FHA to Tighten Lending Standards, Increase Fees

In order to increase its reserves to cover loan losses, and to avoid asking Congress for money for the first time in its history, FHA has announced tightening lending standards and higher mortgage insurance fees.

Over the past couple years, FHA has seen its market share of mortgages increase from less than 10% to 30 – 40% of all new mortgage originated. This increase in the number of loans insured, coupled with the increase in defaults and foreclosures over the past couple years, has decreased FHA’s loan loss reserves to below the congressionally mandated minimum of 2%.

In order to increase these loan loss reserves and keep FHA headed in the right direction, FHA will be implementing the following chages:

1. FHA will increase the Upfront Mortgage Insurance Premium (UFMIP) from 1.75% to 2.25% of the mortgage amount. This premium, which can be rolled into the total amount financed, will increase the UFMIP on a $200,000 mortgage from $3,500 to $4,500. Since this premium is financed, it will not have a huge impact on borrower’s ability to afford a mortgage or their monthly mortgage payments.
2. FHA will now require all borrowers to have a minimum FICO score of 580 to qualify for FHA’s minimum 3.5% down payment. Borrower’s with FICO scores below 580 would be required to have a down payment of at least 10%.
3. FHA will reduce the allowable seller’s concessions from 6% to 3%. Sellers often pay for the borrowers closing costs and/or points on their mortgage. The reduction in these concessions is to prevent sellers from increasing the sales price of the home drastically to cover the cost of the concessions.
4. FHA will increase enforcement on FHA lenders. FHA will increase monitoring of FHA lenders to make sure they are operating in a responsible manner.

According to FHA Commissioner David Stevens, “Striking the right balance between managing FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important. When combined with the risk management measures announced last year, these changes are the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing markets recovery.”

There are mixed views as to the impact these changes may have on the housing market. According to Ivy Zelman, CEO of Zelman & Associates, a housing-research firm, “The FHA tightening arguably has no bite and is clearly a non-event.” Howard Glaser, and industry consultant, had a different view saying, “Mortgage lenders will find the new rule as painful but necessary. He continued to say the rules were necessary due to the fact that there is an “anything goes” environment in recent years due to many subprime lenders moving into FHA lending.

FHA’s Stevens said that he expected FHA’s performance will see “bumps and bruises in the months ahead” but was “headed in a positive direction.”

For more information read HUD's Press Release.

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HAPPY NEW YEAR!

Thanks to all of my great customers, friends, real estate partners, and blog readers - I wish everyone a wonderful holiday season, and a very happy, healthy and prosperous new year!

HAPPY NEW YEAR!

If you haven’t refinanced yet, don’t wait much longer

Changes to Fannie Mae guidelines may make it more difficult.


On December 12, 2009, Fannie Mae will roll out its latest version of Desktop underwriter – and with it new guidelines that may make it more difficult to get a mortgage. Many people have been waiting to refinance but now is the time to act,

Some of the upcoming changes are:
• Maximum debt to income ratios will now be 45.00%
• There will now be minimum credit scores, regardless of compensating factors
• Increased requirements for borrowers with previous bankruptcies, foreclosures, and deeds-in-lieu of Foreclosure.
• Value of certain assets (e.g. stocks, bonds, mutual funds, retirement accounts, etc.) will be capped at 50% - 70% of actual value
• Greater Loan to Value (LTV) restrictions for 2-unit properties along with greater reserve requirements.
• Many more

While the housing market has shown signs of improvement, foreclosure and delinquencies are still at all-time highs. Fannie Mae is implementing these changes to make sure loans that are made going forward are a higher credit quality than they were in the past. This can significantly impact your ability to refinance and save money.

If you are thinking of refinancing your mortgage, please call me today to see if it is a smart move for you. Time is running out!

Congress Extends/Expands Home Buyer Tax Credit

Congress has approved a bill that will not only extend the First Time Home Buyer Tax Credit but will also expand the credit to allow current home owners to receive a tax credit if they purchase a home. The housing market has shown signs of improving over the past several months in large part as a result of the tax credit for first time buyers. Over the past several months, first time home buyers have accounted for up to half of all sales.

First Time Home Buyers
There is no change for first time home buyers. They will receive a credit of 10% of the contract sales price up to a maximum of $8,000. The sales contract must be executed on or before April 30, 2010 and the sale must close on or before June 30, 2010. Both of these dates must be met – so, a sale that closes by June 30, 2010 with a contract date of May 15, 2010 is not eligible for this credit. Also, for the tax credit, a first time home buyers is someone who has not had ownership interest in a primary residence for the past 3 years. Click here for more specific information on the tax credit.

Existing Homeowners
The tax credit for existing homeowners works the same as for first time home buyers but it is limited to $6,500. An existing homeowner must have lived in their property for at least 5 consecutive years out of the past 8 years prior to the purchase of the new home. Also, only sales after November 6, 2009 are eligible for the tax credit for existing homeowners.

