FHA Makes Changes

On January 20, 2010, FHA announced major changes to ensure its long-term financial soundness. FHA is trying to balance three fundamental objectives: 1) financial soundness of the FHA insurance fund - ensuring that its capital ratio returns above 2 percent, 2) fulfilling its mission of serving borrowers not adequately served by the private sector and 3) facilitating the recovery of the housing industry and the over-all economy.

By all accounts the new changes are a victory for home buyers. FHA has carefully balanced the need to make financial reforms with the need to keep FHA available to a large segment of consumers. This is evident by retaining the 3.5 percent minimum down payment requirement and allowing the up-front mortgage insurance premium to be financed.

FHA announced changes in the following areas:

· The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FHA will continue to allow the financing of the UFMIP.

· Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.

· FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the up-front premium.

· Seller concessions will be reduced to 3 percent from 6 percent.

FHA will make the following lender enforcement changes:

· FHA will implement credit watch terminations at lender underwriting.

· Public reporting of lender performance through scorecard system will be implemented.

· FHA will implement, through notice and comment, indemnification against lenders. Indemnification will be expanded beyond fraud and misrepresentation.

· FHA will seek legislative authority to enforce indemnifications against direct endorsed (DE) lenders.

· FHA will seek legislative authority to sanction lenders nationwide based on performance of local branch.

FHA is an integral part to the continued recovery of the real estate industry and the overall economy. NAR will continue to work with FHA, the Administration, and the Congress to ensure FHA can fulfill its mission while providing for the safety and soundness of the insurance fund. NAR is committed to assisting FHA as they balance risk management with creating homeownership opportunities across the country.

For NAR’s one-page summary brief on this issue, click here.

A factor in getting our economy back up an running is to get many of the componets of the real estate industry back to work.  One aspect of this is the buying of distressed or foreclosed properties, rehabing them and putting them back on the market!  I talked in an earlier blog about the benefits to the market by having this process in place.

Up until today, there was a 90-day Seasoning Rule which meant it could not sell until after 90-days from the day the investor had purchased it.  There were some legitimate reasons for this but it also hampered the ability for investors to make a profit.

Apparently HUD saw the advantages and realized that removing this restriction would help speed up the recovery process.  this would be especially helpful in communities where the foreclosure activity is high.

HUD Secretary, Shaun Donovan, announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed or distressed properties.  This is part of President Obama’s commitment to addressing these types of properties.  Secretary Donovan announced there would be $2 billion in Neighborhood Stabilization Program grants to local communities and non-profit housing developers to combat the effects of vacant and abandoned homes.

This is all good news at a time when it will be well positioned to have a huge impact on the real estate industry as it surges forward!  My hat goes off to HUD Secretary Shaun Donovan for his efforts on our behalf!

This house which was just purchased by investors will be back on the market in two weeks because of this new action by FHA.