New FHA Guidelines Announced

January 20, 2010

The Federal Housing Administration (FHA), which is trying to bolster its depleted cash reserves, unveiled tighter underwriting guidelines Wednesday morning.

The guidelines include a hefty down payment for low FICO score borrowers and an increase in the upfront mortgage insurance premium to 225 basis points.

The 10% down payment is required for borrowers with FICOs of less than 580. The MIP will be increased in a few months from the current charge of 1.75 basis points. FHA will allow borrowers to continue financing the upfront MIP.

The agency also will pursue legislative authority to allow flexibility to bring the annual premium — current capped at 55 basis points — higher.

Also, seller concessions will be reduced to 3% from 6%. Scott Stern, who runs the Lenders One cooperative said, "On the whole, mortgage lenders will find the new rules painful but necessary. The problem is that for the past four years, FHA was an 'anything goes' environment."

He added that, "What makes this hard is with FHA hovering around 40% of new loan originations, even small rule changes echo through the housing market with a big impact."

Announced FHA Policy Changes:

Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

• The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
• If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
• This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
• The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.

Update the combination of FICO scores and down payments for new borrowers.

• New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

Reduce allowable seller concessions from 6% to 3%

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

Increase enforcement on FHA lenders

• Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.
• Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
• Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process

For more information, click here.

It's Official! $8,000 Tax Credit Has Been Extended!!!

President Obama signed a bill Friday extending the $8,000 first-time homebuyer tax credit, making it applicable to contracts entered into by April 30, 2010, and closing by June 30, 2010. The bill also includes a new $6,500 tax credit for homebuyers who have previously owned a home, if that home was their primary residence for five consecutive years out of the last eight years. Both the $8,000 credit and the $6,500 credit have expanded buyer income limits, and the cost of the home being purchased is limited to $800,000.

Also Notable:

• Third quarter Productivity increased 9.5%, the fastest pace of growth in six years
• September Pending Home Sales jumped 6% to the highest level since December 2006
• The Treasury will auction a record $81 billion in 3-yr, 10-yr, and 30-yr Treasuries next week
• The Fed purchased $16 billion in agency MBS during the week ending 11/4

Congress Poised to Keep $8000 Homebuyers’ Tax Credit!

After weeks of delay, it looks like the Senate and House are poised to agree on a compromise measure to extend the popular $8,000 tax credit for homebuyers. The Senate might pass its version as early as today, and aides to Congressional leaders say the House could accept it this week, sending the bill to President Obama to sign into law.

The homebuyers’ credit — enacted last year, expanded this year and scheduled to expire Nov. 30 — would be extended to cover homes under contract by April 30. Also, it no longer would be limited to first-time buyers; people who have owned a home for at least five years could get a $6,500 credit on a new residence. Income limits for eligibility would be raised, making many more people qualify. To qualify for the full credit, homebuyers must have adjusted gross income of less than $125,000 ($250,000 for married couples filing jointly). In addition, the credit would only apply to homes sold for $800,000 or less. Contracts to buy a home must be signed by April 30, 2010, and the deals must close by June 30 in order for a buyer to qualify for the credit.

This is great news for buyers and will help the market rebound as people continue to take advantage of this wonderful program!

Read more about it here!

Home Buyer Tax Credit Extension Likely

Extending the First-Time Home Buyer Tax Credit, due to expire at the end of November, is high on the Democratic Congressional to-do list, legislative aides said.

After Wednesday’s meeting with President Obama and House Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Harry Reid (D-Nev.) released a statement that the government should “continue efforts to strengthen the housing market by extending the home buyer tax credit.”.

Mark Zandi, chief economist at Moody’s Economy.com, who is a consultant to Democrats in the administration and Congress, is advocating extending the credit through August and making it available to all home buyers. He said failure to extend the credit just as more foreclosures enter the market will push housing prices down.

Also, on Thursday, the House is expected pass legislation to extend the credit through 2010 for people who have been out of the country in the military, intelligence, or foreign services.

Source: The New York Times, Jackie Calmes (10/07/2009)

Home Values Rising!

If this isn't a housing recovery, than I don't know what is. For the 6th consecutive month, the S&P/Case-Shiller Index posted strong numbers, a streak that dates back to February 2009. It comes 3 years after an epic collapse that left many wondering if housing would ever recover. It's clear now. Housing will most definitely recover. That said, we can't rely on the Case-Shiller Index alone to tell us that housing has recovered.

This is because the Case-Shiller methodology is fundamentally flawed.

First, it only accounts for 20 U.S. cities which, in turn, represent just 9% of the US population. If you live in one of the cities not covered by Case-Shiller (i.e. Cincinnati, Dayton, Columbus), Case-Shiller has no local meaning to you whatsoever. Omitting 91 percent of the population is a big deal.

But even if you do live in one of the 20 cities, Case-Shiller data is still kind of useless on a micro level. This is because the measurements clump individual city neighborhoods into one group of data. In Chicago, Lincoln Park and Rogers Park, and Andersonville and Bronzeville are all in the same sample set. Real estate doesn't work that way. Every neighborhood is unique.

That said, the Case-Shiller Index is still important. As the de facto barometer for home values nationwide, sustained strength in the Case-Shiller data means that the recession may be ending (or is already over).

Home buyers take note.

The combination of a soon-to-expire $8,000 First-Time Home Buyer Tax Credit and a rebounding housing market is creating intense competition for homes that may only get worse. Bidding wars seem common lately and that can have a negative impact on home affordability.

If you're thinking about buying a home right now or wondering if the time is right, according to Case-Shiller, the "right time" may have been 6 months ago -- before the string of increases. With values on the upswing, homes may only get more expensive.