Congressman Drafts Bill to Increase FHA Downpayment

Republican congressmen are becoming more concerned about the Federal Housing Administration's financial plight and they want to increase FHA's downpayment requirement to 5%. Rep. Ed Royce, R-Calif., said FHA is operating at the same dangerous leverage ratios that led to the takeover of Fannie Mae and Freddie Mac. Rep. Scott Garrett, R-N.J., said he has drafted a bill that would increase the FHA downpayment requirement to 5% from the current 3.5% level. "There are increasing reports of the likely necessity of a taxpayer bailout for the FHA and this legislation aims to implement reforms to try to prevent such a bailout from occurring," Rep. Garrett said at a House Financial Services Committee hearing. The Garrett bill also calls for a General Accountability Office study to determine the appropriate leverage ratio for FHA. In the early 1990s, Congress mandated that FHA maintain a minimum 2% capital ratio. A recent audit shows that the federal mortgage insurance fund has fallen below the 2% minimum. But FHA officials say the insurance fund should be able to maintain a positive capital position and FHA will not need taxpayer assistance.

I must say that should this occur, it will further damage a fragile housing growth as home buyers already stuggle to provide the current 3.5% down payment.  What we really need is a zero-down FHA product with strict guidelines such as increased up-front mortgage insurance, higher credit score, stable income, and adherance to standard ratio guidelines. Given that, the success of an FHA zero down product would more likely.

I suggest a preemptive letter to your congressman and/or senator expressing your feeling how an increase to 5% in down payment would affect the housing industry. Currently, almost 50% of all loans closing are FHA and my feeling is there would be a significant drop should buyers need to come to the table with more cash.

May Day Brings Changes

A whole new world started May 1 as all lenders scurried to form their new appraisal ordering policies for conventional Fannie Mae and Freddie Mac loans. Even at the last hour, lenders were hoping for a reprieve which never materialized. Here are the new rules, and they WILL affect your buyers:

1. No loan officer will be able to order an appraisal. All appraisal orders will go through the lender.
2. Payments for the appraisal will be paid for by the buyer immediately. No more waiting for the closing date to come around.
3. Appraisal Management Companies (AMC's) will assign appraisers and make up to half the fee charged. (Interesting fact - Some AMC's are owned by Banks)
4. The industry is expecting delays in the appraisal process.
5. A lot of great appraisers are refusing to sign up for this. They see it as the AMC's taking half their fee and having to do twice as much work to make the same money. This leaves the AMC's using appraisers that are new to the business, less-experienced, or maybe not very good. (Good luck with those values!)
6. Borrowers will get a copy of the appraisal sent to them 3 days prior to closing.
7. If you change lenders, you may not be able to use the appraisal and your buyer will have to pay for another one.
8. Although geared towards conventional only right now, some lenders are already saying they will use the same system for FHA loans. (Again - some AMC's are owned by banks).
9. VA buyers will still have appraiser assigned by VA.
10. Your loan officer will have NO contact with the appraiser!
11. The appraiser assigned may come from outside the immediate market area.
12. PLAN NOW! - Consider extending closing dates by 15 days as lenders struggle to work through the growing pains of this new system.

Lenders Begin to Tighten FHA Loans

Mortgage banks are further tightening FHA loans. The first item to notice is that the previous lending limit of $417,000 between FHA normal limits and FHA Jumbo limits now has to include the UFMIP (up-front mortgage insurance premium) while previously it could be added to the $417,000 maximum normal limit. The next item to change is that a 660 (up from 620) credit score will now be required on FHA Jumbo loans and it must include a DU approve eligible through the FHA Total Scorecard Underwriting System. Purchases with a loan-to-value above 95% will require a FULL 2nd appraisal. Your buyers will need to be prepared also for an anticipated raise in FHA appraisal prices as the industry moves to a nationalization of appraisal ordering on May 1st. We have already been advised by some of these companies that they will be charging up to $600 for an FHA appraisal. That would be $1200 for 2 on FHA Jumbos.

These guidelines are effective immediately with several lenders and it will run through the rest of them as days go by. Rest assured, we will keep you informed here in this blog of any agency guideline changes.

Do other agents a favor and suggest this blog.
For marketing tips and tools, go to http://www.AgentSignIn.com

Fannie Mae and Freddie Mac Change the Appraisal Process

Freddie Mac and Fannie Mae will implement a revised Home Valuation Code of Conduct beginning May 1, 2009. In an attempt to increase the reliability of appraisals, the revised code builds on existing seller-servicer guidelines and will apply to lenders that sell single-family mortgage loans to Fannie Mae and Freddie Mac.

One major difference in the code is that lenders will be required to order appraisals from one central clearing house, which will in turn select an appraiser. The down side of such a process is that lenders will have little to no communication with the appraiser, which means there won't be an opportunity to have a discussion or touch base with appraisers before they go out to appraise the house. The new code is intended to help assure that borrowers, home buyers and secondary mortgage market investors receive fair and independent property valuations.

In some areas, lenders have already implemented these changes, and in the next few weeks and months, more will have to begin the process. The big thing to remember is that gone are the days of talking to an appraiser about the value. It is not unlike VA choosing the appraiser for you. I expect many home buyers to be reviewing internet places like Zillow to check on values.

As an agent, get used to looking closer at what similar homes have sold for with about the last 3 months as many areas begin to track downward. Recent appraisals I have seen are showing Pierce County (for example) condos tracking downward by about 1/2% per month currently. A drop of 6% is at least smaller than many parts of the country. A savvy seller will want to pick a "sell my home first" value that is slightly lower than the competition and get away from the idea of "my house being better than theirs".

With homes for sale on the market for 6 - 9 months, obviously, the sale price of that listing is NOT the price to compare to.

Best wishes for a prosperous NEW YEAR!

Additional Resources:
Federal Housing Finance Agency's: News Release
Federal Housing Finance Agency's: Home Valuation Code of Conduct
Free Individual Web Sites for your Listings: AgentSignIn.com
How to Put on a First Time Buyer Class: Putting on a Class
Know of Buyers that are waiting due to Fear of Job Loss?: New Payment Protection

USRD to Adjust Income Limits

Effective January 20, 2009, an income limit modification will allow easier qualification for buyers using 100% USRD loan. Previously, income limits were based upon family size from 1-8 with each size based upon 115% of median family income. Although that is not changing, we will move to a 2 tier system using the income for a family of 4 for family size 1-4, and income limits for a family of 8 for sizes 5-8. Family household larger than 8 will have an additional 8% per individual added to the 8 person income limit.

This is definately going to help individual and married couples with family sizes less than 4 or between 5-8, qualify for homes easier. To give an example using current income guidelines: a family size of 1 was limited in income to a maximum of $53,250. Using the new guideline, that individual could not qualify for a 100% USRD loan having a maximum income of $76,100.

Of course, at this point, we do not know what the 2009 median incomes figures will be, but should they stay the same, our new system for maximum income limits will be:
Family Size 1-4 = $76,100
Family Size 5-8 = $100,450

Since this loan is one of the only loans available for non-veterans wanting 100% financing, this should be a great loan to use. Make sure your listings are advertising for 100% if located in an eligible area. Maps are available. Email info@mortgageinwashington.com for any Washington county you need a map for. We will be hosting seminars about USRD before the year end. Watch this blog for details.