Nobu Hata
By Nobu Hata
The skinny: The Department of Housing and Urban Development is seeking public commentary through Aug. 14 on three “measures” that “reduce financial risk and preserve affordable mortgage financing for responsible consumers.”
The measures:
1. Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.
2. Reduce allowable seller concessions from 6 percent to 3 percent. Allowing sellers to contribute up to 6 percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to 3 percent will bring FHA into conformity with industry standards.
3. Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.
So the question you need to ask yourself is: How many deals have you been a party to this year that involved FHA financing? That’s what I thought. The three “measures” listed above, directly affect what is – and will be going forward – the primary loan our clients will be using to buy their homes. How do changes in the above guidelines affect your business? More-over, how do these changes affect your clientele?
State your case! Provide feedback to HUD. Blog about how these changes impact your market. Talk with your property management company contacts about the pros and cons of FHA approval. And de-mystify mortgage financing with your prospects, FHA or not. It’s a fantastic conversation starter, relevant to both buyers AND sellers.
Just so you don’t have an excuse:
http://www.realtor.org/government_affairs
http://www.facebook.com/nargovernmentaffairs
Let’s get HUD commish David Stevens Tweeting again! http://twitter.com/davidhstevens
Nobu Hata is a sales associate for Edina Realty in Minneapolis, and a founding member of the Minneapolis YPN group, the YoPros. Visit his Web site at www.nobuhata.com.
Comments 6
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Thanks Nobu for the interesting information, but I have to be upfront with you. I just do not have enough information to ask HUD to go one way or the other.
I assume they studied tons of data on loans by credit scores and which ones went bad, etc. Without seeing any of this I don’t believe I have the information needed to comment.
I could take the position of making it easier for lower credit buyers to get a loan, but is that really the responsible thing to do. The industry got into a mess because of loose lending practices. Maybe a person with a low credit score should work on raising their score before buying a home.
Anyway, I just don’t have any data to form an opinion to send to HUD.
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Where exactly are we supposed to place these comments?
Personally I’m okay with #1 and #2, but not #3. Manual underwriting shouldn’t have more strict, just more thorough. Not everyone fits into the tiny criteria boxes set by HUD, FHA and FNMA. Manual underwriting should help those who are responsible enough to manage home-ownership, but may fall outside the norm (self-employed, fixed income, new citizens, etc).
Oh, and FHA and Fannie Mae need to step off the condo lending restrictions. Their influence is HARMING the market. Isn’t the idea of a free market supposed to let the MARKET set price and demand? Lending restrictions on owner-occupant percentages and the like are adversely affecting values. Especially in areas where rental investment USED to be wise (i.e.; urban neighborhoods and areas near colleges).
Bryn, Stephanie; thanks for the comments!
Bryn: I totally understand, I know a bunch of other Hawaii Realtors and FHA isn’t a huge part of your business, not yet anyways. Perhaps sounding off a request for more info? How FHA could impact the Hawaii market in the future?
Stephanie: I hear ya! While we could go back and forth all day on free markets and mortgages, I know HUD wants to hear your opinion. The irony is that I had to dig through the link/PDFs to find a contact point and it was a PHONE NUMBER. I was told the info email address would work, or you could even try your lender. More than one has brought that fact to me.
I have no problem with FHA doing whatever it needs to safely navigate this difficult market – while these changes all have a negative effect on potential home buyers, they must have been proposed for what I have to believe are good reasons. If this is what it takes to keep FHA solvent, I’m all for it! A slightly more restrictive and stable FHA is better than one that’s too loose with the rules and ends up in trouble.
Part of the change in this is likely the result of the changing view point on home ownership: it isn’t for everyone and as such, certain standards must be in place for qualification. I’m ok with that.