For many years home mortgage insured by the Federal Housing Administration (FHA) have made home ownership possible for millions of home owners. During the "boom" FHA loans lost a lot of ground in the marketplace because non-conforming loans were often easier to get and cost the borrower less scrutiny and often less out of pocket. (More on Examiner.com from my article this morning.)
Welcome the day when Housing and Urban Development Secretary (HUD) Shaun Donovan stood in front of Congress and reported the reserves of the FHA insurance pool to be only .53% - far below the federally mandated, by law, 2% reserves. As you may imagine Mr. Donovan, in an effort to save his job, is now scrambling for good ideas to get those reserves back to the minimum legal level. Let us all observe as the fireman tries to put out a big fire while his own pants are on fire.
Here are some of the recommendations thus far:
- Raise the required minimum down payment from 3.5% to 5%
- Lower the maximum seller contribution from 6% to 3%
- Establish a required minimum credit score
- Eliminate the ability to finance the Up Front Mortgage Insurance Premium (UFMIP) into the loan
- Raise the cost of FHA mortgage insurance (higher premiums)
Ken Cook - Web coder (I write the programs that make the whole world zing!) (678) 439-8683 Anything your mind can conceive I can create - online that is!
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I read about this earlier and it leaves me disgusted and speechless, but not surprised.
This is worthy of a reblog. Let's get some Google juice to this post.
OH GEE!!! It is Satan himself!!! Thanks for the information even if it is horrible. I too will be reblogging this one. Great for the google juice.
Great post and thanks for keeping me updated...great picture!
Just heard this from my lender, what a shame, just when things are beginning to look up, BAM, they shoot us down again.
Around every corner is a new road block, but we will keep finding ways to get through them! Thanks for the great post!!
Might as well have one loan fits all. If you don't fit into the box, no loan. The End. ARE YOU KIDDING ME! Talk of this has been on the table for a while, and you are right, we will lose a chunk of FHA buyers with any one of these options.
things are going to be tough if this go through and I don't think its going to help the recovery
Ken -
Thank you for the info. I can't call it good news. But it pays to be informed.
Many lenders around here in the last few months have had majority of loans FHA. This is terrible. ~Rita
It is a sad day for those people who want a house but can't really afford one anyway. This will be painful at first, but I think it's a necessary step for the long-term health of our nation.
Lenn is right. Worthy of re-blog. As sick as it makes me.
The reccomendations made my head spin. This is pathetic. Let's make it even harder to get these homes sold, that will fix the problem. One hand never knows what the other is doing I tell you. Maybe they don't care.
That photo is wonderful by the way!
Thanks for the valuable information. Looks like that is where it's headed.
Great information. On the one hand, the government wants to give a tax credit to buyers to encourage home sales, and on the other hand they want to make it harder to obtain a loan. Ya think they could get together?
Well, I am gonna go with the positive, and say that "SO FAR" these are simply recommendations. However, I am sure they are not far from happening. Then we will lose a great deal of buyers. A large base of my buyers are FHA, only have that 3 1/2 % down and need that 6% from the seller. This ain't gonna be good.
You knew it was only a matter of time that FHA would become synonymous with Fannie Mae ever since they made everyone qualify through the Fannie Mae Score Card in conjunction with all the agencies lumped under the authority of the FHFA. What does surprise me is the fact that many Realtors don't know or don't want to know about these changes.
I was just talking with another agent about this yesterday - purdy scary! Even one of the recomended changes would have an impact on the market. As Jean mentioned above, about 80% of my buyers only have 3.5% to put down and they need 4.5 to 6% in seller concessions. I would probably lose about 50% of my business.
We keep leaving the middle ground !!! As we now travel towards the extreme, many consumers will be trapped as continued tennants !
Ken, They just keep slamming us don't they? FHA is HUGE in market. This is going to put a stop to the buyers that have been able to take advantage of awesome prices and low rates. I guess these great deals will now be picked up by investors.
I remember when FHA depleted the fund in the early 1990's. At that time they simply raised the premium and monthly until it got to an acceptable level. What they are piecing together now is the Frankenstein monster.
So what do you suggest that they do? What they have done in the past looks like it is going to make them bankrupt if they continue in the same way. You either have to raise fees or tighten credit criteria. Otherwise they won't be around to help anyone.
Ken - Most of the home sales in my market area have been FHA loans. This will dramatically affect sales in my area. The Extended or Expanded Tax Credit gets the market revved up and the FHA shuts it back down again. Is anybody in Washington DC in charge? Hello????
Ken - Unbelievable. I wonder how many more hurdles we are going to see thrown in front of our industry.
This is the start of higher taxes.....just called a different name. Home ownership is going to be more and more difficult. Bodes poorly on the housing market......What we really need is jobs
Is 5% down REALLY that much to ask for from a borrower? Is having a decent credit score not a realistic thing to require? Why is it the sellers responsibility to handle closing costs and prepaids? Or do we just want to close as many as possible and who really cares if they can afford it or not? Heck, if we're lucky then maybe we can pick up a short-sale in a few months.
