Despite the claims of FHA Commissioner David Stevens, major changes to FHA guidelines will most certainly have a significant impact on the housing market.

Monday, December 21, 2009

FHA

Kessler’s Take:

Today’s subprime loan. Q: What program allows borrower’s to have credit scores in the high 500’s and have less than 5% to put towards a transaction? A: A Federal Housing Administration loan. Uncle Sam did a great job of stepping up and filling a hole, but at what price?  While most banks have not allowed credit scores to be under 620 to obtain FHA financing, the fact that someone with almost nothing into the transaction who has less than stellar credit can take advantage of this program is scary.  Now this is not the wild west of a couple of years ago. There is nothing exotic about the loan nor will it allow an applicant to lie about his or her situation to qualify. Rather you have to over-document your application.

According to the National Association of Realtors most recent REALTORS® Confidence Index:

39 percent of recent buyers purchased a home with a Federal Housing Administration-insured loan. REALTORS® who took part in the November survey also reported that the number of first-time home buyers continued to climb to 51 percent.

“FHA helps provide affordable mortgage financing to home owners, particularly first-time home buyers who are so important in drawing down inventory to help stabilize the current housing market,” said NAR President Vicki Cox Golder. “These recent survey results reaffirm that, despite its current challenges, FHA is a critical part of the American housing fabric.”

Kessler’s Forecast:

It cannot stay as is. We have already seen most lender’s overlay the FHA guidelines and call for a minimum of a 620 middle fico score.  Over the coming months the minimum for the required down payment will change from 3.5% to 5%.  While this is not a major change it is something to keep an eye on.  FHA is going to take a major hit in its insurance fund over the next year.  The government requires FHA to have a 2% reserve of its portfolio and the reserve just is not there.  Guess who will be coming with a big sack of money for Christmas, it isn’t Santa rather our favorite uncle, Sam.

HVCC

Kessler’s Take:

The mere words HOME VALUATION CODE OF CONDUCT make me shutter.  What was intended to be the solution for all mortgage fraud continues to be a hindrance instead of a solution.  The brain child of NY Attorney General Ander Cuomo to rid the mortgage world of collusion and over valuing of properties has caused continued delays and costs to all borrowers applying for a conventional mortgage.  While the implementation of the system has gotten better since its start date of May 1^st 2009, it is still not the answer to the problem of mortgage fraud.  What it does enable is less then quality work by appraisers who are looking to get as much work as possible since their fees have been cut in almost half.

Kessler’s Forecast:

For a while there it looked like there might be an 18month moratorium on the HVCC because of the great lobbying efforts of the National Association of Realtors and other Real Estate industry groups.  Unfortunately that did not happen and we are stuck with what we have, but I do think as time goes on and banks and investors realize the shortfalls of the program they will issue updated guidelines to ease the problems.  For instance when the HVCC first came out an appraiser who covered one area might be assigned an appraisal 100 miles from where they called home, as time has passed the new rule is the appraiser must live within 30 miles of the property they are appraising.

Now I do not in any way condone the actions taken by Jack Geoghan, I definitely understand where he was coming from.  In times like these we need to find solutions not continue to add to the problem.  Mr. Cuomo should have stuck to doing what he knows best rather then meddling in something he knows very little about.

Death threats made against Cuomo

Rates

Kessler’s Take:

The 30 year fixed moved up to 4.94% nationally from 4.81% according to Freddie Mac’s Weekly Survey .  Last week I forecasted it would be up to 4.9%, so I missed a couple of tenths my indication was right.

Kessler’s Forecast:

1 week (12/24/2009) – 4.95%

 1 month (1/21/2010) – 5.20%;

 3 months (3/18/2010) – 5.65%;

 6 months (6/24/2010) – 6.25%;

12 months (12/23/2010) – 6.50%

Reports

Previous Week:

November Housing Starts

U.S. Census Bureau

Upcoming Week:

Tuesday, December 22

November Existing Home Sales

National Association of Realtors

Wednesday, December 23

November New Home Sales

U.S. Census Bureau

There is no federal income limit for an individual or a couple to qualify for an FHA loan.

A Facebook fan who is about to get married had asked me whether there is a limit in the amount of income to be able to qualify for FHA. It seems that they were advise to only put the fiance’s name on the mortgage as their combined income would disqualify them from getting the FHA loan. Further, they would like to confirm whether there is any truth to the rumors that the $8,000 tax credit will be extended or doubled.

First of all, congratulations on trying to buy your first home – and on your upcoming wedding in 2010.

You indicated that only your fiance’s name would be on the mortgage because you were told that your combined income is too high for an FHA loan. If this is what you were told, then the gentleman you are working with appears to have given you misinformation regarding FHA loans.

There is no federal income limit for an individual or a couple to qualify for an FHA loan. It doesn’t matter how little or how much you make, as long as you meet FHA’s rules regarding your debt-to-income (DTI) ratios. Under FHA guidelines, no more than 31% of your gross income can go toward your housing costs, and 43% of your gross income can go toward your housing plus other monthly debts that are on your credit report (like your credit card payments, a student loan, or a car note).

The only thing I can think of that this gentlemen might have been referencing is that if you have large debts, then putting you on the mortgage could throw off your combined debt-to-income ratio, making the two of you ineligible to qualify for an FHA loan, based on their DTI requirements. Also, the FHA does have loan limits related to the median price of a property. But those loan limits are fairly high, over $400,000 in most states. In other words, the FHA program caps the size of the mortgage you can get to just north of $400,000 in most areas. But this loan limit (on mortgage size) does not impose any restrictions on how much income you or your fiance can make. You can learn more about FHA loans at: www.fha.gov.

Regarding your second question, whether or not the $8,000 tax credit, will be extended or doubled, my answer is: There is talk in Congress right now to expand the credit, but the reality is that none of us knows whether that will pass or not. If you are seriously in the market for a home, and you and your fiance find a place you like, I would not hesitate to put in your offer and go ahead and try to close, as you’ve suggested you would like to do, before Nov. 30th. This way, you will get the benefit of that $8,000 tax credit, because there’s no guarantee that it will be extended. It all depends on what happens in D.C. and whether or not the politicians think it’s necessary to spur the housing market.