Income Limits
Income limits are the same for both first time home buyers and move up buyers. Buyers with a modified adjusted gross income (MAGI) of $125,000 ($225,000 for married couples) or less will get the full tax credit. The credit is phased out for MAGI between $125,000 and $145,000 ($225,000 and $245,000 for married couples) and is eliminated above $145,000 ($245,000 for married couples). To determine your MAGI, check IRS Form 5405.

Military/Service Rules
For qualified service members who serve a period of official extended duty (more than 50 miles from home for a period of 90 days or more) will have a 1 year extension – contract sale of April 30, 2011 and closing date of June 30, 2011. Also, qualified service members who sell or move from a tax credit home within three years of the initial purchase due to official extended duty are exempt from the recapture rule. Qualified service members include a member of the uniformed services of the US Military, an employee of the intelligence community, or a member of the Foreign Service of the US.

Home Seller Incentives – Buydowns Make New Home More Affordable

Sellers are looking at all sorts of incentives to make their properties stand out from the competition. In this buyers’ market sellers are desperate to sell and will try a lot of incentives – many of which may make getting financing for buyers more difficult (e.g. decorating allowances, cash-back offers, etc.)

Buydowns, sometimes known as temporary buydowns, offer a great incentive to the buyers and can make their purchase of your home more affordable than other homes. A buydown offers the home buyer a lower interest rate and mortgage payment at the beginning of their mortgage – this can help buyers who are moving from an apartment to their first home or even move up buyers.

There are several types of buydowns but the most common is the 2-1-0 Buydown. For the first year of the mortgage the interest rate is “bought down” by 2% and in the second year the interest rate is “bought down” 1%. For the remainder of the mortgage the buyers will be paying the regular interest rate, or note rate.

For example, if the interest rate for a 30 year fixed mortgage is 5.0%, the buyers will pay 3.0% interest for the first year, 4.0% interest for the second year, and 5.0% for the remainder of the mortgage. The cost for a 2-1-0 buydown is typically about 2.5% - 2.75% of the mortgage amount (2.5 – 2.75 points) which the seller would pay as an incentive to the buyers to purchase their home.

If you are selling your home, speak with your lender and Realtor about offering this as an incentive to prospective buyers. If you are buying a home, keep this in mind as you make an offer and negotiate your purchase. A buydown can be a win-win situation for the buyers and sellers.

For more specifics on how buydowns work, please see “What is a Buydown?”

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Fourth Consecutive Monthly Increase for Home Prices

Home prices in August rose for the 4th consecutive month. According to The Standard & Poor's/Case-Shiller report home prices in 20 metropolitan areas across the country increased an average of 1.25% – well above the 0.7% increase that many economists had predicted.

Many people think that this report, along with other recent housing sales reports, indicates that the housing market may have finally found a footing after a three year slump. The housing market has been one of the main causes of the worst recession since the Great Depression. Annually, home prices are still falling, but at a slower rate. According to this report, home prices in the 20 metropolitan areas declined an average of 11.3%. "Broadly speaking, the rate of annual decline in home price values continues to improve," David Blitzer, chairman of the index committee at S&P, said in a statement.

Many people are still worried about the housing market in spite of the positive reports over the past several months. While the housing market has shown strength, it is still vulnerable to increasing unemployment and the expiration of the First Time Home Buyer Tax Credit which expires at the end of November. Some people feel that once the tax credit is no longer available, we may see a sharp reversal of these positive reports. There are several proposals in Congress to extend the tax credit in some form into 2010.

I can be reached at 708.473.7688 or BarkerLoans@gmail.com and, as always, my advice is free!

Cook County Down Payment Assistance Program

The Cook County American Dream Downpayment Initiative Program (ADDI) is an interest-free 5 year forgivable loan, secured by a silent second lien. The home buyer will receive 6% of the sale price (or $10,000, whichever is greater), not to exceed $14,999, toward the down payment and closing costs of for the purchase of a home.

To qualify a homebuyer must be a first time home buyer (FTHB), meaning they have not owned a home in the past 36 months. The homebuyer must also attend a HUD-approved housing counseling course and meet the following income limits based upon the size of their family:


Property must be a single family (no multi unit), owner occupied residence. The property must remain the primary residence of the homebuyer for the entire 5 years for the ADDI loan to be forgiven. The loan is due on sale or if owner moves out before the five year period expires. The maximum sales price for ADDI is $275,200.

Home buyers do not apply directly for the program. They would apply with me for a mortgage and I would provide the documentation on behalf of the homebuyer to secure the secondary financing. The ADDI Program needs at least 40 – 45 days to process the loan request so make sure there is ample time on the sales contract to accommodate this. I highly recommend the homebuyer getting a pre-approval before signing a contract to purchase a home – it will make things move more quickly.


I can be reached at 708.473.7688 or BarkerLoans@gmail.com and, as always, my advice is free!

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