Please...
Home ownership isn't a right (that's what got us into this mess...). Yes, this will make it harder, but recovery is painful and a thinning of the herd may be needed in this industry.
I just closed one where the young couple had saved for years, had LOTS of reserves in the bank, paid their own closing costs and the attorney shook their hands and said: "It sure is great to meet a young couple who have worked hard, saved and will be able to pay their mortgage. I rarely get to say that..."
Labor is painful and it takes a lot of pushing, but it sure is beautiful in the end. Welcome to labor...
Wow! With these new guidelines, no one will ever get a FHA loan. Thanks for the update, mybe I'll get a second job, Ill need it!!
Uh wow! I thank you for being one of the top mortgage educators here on the Rain Ken!
People want to wait, they want to stay on the fence. I tell them over and over NOT that interest rates could go higher, but their program COULD GO AWAY! We have been dealing with guideline changes for, what? Three years now?!?!
The less programs, the fewer the buyer pool, the lower prices go down.
Hey Ken - It took me awhile to stop laughing at the photo you put in the post to actually get to reading the article.
I wondered where FHA would be going with their changes. This will definitely make it tougher for buyers. Let's hope we only lose a small percentage!!!
Someone really needs to develop a better risk analysis on what needs to happen (if anything) before the feds change things and then say 2 years later: geez...I guess that wasn't a very good idea.
Wow. Thanks for the feature and so many comments. I will only respond to two at this time - Tim Maitski and Jessica Horton. With due respect ... please don't buy into the "it requires a certain credit score and a certain amount of down payment to mitigate risk." Jessica I think you know enough about me to recognize I don't think anyone has any rights of home ownership - if you don't then you haven't read much of my writing outside of AR because I'm definitely "right of right". Tim, I have (and offer) plenty of suggestions regularly. Just like I have invited you to contact me and engage me for 3 years I'll do so again regarding this issue if you think my comments to you will make a difference.
This is a foolish move and mounts to nothing more than blind regulations which abandon sense, deter progression and inhibit viable transactions.
Let's look at the massive changes to streamlined refinances for example. (If you want to talk sales then call me and let's share some deals.) Streamlined refinances require the homeowner to be current with their mortgage with no recent late payments. Streamlined refinances require the payments or terms to be better than the current payments or terms and provide an advantage to the home owner. So, in a nutshell, the streamlined refinance will lower the monthly payments to the home owner who has been making the higher payments - who gives a crap about anything else including whether or not the person has a job? IF THEY HAVE BEEN MAKING THE HIGHER PAYMENT THEY WILL MAKE THE LOWER PAYMENT!!!!
It doesn't take a 1/4 genius to understand these changes are bad for the economy, bad for the industry and bad for the individual.
I have mixed feelings... Part of me lines up with Jessica. Part of me lines up with me when I was buying my first home... Tough call...
I'm mixed on a lot of this. I think loose requirements and a lot of stupidity are how we got here. However, there are many people, especially first time buyers in an expensive place like Orange County, who won't be able to buy with higher down payments. People may argue that maybe they shouldn't but when you look at $400,000 homes (which is fairly low around here), that's a lot of money to have put aside especially when you include closing costs.
Would the extra money be better saved for a rainy day so a mortgage payment could be made from it if needed?
Ken,
As FHA, Fannie Mae and Freddie Mac keep absorbing losses, it's kind of a done deal that they'll have to tighten guidelines. And that will just prolong the real estate market's recovery as fewer consumers will qualify for mortgages.
having been a loan officer for 30 yr(Realtor now) and my wife 25 yrs...we were doing FHA when it was not popular and agents got mad at us for going FHA, we used FHA to help the borrower, instead of going subprime, SISA, NINA... these type of loans werw not good for the buyer/borrower and the loan officer doing those loans made more money...
NOW those worthless subprime guys have moved into the FHA market and are bringing it down....they dont care ...they just search and distroy and move on
And kids....FHA does not credit score.....years ago(years) the underwriter mada a decision based on the merit of the file..not that the minimun middle credit score has to be 640 and you have a 639...thus you do not get a loan
FHA needs to stay at 3% down....first time home owners need this BUT....BUT make requirements for the loan broker harder to have a FHA license/certification...if we just made it a requirement that no one gets a FHA license if you have a felony conviction, this would get rid of half the loan officers/brokers
You are absolutely right! This will make it a lot more difficult for home buyers and it will hurt housing recovery. I guess they are just trying to save their own skin. Nice pic by the way.
Ken:
I've yet to see ANYTHING from this administration that is good for the economy. I'm against the $8k tax credit and believe that we can't continue to offer these low interest rates. It just isn't healthy IMO...
Certainly credit score isn't a guarantee that people will stay in their homes, but the more "skin in the game" a person has the less likely they are to walk away without fighting for it. When their financial involvement is equivalent to first and last months rent...it's a bit easier to say, "Forget it!" I can't tell you the number of people I've spoken to about selling who don't have a mental attitude of "ownership". And that IS a problem!
This is an overreaction and a day late and a dollar short, but continuing down the same path isn't sustainable either. I understand your point. I really do. But what concerns me is the vast number of REALTOR(S) (and mortgage brokers) who believe they are entitled to sell homes as quickly and easily as giving away free money. We aren't guaranteed the right to have smooth sailing any more than people have a right to own a home without working hard and saving up for it.
You are from Georgia and know that FHA is a huge part of my business, but I'm all for people saving more money and being in a better position to purchase. If that means that my lifestyle isn't what it used to be: So be it -- it isn't about me and my needs. The sooner our profession gives that more than lip services the better we all will be.
Here we go...let's start with the obvious...I'm a broker and have been for a dozen years. I've seen some changes in that time. From tight underwriting to loose, and back to tight again.
Is it SO horrible to have to actually SAVE (gasp) money before you buy a home? If you have skin in the game, you fight harder to keep your house when times get tough. People I see don't want to be under-employed, so they don't work at all. They bemoan the economy, and complain. How about this....figure it out! Work any job until you find a better one.
Owning a home is a privilege and a responsibilty, not a given right of adulthood. Ask the older generations around...there was no PMI at all, and you needed to save (that dreaded word again) 20% to buy a home.
I do tons of FHA loans, and I would be impacted by the changes you've listed, but I haven't seen any even quasi-official suggestions about those guidelines, so I personally am far less than concerned at this point.
Ken, we need to have a thought process that is long term. If FHA continues to bleed they could bleed to death. Would we rather have FHA with tighter guidelines or no FHA at all?
Tighter guidelines are a natural response to underwriting that assumes every applicant could be the next foreclosure and every property will continue to depreciate.
Until our economy gets a grip on this, FHA and the mortgage world in general will continue to tighten guidelines. We cannot emerge without pain. It is that simple.
I don't like it either, but the best thing we can all do is urge our FHA clients to act as quickly as they can. Because things are going to get worse before they get better.
Certianly not good news, there seems to be a lack of consistency in poilicies at the Federal level.
Ken, Thanks for responding to my comment. But I think you might have read more into it than was there. I made a rhetorical question and I didn't mean to infer that you have never put forth any good ideas. I think Janet Guibault on commnet #38 might have said it better than I.
"If FHA continues to bleed they could bleed to death. Would we rather have FHA with tighter guidelines or no FHA at all?"
I know that if I were lending my own money, I would never lend at such terms as FHA has been.
Ken - I'm seeing the same affect on my pipeline, only I believe based on my targeted market of first time home buyers in the low-to-moderate income ranges, I believe these proposed changes, both those you reference and those that are still in comment stages at the Federal Reserve, will negatively impact closer to 50-75% of my pipeline. Janet weighs in on the other side of the coin with some great input, too. Is there an easy solution? No way. Are these proposals the best solution? I don't thing so.
Ken
It's things like this that require all of us, and our organizations such as the NAR, NAMB, etc to turn up the heat on our elected officials.
Ironically, most in government have never had a real job, and don't have a clue what it's like in the trenches.
Good post.
Ken - I never did leave a comment here after I re-blogged it, my apologies. I usually try to remember to do that. I just finished up quite a post over on my main site about all of this and also posted a bit of an intro on it here at ActiveRain. My post got featured, so I owe you a bit of thanks for that as you were the inspiration behind it.
Keep bringing us great news on FHA Ken, I love it.
I read about this the other day. When will these changes be voted on? 90% of my Buyers are FHA, barely scraping up the 3.5% down and asking the Seller to pay closing costs. This will KILL Buyers in my market.
I think this is like the other side of the coin. After all this hype with Short sale, loan modifications, all this pressure for Lenders to lose money, do we really expect that there will not be a tougher lending ahead?
It is also mostly affecting the very same people, that it was supposed to help.
Yes this is frustarting. One hand doens't know what the other is doing. What is the purpose of the tax credits being offered to encourage buyers to buy if getting a mortgage is going to be even so much harder now? Do we want the market to improve or do we want it to remain what it is?
Very frustrating. FHA, HUD and other government agencies are always so far behind the 8-ball... and it is scrarry that they are coming up with all these "new" rules, procedures and program. Keep your fingers crossed and keep moving ahead is all we can do. I love the devil look.
I am just out in the rain trying to make contact with my associates. Have a blessed day!
We've seen a whirlwind of new rules in the past 11 months! These probably make sense economically for the country, but will devastate some who really want to buy a home. BTW, is there any doubt that our government is without a clue on many fronts?
Jim Gilbert, Sky Realty/Heart of Austin Homes
Rosemary - no doubt they are behind the 8-ball.
Jim - no doubt they are without a clue.
I believe the reduction in seller contributions will be a bigger hit than the rise to 2.25% MIP. The low down payment buyer does not have the money to cover their prepaids. They can roll the MIP into the loan with just a small rise in monthly payment.
Mark you are correct - we need to let everyone know that is up for public comment and not yet "set in stone".