I completely agree with Lenn Harley's summation of the new FHA requirements. This will make it harder for individuals to qualify for an FHA loan. Thanks for the information Lenn!
ONE THING EXPERIENCE TEACHES US IS THAT, JUST BECAUSE A PERSON IN AUTHORITY SAYS SOMETHING, DOESN'T MAKE IT TRUE.
EXAMPLE: HUD Secretary Donovan, in announcing the details of the changes to FHA financing, states:
"The new policies are designed to strengthen the FHA's capital reserves so we can continue to fulfill our mission of serving underserved communities."
The changes include:
- Increase the up-front mortgage insurance premium (MIP) to 2.25%;
- Update credit score and down payment requirements for new borrowers;
- Reduce seller concessions to three percent, from six percent; and
- Implement a series of significant measures aimed at increasing lender enforcement.
1. Assuming HUD/FHA employs actuaries, the actuaries had to know that, due to increased MIP payouts, the FHA insurance fund was approaching a dangerous level and the MIP needed to be increased. Why did the request for an increase in MIP wait until the fund was in default??? If the MIP had been brought up to where it was before being reduced to 2.25% or 2.75%, the fund could have been replenished over the past year or two without going into default.
"o 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."
By shifting the upfront MIP (which can be financed) to annual MIP, which adds to each monthly mortgage payment, more home buyers will be disqualified.
Mr. Donovan states further that: "In addition, we were determined that these changes should support, not disrupt, the nation's housing market recovery."
2. It defies logic that proposals to increase the cash needed by home buyers can do anything but disrupt the nation's housing market recovery by reducing the pool of qualified home buyers with money to close. Higher closing cost will = fewer buyers.
3. It doesn't take a Rhodes Scholar to understand that reducing seller concessions from up to 6% to up to $3%, will reduce the buying pool. For every $100,000 in purchase price, the buyer's cash needs for closing may, depending on the area, increase by 1%. Further, HUD/FHA is, I believe, infringing on the home seller's right to use their assets as they please. How the seller uses their equity is, IMO, none of the government's business. If a buyer requests more than a seller is willing to pay, the real estate industry has a simple process, accept, counter or reject. The appraisal process is the logical check on inflated value to fund closing cost assistance.
4. Lender enforcement. I am interested in lender comments about proposals for lender enforcement.
Mr. Donovan writes: "by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities."
The new higher cash requirements will simply drive prospective home buyers out of the market. Or, make them further reliant on community/county/state programs funded by HUD/FHA designed to provide tax money to further grow government or funnel tax money to politically connected groups.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.
"Honey, can't we at least look at homes for sale, our apartment is just to small and expensive".
"Why Dear?? Our lender said the new FHA rules mean we need several $Thousand more to buy".
Brenda Mullen – San Antonio Texas Real Estate Professional
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