeks public comment on three main issues for FHA loans

Jeff: I have some adders for this which I will include as my entry when I re-blog.

PLEASE don't make me get another appraisal!  lol  As you know we already have to validate appraisals with AVMs or LARAs and it's just getting too costly and complicated.  I agree with Julia's solutions above and suggested the 'graduated scale' in my comments to HUD, also, but like how she took it a step futher with examples.  I also like the either/or scenario.  I don't mind holding borrowers to higher credit score requirements if they don't have the cash.  But I don't like making reserves alone a requirement for concessions.  In our experience, most deals that need seller help are due to the fact the borrower does not have the reserves.

Comment #80b1c0b6 - Thank you for bringing this 'Call to Action' to everyone's attention, Jeff!

Jana

Jeff, I re-blogged this one, as well, to help get the message out there more.  I made my comment on regulations.gov (Comment Tracking Number: 80b1ba32).   I've emailed links...  Great job, again!  You're a great Ambassador for ActiveRain and for the mortgage industry.  The examples given in Julia's (#2) comment is exactly what I had in mind for the graduated/sliding scale; this would make it more straight-forward for professionals and consumers alike and would avoid considerable confusion during the origination/escrow phase.

ED... . thanks and I will take a look at that soon...thanks and thanks for reblogging.

JANA aka Kings Mortgage ... .  lol.. yes, I know some of us have to get AVM's and some other things... but one step further then, why can't FHA just say that we have to have an appraisal and an AVM... only investors are requesting AVM's.  Overall, thanks for your feedback and for commenting. I hope we make their heads spin with so many comments.  We need to keep getting the word out.  thanks

BRETT... .  thank you very much for those kind words and compliments.  And thanking you for your comment to FHA, making your voice heard.  And yes, I added Julia's comment above.  thanks

Jeff, 

To add to the list of options.  Consider similar to what the rules are on Reverse Mortgages. 

I would accept a 3% limit with a mininum of $3,000 being allowed and a Maximum of $6,000.  

This would permit sales prices below $100,000 to recieve the 3,000 and then sales prices above $200,000 to recieve less than 3%.  Simple and easy. I would also suggest that on a local HUD office basis they be permitted to adjust the limits based upon local custom that increase a buyers closing costs. 

One problem wiith the restriction of 3% is that rather than get the lender involved in the inspection issues that may come up the seller concession "toward closing costs" is renegotiated upwar so that the buyer has the money to take care of the inspection items and not hold up the closing... or get a fix the buyer is happier with.  So, if it is too restrictive then in some instances the lenders will require repairs before closing if the inspection contingency remains in the P&S.

Jeff, this is the one I have concern with. In Maryland, our transfer taxes are so high, that I have MANY MANY sales where a buyer gets 4% back. That is just right. At only 3%, I believe there are four houses that I was involved with where the buyers would not have been able to buy it. I agree that 6% is too much, at least in Maryland, because the extra 1-2% is either unused or goes to buying down rates, which at their low level is not necessary right now. So reduction - understandable. Amount? Maybe too much.

Jeff, I re-blogged as well. Thank you so much!

Jeff - glad to see you are continuing to get this information out there and to let folks know they can let their voices be heard. I have to admit I have mixed feelings, given the pricing we deal with in our area. Thanks for sharing your wisdom.

Jeff

Jeff: When I lived in Seattle, this was not an issue. But with homes in Texas frequently around $100K, it really kills us.

I think your ideas are good with the exception of the 2 full appraisals.  Since the new rules came and the appraisers no longer have top compete, they have been charging a lot more.  I would object to adding to the costs.  Tighter standards I am OK with.

The only problem I see with a second appraisal is if the appraised values are significantly different - then you would need a third appraisal or two appraisal reviews in order to determine what the correct valuation should be.

Jeff - I like the solutions !  This is an important issue.  Many folks in our first time homebuyer market will simply not be able to purchase a property without the 6 percent assist.  I do believe that this will hurt many markets if it is limited to 3 percent.

Jeff,

I appreciate the blog and your ideas.  I think the time for the 6% seller contribution on FHA loans has come and gone.  Most deal do not include points these days and if they buyers can get a gift from a family member and such then I think it is better than keeping sales prices higher to allow the give back.  

Michael

TIM.. . as you have suggested, that would be simple, but even at a $100,000 sales price, It could cost like $9,500 to include $3,500 for a down payment.  That leaves $6,000 and I have had buyers that needed like $4,000 to $5,000.  Keep in mind, some states are different and have higher reserves for escrows and or stamp state taxes. Just food for thought.  So it comes down, what is a good number.  thanks

JOAN... . another good point that hasn't been mention.. that if repairs are needed and the seller is not taking care of them, etc, etc.;. now the buyer has a larger expense.  thanks

MARNEY... . I have done loans in Maryland, so I am aware of the recordation tax and the state stamp tax. I remember doing a $500,000 purchase price and the expense to the borrower alone was like $9,000 or so.  Now, this might be a bad example, because that is an expensive house.  But then again, the house was extremely small, but it was the area that he was buying in because of work. An old co-worker of mine had almost the same exact house with the same square footage in PA, and his house was worth $75,000 at the time. So there could be many different examples to why making it just 3% could hurt many markets.  And thanks for reblogging this.

JEFF... . thanks, I try. And to be honest, I have some mixed feelings and I can see HUD's point. But at the same time, you just don't cut this sort of thing off at the top. I think there are many solutions and we need to think this through, coming to some sort of middle per se.  thanks

AARON... . I know all about the Texas market. I get some borrowers that e-mail me with questions and such.. and I have a few realtor and loan officer friends in Texas. So yes, this kind of decision could hurt many different real estate markets.

RANDY.... . I bring up having two appraisals just as a solution. If we need to give something in order to keep it the way it is, to me, it's a sacrifice.  In regards to your statement about adding extra costs, because of a second appraisal, keep in mind, getting an additional 3% would pay for the appraisal.  Hey, it's just an idea... ;o)  thanks

JESSE... . this is true and I understand the issues behind the appraisals. But we need something to give to FHA to make them think more about this.  But again, if they are good appraisers and the real value is there, even though an appraisal is suppose to be determined as an estimate, real comps should justify the appraisal itself. These comps should give a good indication. But yes, I have seen some appraisals come in different and not just by a few thousand, so thanks for pointing this out.

CHRIS & STEPHANIE... . I know about your market and yes, this could hurt and not just a little.  And thanks for the polite compliment..

MICHAEL.. . I agree, most of my deals are without points, because rates are so low and I need to free up the monies for my client. But then again, think about it, real estate markets are different. Because of profit margins on all loans, I would guarantee that you would be charging 2 points on a $80,000 deal. But it also depends on your lender fees.  And not everyone has a family member that can give them a gift.  thanks for your feedback.

Jeff. I reblogged this as well. Thank you for your hark work on this.

Jeff, I've reblogged and commented at the govie site.

I don't think the 2nd appraisal will address the core reason for the proposed reduction down to 3% - less investment into purchases means statistically higher defaults. 

Here's what I posted:

Instead of reducing the seller contribution on FHA transactions to 3% across the board, instead tie it to other lower risk identifiers.  Examples: to get the 6% require either higher credit scores, more reserves, maybe 5% down instead of 3.5%, allow lower DTI ratios, etc.

Jeff, Thank you for putting this information together.  I appreciate your insight very much.  On the initial reading of your post and the comments I started to think that tying the seller concessions to credit scores or reserves might be a good compromise.........but have given it some thought and do not think it is a good recourse.

First, as we all know markets are dramatically different across the nation.  And, the financing costs vary dramatically state to state (Arizona has extremely low closing costs and New York's are over the top, for example).

I have never seen a seller willing to give a 6% concession in my originations in Washington, Oregon and California.  The housing prices are just so high that it would make no sense to anyone.  On the other hand, buying a home in Indiana may well need the 6% because the values are so low.

I don't know that I have a perfect solution....other than leave it alone!  (My pollyanna state of mind).

Another great post Jeff !  Will spread the word once again. Keep us posted !

TODD & DEVONA... .  my pleasure and thanks for reblogging this, for getting the word out.

DREW.... .  some have agreed with not seeing the value in a 2nd appraisal. And you bring up a good point, which I included in the solutions above.  Thanks for sharing this and for commenting to FHA.

DEBORAH... .  well, if FHA were to reduce the seller concession, but that we could compromise some, what would you offer FHA?  I understand that you said just leave it alone, let it be.  But that doesn't look like it will happen. So if that is the case, we need to present solutions.  I know you didn't mention any, but if FHA said.. "hey Deborah, I won't reduce the seller concessions if you give me one good solution."  Then what?  thanks and thanks for the thank you and for your feedback.

ROLAND.... .  thanks for the polite compliment and for the support.

Thank you for writing this series to get the word out and THANK YOU for including it for my readers in my outside blog.  Much appreciated!

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

I hate the idea of impounding the reserves - we already have escrow accounts, that's just punishing people who are responsible with their money and taking away their ability to make their own decisions with their own money. I hope the decision makers keep in mind that these changes will be with us a long time, so making decisions on the basis of what's common right now (i.e., we don't have people paying points now to get interest rates down) may not be the case a year or two from now.

Where I see this going in the end, just with many of the other changes that have occurred as a result of the Federal Govt being involved in something that they just dont REALLY understand, it will ultimately hurt the consumer.  If there is not sufficient closing costs assistance paid by the seller to help these mostly first time buyers, then the lenders will have to raise the rate (premium price the loan) to help them with the costs.  By increasing the rate, we now have lowered the amount they can qualify for in a purchase.  Is this REALLY helping the consumer?? 

Jeff,   Adding to my earlier comments.    I believe that FHA/HUD and the government regulators need to recognize that "REAL ESTATE IS LOCAL"  and "Closing Costs are Local" There is not one size fits all.   I believe lenders related fees are basically the same.   I also suspect that Title and Escrow fees would be similar from area to area.  The costs are likely similar, the only difference is who pays what.  Here in Ohio, I suspect the change would not affect buyers as much as elsewhere because as part of the contracts used sellers typically pay for the title exam, half the escrow fees, half the Owners Title Insurance Policy and Real Estate Taxes are prorated at title transfer in a way that actually provides a net credit to the buyer in most cases.  

If FHA feels they have to reduce seller concessions I think Julie Odum has a good solution.  It is better than the alternative.  The buyers will start paying higher interest rates on the small loans, so that the lenders can absord the costs.

Comment sent.  Thanks for bringing this to our attention and staying on everyone to respond.  I know this will cripple the housing market in our area.

RENEE... .  my pleasure and thanks for your continued support and for your input & kind words.

DAVID.... . that isn't bad, but I know some may frown about this, in giving the money up to someone else... the reason being. .. if I need that money, how do I justify it?  I think this could be an issue and a possible delay in getting your money quickly.  Just my opinion.. thanks for your input.

JOETTA... . I think you are referring to David's comment above you?   I would agree with you on that one. And yes, making this change now will be with us for some time.. and things change.  Thanks for your insight and feedback.

CATHY.... . I agree, that it ultimately hurts the consumer.  But in regards to raising of the rates? Most of that is controlled by the coupons that are sold on Wall Street.  If there is no true value for a higher rate, which at times, has been, then the rates will be capped. What I mean by this is that there are certain spreads between the rates and the coupons offered for such rates.  A lender just doesn't say, well, I am going to charge 6% and give back 4 pts when the average rate is 4.625%.  These rates are set by Wall Street depending on the market and investors bid for them.  thanks

TIM.. . I think this is one huge problem with HUD and our gov't, that they don't realize this or think it through.  They might just look around them and nothing outside their comfort zone. As far as who pays for what, that is a huge issue.  Hence why I gave my example for PA... 12 to 13 months in escrow for taxes and on top of that, either a 1% to 2% state stamp tax paid by the buyer.  Maryland is expensive on the specific state stamps.. thanks for your feedback.

LEE.... . I think Julie's solution is a good one. Some asked me why we would want to give back some. Well, as you stated, if FHA feels they need to do this, we need to give back something to make it work, to compromise.  thanks

I understand and appreciate the concerns of reducing the buyer's assistance, but just to play devil' advocate....

Why is it mandatory for a seller to have to pay any of a buyer's closing cost? If you are planning on purchasing a home, isn't it your responsibility to know ALL of the cost associated with this purchase, and to save the funds necessary? Most sellers need all that they can get out of the sale of thier property, and adding closing cost back into the sales price often puts buyers over thier limits.

Personally, I think this is part of the issues we are trying to overcome. Buyers qualified for more house than they can afford by pushing off some of the responsibility onto someone else.

Don't get me wrong almost all of my financed buyer's are requesting or requiring closing cost assistance, and I will do what is necessary to make the sale. But I think this is something the lenders are pushing and using to qualify people for more than they can afford.

I know it is hard to live within our budgets, but this is something I think that we have to learn to do to help our long term financial and market stability.

I see a lot that I agree with in Sybil's comments (#33).   If the buyer needs 6% to make the deal happen, and the seller can't afford to reduce their net by 6% then the only option is to raise the price of the house to cover that difference.  Now we get into the issue of will it appraise, or will the buyer qualify for that increased value (LTV)?  Since many home values have gone down in many markets, many sellers can't afford to eat that extra 2 to 3% as they are already bringing money to the table to be able to close.

The lenders, as Sybil has stated are the ones who are really pushing for allowing to have 6%, but they forget about the other issues of both sides of the transaction.

I do not think it will have that big of impact around here.  It is a sellers market and I do not think many homes are selling with more than 3% concession. 

NICOLE... . my pleasure and thanks for stopping by... I hope you commented on the site.  thanks

SYBIL & GARY.... . I am lumping you both together since Gary agreed with you Sybil. Let's start off with this statement.  In my opinion, I can see your side of things and partially agree.  Keeping in mind that some lenders abuse the seller concessions, are greedy, and pocket the extra money as profit. But for me, it goes deeper than this.

Sybil, you had stated... "Why is it mandatory for a seller to have to pay any of a buyer's closing cost?"

It's not mandatory... many use this feature though.   I agree that buyers should know the costs, but depending on savings and such, it's not as easy to save now than it use to be. On top of that, yes, sellers need the money.  But each seller and buyer is different... so is each house.

What I am trying to say is that I am not asking anyone to push the value of the house to make this work.  If the value is there, or that there is more value, then why not... why can't the buyer ask for this kind of help. I understand the pros and cons... but that is the problem with this whol argument. Some only see one side and others see the other side. We need to focus and understand both sides and work on it together. I will say this, it will kill some real estate markets.  And then what? Those other homes sit on the market longer... more foreclosures sit around... etc, etc.   People can't buy and the market gets worse.

Let me throw this out there...  people are now complaining about not having skin in the game and or the fact that they shouldn't get so much seller help.  Nobody complained about this 10 years ago...  I understand about pushing the values, I truly do. 

Let's take this one step further... the borrower qualifies... they have good ratios... have proven a good paying track record... do have some assets saved... they should be able to buy, but will either come up short with assets or.... wouldn't you want them to keep those assets in the bank?  As reserves? 

ANyhoo... not all lenders are pushing for this... the real estate market is.  Again, each market is different and it will kill some markets.  Plain and simple, at least in my opinion. Thanks for the feedback and input from the both of you..

GENE.... .  again, each real estate market is different.  In my opinion, it will hurt some real estate markets.  thanks

You've made excellent points and given viable solutions - as have your commenters. It seems like the thing the "rule makers" never consider is that real estate is a local thing and one size does not fit all.

This is definitely a subject to be considered serioiusly by real estate professionals, not politicians. You are the ones seeing and understanding the effects of each new regulation.

Well thought out and presented ideas.

You have concentrated on important concepts.

Great blog!

Unfortunately I believe that all suggestions will fall upon deaf FHA ears. (Just my feelings) With that said, I would offer this...

Allow the seller concession equal to the buyers down payment not to exceed 6%. The Minimum down payment of 3.5% would allow a concession of 3.5% and so on up to 6%.

If/when FHA changes the down payment requirement for the lower credit scores (IE:10%) then the buyer will be limited to a concession of 6%.

FHA is concerned with insuring homes that maybe losing value; only to increase their insurance exposure with an increased sales price via seller concessions. FHA is in a bit of a bind with this.

They (FHA) have to look at this logically as to not curtail home sales; and to allow the seller to match the buyers "chip in the game" may be an amicable resolution versus simply chopping off 3% of the existing seller concession.

Thanks Jeff for providing this great information. I did my part the other day & I'm glad we got the chance to voice our opinion.

Thanks Jeff.  I am asking everyone to vote on this.  not only is it an important topic, but it is great that FHA is giving us all a chance to give our opinion. 

Jeff, this is going to impact a lot of buyers...in turn impact our real estate business. Thank you for this and I gave my opinion via your link.

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