FHA Contemplating Reduced Seller Paid Concessions

On Friday, FHA released a letter proposing that the maximum allowable seller concessions be reduced from the current 6% limit to something less.  FHA is contemplating this change to “better manage risk” as they feel the current level exposes the FHA and borrowers to excess risk by creating an incentive that inflates the appraised value.  FHA first mentioned this as a possibility all the way back on July 15, 2010.  After bringing up the possibility of such a reduction a full year and a half ago, nothing has been heard from FHA again on the subject, until now.  Reducing how much of the buyer’s costs that the seller can pay at closing would be a major blow to the real estate industry.  Reducing this limit from 6% to say 3% would require most FHA buyers to bring more money to the table, to the tune of several thousand more $’s.  This is money they simply don’t have in many cases.  The official proposal will be finalized soon and then there will be a 30 day comment period in which we’ll be able to make lots of noise.  Hopefully, our industry lobbyists will show up in a big way and keep this limit from decreasing!  I will send you more info on how you can make your feelings known about this once the proposal is officially issued. 

In the same announcement, FHA also mentioned they may soon require indemnification for “serious and material” violations of FHA originated loans.  This means that any inaccuracy in a loan file could be interpretted as fraud or misrepresentation and cause the lender to have to repurchase the loan.  A few of these repurchases could put a small lender out of business.  Stated another way, FHA is proposing to make it harder for lenders to make FHA loans.  Just what we don’t need right now!

FHA Extends Anti-Flipping Waiver Through End of 2012

To cut down on fraud, FHA has had an anti-flipping regulation in place for years preventing a seller from selling a home owned less than 90 days.  In an effort to accelerate the resale of foreclosed properties, FHA waived this rule in Feb of 2010 and then extended the waiver through the end of 2011.  FHA recently announced that they are extending the waiver through the end of 2012.  This announcement has been well publicized but its important to understand that this is simply an extension of FHA’s policy for most of the last two years.  So, although this is good news, it is not necessarily new news.  It is also important to understand that most every FHA investor has “overlays” on top of the stated FHA guidelines that make the FHA guidelines more restrictive.  The most liberal overlays allow for the anti-flipping waiver BUT with the strict limitation that the resale price not be more than 20% greater than the acquisition price, even if there were renovations.  An exception would need to be granted for a resale value of more than 20%.  The bottom line is always be careful when your FHA buyers are buying homes that the seller has recently acquired.  Check to see when the seller acquired the property and make the Loan Officer aware of the acquisition date if it was within the last six months.

FHA Loan Limits

Congress reinstated higher loan limits for FHA loans last week, however, this news is not the good news it seems to be for the Atlanta market. Several months ago, FHA loan limits were reduced by about $25,000 in metro-Atlanta. Congress has not returned these loan limits to the previous level, rather they approved legislation that allows for higher loan limits in certain “high-cost” areas of the country. In cities like San Francisco and New York, the loan limits are allowed to go as high as $729,750 for another two years. This is great news for these high-cost areas but is of no benefit to the metro-Atlanta area where the single-family FHA loan limit remains $320,850.

FHA Loan Limits Set to Drop on October 1st

The FHA loan limits that have been in place for the last 3.5 years are going to fall on October 1 unless Congress intervenes and does something about it. A bill introduced by Johnny Isakson (GA) and Robert Menendez (NJ) would extend the current FHA levels for another year. If the bill is not passed by the end of next week, the FHA loan limits in metro-Atlanta will drop from $346,250 to $320,850 for a 1-unit property. Hopefully, Congress steps in and keeps the FHA loan limits from rising. If not, lower limits will limit the FHA program and eliminate many buyers from the market. If the loan limits are lowered, this would take effect for FHA Case #’s ordered on or after October 1. Thus, any buyers who come under contract over next two weeks who are looking for FHA loans in the $320,850 to $346,250 loan size range will need to make sure that their Loan Officer gets their FHA Case # ordered by next Friday. It does not matter that the closing is after Oct 1; the lender simply needs to order an FHA Case # for that property before the deadline.

Senator Isakson Proposes Bill to Keep FHA Loan Limits from Declining

In one of my July newsletters, I included a warning that FHA may reduce the FHA maximum loan limits this fall as a “sunset provision” is set to expire on Sept 30th. Traditionally, FHA has set the maximum loan limit in each county in the US based on the median house price in that county. For the last three years, in an effort to mitigate the effects of the economic downturn and the sharp reduction of mortgage credit availability from private sources, Congress has temporarily increased FHA max loan limits to propped up amounts. The general sentiment this time around is that Congress is not going to step in and approve propped up amounts again this year. However, worth reporting, Georgia’s own Johnny Isakson, along with Robert Menendez of NJ, has introduced a bill which would extend the current FHA levels for another year. If passed, this should prevent FHA loan limits from declining in 669 of the 3,334 US counties or county equivalents eligible for FHA mortgage insurance. If the loan limits are lowered, this would take effect for FHA Case #’s ordered on or after October 1, 2011. In the metro-Atlanta area, the limit would decline by $25,400 from $346,250 to $320,850. Hopefully, Congress steps in and keeps all the max FHA loan limits at today’s levels. NAR certainly supports this position as do many Congressman. However, a large number also feel that the present housing crisis was brought on by irresponsible practices and that FHA must not continue to falsely prop up limits. A month away from the deadline, it appears this fight could go either way. Needless to say, I will keep you posted. For more details on this subject, click on the following link:

http://portal.hud.gov/hudportal/documents/huddoc?id=FHA_Loan_Limits_HERA.pdf

FHA Loan Limits May Decline in the Fall

Traditionally, FHA has set the maximum loan limit in each county in the US based on the median house price in that county. For the last three years, in an effort to mitigate the effects of the economic downturn and the sharp reduction of mortgage credit availability from private sources, Congress has temporarily increased FHA max loan limits to propped up amounts. Congress could step in and do that again later this year but the general sentiment at this point is that they won’t. The effect would be that FHA loan limits would likely decline in 669 of the 3,334 US counties or county equivalents that are eligible for FHA mortgage insurance. This decrease would take effect for FHA Case #’s ordered on or after October 1, 2011. In the metro-Atlanta area, the limit would decline by $25,400 from $346,250 to $320,850. Hopefully, Congress steps in and keeps all the max FHA loan limits at today’s levels. For more details on this subject, click on the following link:

FHA MIP Factors Increase

Effective with FHA Case Numbers assigned on or after April 18th, FHA increased the Annual Mortgage Insurance Premium (MIP) by .25%.  The chart below shows the old and new MIP premiums as well as how much the monthly MIP will cost for a $200,000 base loan amount.

Old FHA MIP Factors

30 Year Fixed with min 3.5% down        = .90                $150

30 Year Fixed with 5% or more down     = .85                $142

15 Year Fixed with min 3.5% down        = .25                $42

15 Year Fixed with 5% or more down     = .00                $0

New FHA MIP Factors (as of Apr 18th)

30 Year Fixed with min 3.5% down        = 1.15                $192 (increase of $42/mo)

30 Year Fixed with 5% or more down     = 1.10                $183 (increase of $41/mo)

15 Year Fixed with min 3.5% down        = .50                  $83   (increase of $41/mo)

15 Year Fixed with 5% or more down     = .25                  $42   (increase of $42/mo)

There are no changes to the Up-front Mortgage Insurance Premium, which remains at 1%.

FHA Mortgage Insurance Premiums Rising Again

FHA is at it again.  Just six months after hiking mortgage insurance factors sharply, FHA has declared that it is “imperative” that its Mutual Mortgage Insurance Fund (MMIF) be “further strengthened” so that it remains “financially sound to ensure that FHA will continue its historic role of providing a home financing vehicle during periods of economic volatility and its mission of helping underserved borrowers.”  This increase was a part of President Obama’s budget proposal and it is worth noting that FHA does have the authority raise these premiums without congressional approval.  As a result, effective with FHA Case Numbers assigned on or after April 18th, FHA is increasing the Annual Mortgage Insurance Premium (MIP) by .25%.  The chart below shows the current and future MIP premiums as well as how much the monthly MIP will cost for a $200,000 base loan amount.

Current FHA MIP Factors:

30 Year Fixed with min 3.5% down = .90% ($150/mo)

30 Year Fixed with 5% or more down = .85% ($142/mo)

15 Year Fixed with min 3.5% down = .25% ($42/mo)

15 Year Fixed with 5% or more down = 0% ($0/mo)

New FHA MIP Factors (as of Apr 18th):

30 Year Fixed with min 3.5% down = 1.15% ($192 / increase of $42/mo)

30 Year Fixed with 5% or more down = 1.10% ($183 / increase of $41/mo)

15 Year Fixed with min 3.5% down = .50% ($83 / increase of $41/mo)

15 Year Fixed with 5% or more down = .25% ($42 / (increase of $42/mo)

There are no changes to the Upfront Mortgage Insurance Premium, which remains at 1%.  It is reassuring to know that FHA “anticipates that this increase will have minimal impact on borrowers but will significantly strengthen the capital position of the MMIF.”  Let’s hope they are right….

FHA Extends Temporary Condo Variances

Good news to report as last week FHA announced the extension of the following 2 condo variances through June 30, 2011:

 1. FHA concentration is temporarily allowed to a maximum of 50%.  This means that up to only 50% of the units in a given complex will be able to have FHA financing.  This limit will drop to no more than 30% on July 1.

 2. Pre-sale requirements for new construction are temporarily reduced to a minimum of 30% before rising to 50% on July 1 (not that there is a whole lot of condo construction going on around anyway, but its nice to know that the FHA is looking out for us!).

 A quick reminder that to obtain an FHA condo approval:

• At least 50% of the units must be owner-occupied
• At least 10% of the budget must be set aside for reserves and capital expenditures
• The HOA is required to maintain comprehensive general liability insurance covering all of the common elements, commercial space owned and leased by the owner’s association, and public ways of the condominium project

2011 FHA Loan Limits

For the second straight year, the FHA loan limits for the metro-Atlanta area are staying the same.  With values declining in 2010, this is excellent and welcome news. The 2011 limits are as follows: