FHA Has New Rules
by Howard Bell
The FHA has often been the lender of last resort.
It doesn’t have the same stringent lending requirements that other lenders have and it only required 3% down and light on junk fees as well.
If you didn’t have a 20% down then the FHA was likely on your short list of lenders. FHA as well as Freddie Mac and Fannie Mae had an unspoken political mandate to make home ownership affordable to those with less than perfect credit or resources.
This is a small part of why it all backfired, Congress did want the American Dream to trickle down and risk was taken in part because of a political mandate to democratize home ownership.
For the first time in 75 years FHA will tighten up its lending structure. They are the first time home buyers answer to a prayer until now. But now FHA is staring at five million mortgages and significant losses as home prices continue to go south. Unable to control their losses coupled with the expectation that home prices will continue to fall through at least the first half of 2010, they instituted more restrictive rules to limit risk.
Better Risk Management
1. Lenders will have to show a net worth of one million dollars up from 250,000.
2. The down payment requirement has increased from 3% to 3.5% 3. Mortgage insurance premiums have increased 4. Banned the use of third party DPA’s. This amounts to almost 15% of outstanding loans in the FHA portfolio
Condos Beginning January 1, 2010
If you have a condo to refi with a FHA insured loan it just got tougher.
1. Ineligible properties include, time shares house boats and multi unit condos where:
a. Less than 50% of the units are owner occupied or sold to owners that do not intend to live in the unit.
b. No more than 15% of all units can be in arrears of HOA fees
c. Projects with 3 or less units may have only one encumbered with FHA insurance
d. For or more units can have up to 30% FHA insured, no more
e. No more than 10 percent of the units may be owned by one investor.This will apply to developers/builders that subsequently rent vacant and unsold units.
f. FHA insurance will be unavailable when properties are within 1,000 feet of a highway, freeway, or heavily traveled road; 3,000 feet of a railroad; one mile of an airport; or five miles of a military airfield
Market Impact on Condos
Certainly cant be a boost for Condo sales. This is a direct hit to evaluation, since less people will be able to finance. That translates into less sales and it will hurt the entire transaction chain from developers to real estate agents, , from condo insurance to lenders. More downward pressure, we did not need. But the FHA has been a key player buying up 23% of all new mortgages. Clearly with home prices expected to continue to retreat, FHA is cutting its exposure and trying to limit losses.
Congress is not looking for another taxpayer bail out.
Taxpayers might be a little tired of that.
Howard Bell PFP CCRM is the founder/editor of Your Property Path.com, featuring over 450 articles on property management, Your Property Path SF, trade talk for the San Francisco real estate industry, Your Property Path News Brief, snap news updates and real estate market info, and Your Property Path Amazon Store. Howard is a property manager in San Francisco and holds a certification in financial planning.
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