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.

The New Norm

At first I didn’t think any thing about it, but after several weeks, it started to dawn on me that we are actually in a different climate with real estate transactions! Maybe it’s only in Rochester, New York, but I think not! Welcome to the new norm!

Here is what that means to you as a buyer, no longer can you expect to put an offer in on a property, go to the bank, and close nonchallantly 45 days later.

Now, it’s a tug-a-war with the seller over every little thing that doesn’t meet their expectation in the purchase offer.

Then after the home inspection, the seller is going to balk at everything we asked them to correct in the house.

Then, it’s off to the mortgage company to get the loan. Good credit, good job history and a solid downpayment, should be a piece of cake! WRONG! After the basic application, comes a steady flow of requests right up to the commitment. Then more requests after the commitment to get cleared to close. Then follow-up on the repairs and maybe it will close only 3-4 weeks late.

I hope as other agents do, that this process is a temporary one and the mortgage process will return to a more normal and sane process in the future!

But until this happens, you can count on me to be with you every step of the way!

Private Mortgage Insurance Backlash

In the old days if you got approved for a loan at the bank for a home mortgage, the private mortgage insurance was an automatic. The private mortgage insurance (PMI) was a protection policy the banks required if you were putting less than 20% down. It would insure the first 20% of the loan so the banks would feel safe in loaning you the money.

This has worked very well for decades to keep the whole system moving. The PMI companies have been making tons and tons of money from you and me on all our home mortgages which we did not default on.

Suddenly because of the banking industry screw up, the PMI companies have displayed a “knee-jerk” policy. You know the concept of the pendulum swing? Well, they are at the extreme right with over-critiquing every application that crosses their desk! Not only is it adding weeks on to the process, but they are turning down solid deals for insignificant reasons!

I could go on and on about this whole craziness going on in the home mortgage process, but I think I have said enough. If you have had a problem with the PMI companies with your home mortgage process, tell me about it.