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Significant FHA Changes - Every Buyer, Realtor, and Real Estate Investor Needs to be Aware of

January 20th, 2010 9:37 PM by Kathy Delbridge

1/20/10 - FHA Announces Policy Changes to Address Risk and Strengthen Finances

Proposed Policy Changes that will affect your borrowers.
  1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
    • The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge. Current Upfront MIP is 1.75%
    • 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. The annual MIP is currently .55% for loans with a LTV > 95%.
    • This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
    • The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.
  2. Reduce allowable seller concessions from 6% to 3%
    • The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
    • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

1/15/10 - 90-day Seasoning Waiver Expanded for Re-sales

This update from FHA was released on Friday January 15th, 2010, as an excerpt from the CFR (Code of Federal Regulations) without a corresponding Mortgagee Letter and contains information about FHA's policies regarding the waiver of the 90-day seasoning required for sellers.

Here are the 6 things you need to know about these changes:

  1. Waiver takes effect February 1st, 2010 for a period of one year unless extended.
  2. Investors are now exempt from the 90-day seasoning rule.
  3. All transactions must me arms-length.
  4. No identity of interest can exist between buyer and seller.
  5. If sale price is 20% or more of the seller's acquisition cost, the lender must:
    a. provide supporting documentation and/or a second appraisal and
    b. order an inspection of the property and provide it to the buyer.
  6. The waiver is limited to forward mortgages only.

To read the text of this waiver and specific details: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf



12-16-09 - Short Sales and Payoffs

In a mortgagee letter dated 12/16/09, HUD announced the following guidelines for buyer's that have had a short sale or short pay.

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to do one of the following:

  1. Take advantage of declining market conditions, and
  2. Purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

Conclusion

The above changes will certainly make a significant change to our market and affect your potential homebuyers. I hope you find this information invaluable and that you will be better prepared to work with your buyers.

The best news of these changes is obviously the 90-day seasoning waiver that has expanded. Make sure your Investors are aware of these changes. This will help them tremendously.

I will continue to monitor these changes and keep you up to date as needed. Thank you for your business and support.


Kathy Delbridge

Posted in:General
Posted by Kathy Delbridge on January 20th, 2010 9:37 PM

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