HUD Takes Action to Speed Resale of Foreclosed Properties to New Owners
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RISMEDIA, January 19, 2010—In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan recently announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration’s commitment to addressing foreclosure. Secretary Donovan recently announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential home buyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many home buyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping,” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

-All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
-In cases in which the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
-The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

For more information, visit www.hud.gov.

Read more: http://rismedia.com/2010-01-18/hud-takes-action-to-speed-resale-of-foreclosed-properties-to-new-owners/#ixzz0d65JBrMX

A measure to help bring stability to home values and accelerate sale of vacant properties

In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.

Source: Lemar Wooley (HUD.gov)

Share the wealth:

Federal Housing Administration (FHA) should be announcing a tightening in credit standards this week. How will this affect the housing market?

FHA Director David Stevens says, “”Overcorrecting in either direction would be a terrible thing to do right now.”

Yet, it seems that Congress is pressuring him to tighten the easy money standards–standards that once gave home buyers the opportunity to get a home, when there would have been little-to-no-chance of doing so. Even though creating harder credit standards are going to threaten the agencies finances.

The FHA stands behind about half of every new home loans, but if the FHA is forced to raise the bar, the economy might become further endangered (as if it isn’t in enough trouble)!

Stevens is making some alterations to the credit standards for potential buyers which might consist of the following:

* Raising the minimum down payment
* Setting a minimum credit score
* Raising the minimum that borrowers have to pay for mortgage insurance
* Reduce the amount a seller can kick in for covering closing costs

Interestingly, the FHA was created to help mend the housing market in 1934 after The Great Depression, and this has been a great program to help first-time home buyers. Until now, this program has been yielding a profit for taxpayers.

David Stevens bought his first home almost 25 years ago, paying just 3% down with a loan backed by the Federal Housing Administration. “I had no money in the bank,” he says. “If it weren’t for the FHA, I wouldn’t have gotten that home.”

Now, as FHA commissioner, Mr. Stevens has to decide how many others to let through that door. Souring FHA-insured mortgages are threatening the agency’s finances. Congress is pressuring him to tighten the easy-money standards that once helped people like him, and he is expected to announce revisions as early as this week.
[FHAJmpPic] Bloomberg News

FHA chief David Stevens is likely to announce tightened credit standards as early as this week.

But raising the credit bar could have a dangerous side effect. In many of the nation’s hardest-hit housing markets, the FHA backs around half of all new home loans. If the agency pulls back too quickly, the nascent housing recovery could fizzle, endangering the economy.

The dilemma puts the 52-year-old former mortgage banker squarely in the middle of the debate over how much the government should do to prop up the housing market, and how much risk taxpayers should take on to do it.

“How big a role do we need to play to keep the housing system functioning?” says Mr. Stevens, referring to the FHA. “Overcorrecting in either direction would be a terrible thing to do right now.”

Mr. Stevens is finalizing possible revisions to credit standards. Options include raising the minimum down payment, establishing a minimum credit score, increasing the amount that borrowers have to pay for mortgage insurance, and reducing the amount of money sellers can kick in for closing costs.

The FHA, created in 1934 to heal the U.S. housing market during the Great Depression, traditionally has helped first-time home buyers and underserved segments of the market. It doesn’t lend money to home buyers, but insures lenders against default on loans that meet FHA criteria, collecting fees for that backing. For decades, thanks to a stable housing market, it turned a profit for taxpayers.
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When the housing market was booming, subprime lenders drew away many of the borrowers who traditionally used FHA-backed loans by offering even more favorable terms. Unlike the FHA, subprime lenders didn’t require borrowers to document their incomes. The FHA saw its share of the mortgage market fall to 2% in 2006.

But when the subprime market collapsed, mortgage brokers began steering borrowers into FHA-backed loans. Politicians and policy makers encouraged the FHA to refinance at-risk borrowers into fixed-rate loans. Suddenly, the FHA had an enormous chunk of the market. Average credit scores of FHA borrowers dropped sharply at first. In last year’s third quarter, the FHA insured 25% of mortgages, according to Inside Mortgage Finance, a trade publication.

“We should not play this large a role,” Mr. Stevens says. “It’s not healthy for the mortgage-finance system, it’s not healthy for the economy, and it’s certainly not sustainable for the long term.”

The FHA, which is part of the Department of Housing and Urban Development, isn’t as nimble as private mortgage insurers. It must get approval from Congress for some major decisions. “They don’t have the horsepower that they should, especially given the size of their operations,” says Ann Schnare, a mortgage-industry consultant.

In testimony before Congress last month, HUD Secretary Shaun Donovan acknowledged that the FHA “we inherited” was “not properly managing or monitoring its risk. Credit and risk controls were antiquated. Enforcement was weak. And our personnel resources and IT systems were inadequate.”

Mr. Stevens knows the industry well. He is the first FHA commissioner in nearly two decades to bring extensive private-sector experience to the job. During the 1980s, he was a top salesman of complex adjustable-rate mortgages for World Savings Bank, a California thrift. He went on to hold senior jobs at housing-finance giant Freddie Mac and at Wells Fargo & Co.
[FHAjump]

In his off time, he plays guitar, rides his BMW motorcycle and skis the backcountry. On the job, he gets his way through sheer “force of personality,” says Eugene McQuade, once Mr. Stevens’s boss when they worked at Freddie and now chief executive of Citigroup Inc.’s Citibank unit.

When Mr. Stevens arrived in July 2009, the FHA didn’t have anyone in charge of monitoring risk, including whether certain loan products or lenders were exposing the agency to excessive losses.

In his second week on the job, Mr. Stevens suspended the FHA license for Taylor, Bean & Whitaker Mortgage Corp., one of the nation’s top lenders, amid concerns that the company was originating too many bad loans. Taylor Bean closed its doors the next day. In November, he hired the agency’s first chief risk officer and five Ph.D. economists to help evaluate risk. That same month, FHA cut off Lend America, another major lender, which also closed.

But there are still signs of trouble. At about 30 FHA-approved lenders with at least 1,000 loan originations, more than 12% of loans are in default two years after origination, nearly double the national average at the end of November. Last Tuesday, HUD’s inspector general served subpoenas on 15 of those lenders as part of an examination of the practices of lenders with high default rates.

The percentage of FHA-backed loans that defaulted after borrowers made just one payment—typically an indication of poor underwriting or fraud—has started to fall, but not as fast as needed to avoid future loan losses. FHA-insured mortgages made in 2007 and 2008 are largely responsible for the agency’s precarious position, with default rates approaching 24%.

FHA officials concede that the agency offers today’s easiest underwriting standards.

Mr. Stevens, nevertheless, lashes out at critics who say the FHA is repeating the mistakes of subprime lenders. At a conference in November, Robert Toll, chief executive of luxury-home builder Toll Brothers Inc., referred to the FHA as “the new subprime” and “a definite train wreck” that will soon need a bailout, according to a transcript of his remarks.

Mr. Stevens, in an interview, called the comparison “ludicrous,” and said Mr. Toll has “no clue” about the agency’s finances.

The agency is required by Congress to hold enough capital in reserve to cover 30 years of projected losses. An independent audit said reserves at the end of September exceeded projected losses by just $3.6 billion, about 0.5% of the $685 billion in loans outstanding, down from 3% a year earlier. Congress requires the agency to maintain a 2% capital-reserve ratio.

FHA officials say they have enough cash to cover the current level of losses, and that the agency risks running out of money only if home prices take another big dive. “We’ve learned from recent history that the market is fragile, and we have to plan for the unexpected,” Mr. Donovan, the HUD secretary, said last month.

But some analysts say the agency’s assumptions about home prices and foreclosures are too optimistic.

“FHA is, at best, running on empty, and probably is facing a negative capital situation,” Ms. Schnare, the industry consultant, told a congressional panel last month. If the agency were to run short of cash to cover projected losses, it likely would have to ask Congress for money for the first time ever.

The bad-loan problem stems, in part, from controversial programs that allowed home builders and other sellers to fund down payments for home buyers through nonprofit groups. After a lengthy effort, the FHA prevailed on Congress to shut the programs down in October 2008, but the damage already was done. The FHA’s independent audit concluded that were it not for such programs, the agency’s capital-reserve ratio would have stayed above the 2% mandated by law.

In another troubling practice, by late 2007, institutional investors were identifying at-risk mortgages in their portfolios and refinancing the borrowers into FHA-backed loans, thereby offloading their risk onto the agency. “It was an unintentional bailout of financial institutions,” says David Lykken, a partner at Mortgage Banking Solutions, an Austin, Texas, consulting firm.

One of the raft of measures Mr. Stevens is considering to protect and replenish the agency’s reserves is raising the minimum down payment. The current minimum of 3.5% is far lower than what private lenders offer, making FHA-backed loans one of the last low-down-payment options left. Last year, through August, nearly seven in eight new FHA-backed loans carried down payments of less than 5%.

Home builders are worried. “It would be a game changer for the industry” if down payments were raised, says Eric Lipar, chief executive of LGI Homes, a Texas-based builder of entry-level homes.

Not everyone believes that such low down payments are good. In markets where home values are still falling, buyers who put little money down could see their equity wiped out quickly. The FHA is “just manufacturing more upside-down homeowners by the truckload in Arizona, California, and Nevada,” says Brett Barry, a Phoenix real-estate agent who specializes in selling foreclosed homes.

If the agency were to raise down payments sharply in those markets, price declines would become a “self-fulfilling prophecy,” says Mr. Stevens. “If you stop lending, you’re going to perpetuate the declines.”

Mr. Stevens says first-time buyers are key to clearing inventory in markets such as Las Vegas. James Smith, a 42-year-old air-conditioning repairman, might not have been able to buy a $188,000 home out of foreclosure recently in Henderson, Nev., were it not for the low FHA down payments. To make the 3.5% payment, he used around $4,300 of his own money and borrowed the rest from this father-in-law.

“It was actually a great thing,” he says. He repaid his father-in-law after receiving an $8,000 tax credit for first-time home buyers. Mr. Smith, who earns around $50,000 annually, makes monthly payments of $1,466.

Mr. Stevens says he expects to get heat from industry and consumer groups no matter what he decides to do to tighten credit standards.

Even as the FHA considers how to scale back, some members of Congress are pushing it to expand its role. In 2008, in the midst of the credit crisis, Congress temporarily raised the maximum FHA loan from $362,790 to as high as $729,750 for the most expensive housing markets. Lawmakers have introduced a bill to make that increase permanent.

“A $500,000 loan in Massachusetts is like a $300,000 loan in Nebraska,” says Massachusetts Democratic Rep. Barney Frank, who favors raising limits to $800,000 in the most expensive markets. “All we’re trying to do is control for geography.”

Mr. Stevens argues the expanded limits should stay temporary, in keeping with the FHA’s traditional focus on first-time buyers.

The FHA says the loans it is guaranteeing these days will turn a profit because the credit profile of its borrowers has improved. The average credit score for FHA borrowers has risen to 681, from 630 two years ago. The median U.S. score is about 720. Much of the improvement came as the FHA’s lenders raised their own credit standards.

Mr. Stevens, for his part, is painfully aware of how far the housing market is from recovery. He listed his Northern Virginia home for sale last fall and already has slashed the asking price by $100,000, to $1.4 million. Before Christmas, he pulled the five-bedroom colonial off the market with plans to relist it later this year. He says he wants to live closer to Washington. “The commute is very hard,” he says, “and the hours are very long.”

Write to Nick Timiraos at nick.timiraos@wsj.com

I came across this article on the National Association of Home Builders website. It covers some interesting points regarding the $8000 first time home buyer tax credit. If you are a first time home buyer and are in the Orlando mortgage market go to OrlandoMortgageCentral.com

The recent decision to allow home buyers to apply the Obama Administration’s $8,000 first-time home buyer tax credit toward the purchase of an FHA-insured home is expected to provide a further boost to homes sales, said Robert Dietz, NAHB’s director of tax issues.
In order to maximize the impact of the latest changes to the credit, home builders are well advised to scrutinize the details, which can be found in FHA Mortgagee Letter 09-15, Dietz said.
State Housing Finance Agency Role
Under the new FHA rules, state housing finance agencies and other government entities can “monetize” up to the full amount of the tax credit to enable borrowers to immediately apply the funds toward the FHA-required 3.5% down payment, he said.
The announcement of the new rules on May 29 by HUD Secretary Shaun Donovan “blesses” the tax credit loan programs that have been established by 10 state agencies, he said, and will encourage more states to join this list
Under these programs, state housing finance agencies make a short-term loan in an amount that is approximately equal to the anticipated tax credit, as calculated on IRS Form 5405.
The loan is backed by the tax credit itself and secured by a second lien against the purchased home, and it is generally paid off when the home buyer receives their tax refund from the IRS. If it is not paid off at this time, the loan becomes a self-amortizing second mortgage at a fixed interest rate.
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FHA-Approved Lender Role
In contrast to the housing finance agency rules, home buyers who are using FHA-approved lenders can only apply the tax credit to a down payment exceeding the 3.5% minimum required on an FHA-insured mortgage — or to their closing costs, Dietz advised.
The mortgagee letter permits lenders to purchase the anticipated tax credit from the home buyer. The proceeds from this sale can be used by the home buyer to provide an additional down payment or to pay closing costs, such as escrow for taxes, insurance and community association assessments. The funds can also be used to buy down the interest rate of the mortgage.
FHA-approved lenders are not allowed to place a second lien on the home, he said. Instead, they must secure repayment through a contract with the home buyer.
It is unclear at this time what form the lender option for monetization of the tax credit will take. NAHB will be following this issue and providing updates as they develop.
In all cases, the FHA limits fees associated with either a tax credit loan from a government entity or the purchase of the tax credit by an FHA-lender to no more than 2.5% of the tax credit amount, or $200 for an $8,000 tax credit.
Prospective first-time home buyers should be cautious in participating in programs that offer monetization, Dietz said. If the organization is part of the state government, it is safe to assume that its program is reputable. Otherwise, home buyers may want to check with their local Better Business Bureau or a state or local government’s department of consumer affairs.
Expected Market Benefit
Assessing the impact of the tax credit on the housing market, NAHB Economics earlier this year calculated that it would help to stimulate 160,000 incremental home sales — 101,000 to first-time buyers who receive the credit and another 59,000 to existing home owners who will be able to buy another home after selling their current home to a first-time buyer.
In an update of those projections following the FHA announcement and including the impact of prior state monetization programs, NAHB analysis indicates that the tax credit program now will generate 192,000 incremental home sales, including 121,000 to first-timers and an additional 71,000 to move-up buyers. These transactions will add 73,000 jobs to the economy this year.
More than 560,000 taxpayers claimed the tax credit for sales in 2008, according to data from the Treasury Inspector General for Tax Administration, and NAHB forecasts that more than one million taxpayers will claim the $8,000 tax credit for 2009 purchases.
Under current law, the first-time home buyer tax credit only applies to home sales completed prior to Dec. 1, 2009. More information on the tax rules of the program is available at www.federalhousingtaxcredit.com.