Posted on: 02nd Dec, 2009 08:29 am
With a recent study revealing that FHA insurance fund reserves were well below congressionally mandated minimums, it is far more likely that new tactics to replenish these reserves will come into play soon.
Such as? Well, how about raising insurance premiums? How about raising minimum down payment requirements? How about something else that will constrict the field of borrowers eligible for FHA financing?
FHA officials are currently reviewing these and more solutions to the tightening reserve issue. And changes would absolutely have a major impact on how borrowers obtain their first (and subsequent) homes.
Currently, for example, the required down payment is 3.5% of the purchase price of a home. Legislation has already been proposed to require a minimum of 5% on all future FHA loans. Some say that a more reasonable requirement is actually 10%.
Of course, lenders are skeptical, to say the least. Requiring first time homebuyers to have 10%, for example, would practically eliminate their opportunities to make purchases. A 5% requirement would, naturally, also dissaude many borrowers, and outright exclude an awful lot.
As for higher insurance premiums - the current "upfront" mortgage insurance premium (MIP) is 1.75% of the loan amount. Most often, that amount is financed in the loan for borrowers. In addition to the upfront premium is a monthly premium - usually at .55% of the loan amount. FHA is also looking at this area in which to make changes that will increase their reserves.
The current statutory maximum upfront MIP rate is 2.25%. The impact of a change to that rate on a typical loan of, say, $150,000 would be $750. FHA can (and is looking at) also change the monthly premium rate. However, the maximum annual percentage that can be charged for MIP is 3%, according to current congressional limits.
Raising premiums would be a more logical method to deal with the reserve problem, as borrowers would be dealt with much more gently than with an increase in the down payment requirements.
Another area being looked at is the topic of seller concessions, which are currently allowed at a rate of 6% of the purchase price. Critics claim that this percentage is far too liberal, and effectively allows many marginal borrowers to make purchases of homes they have no business buying. This, of course, raises FHA's exposure to loss. Some say that the maximum ought to be 2% of the home price. Current Fannie/Freddie guidelines allow up to 3% when the loan to value ratio is 95%; perhaps this is a reasonable solution if FHA decides to tinker with this.
Yet another area being looked at is the tightening of credit standards. Currently, FHA is the most flexible of lending agencies when it comes to the evaluation of creditworthiness. There is no minimum credit score, though most lenders impose their own. Typical FHA underwriting gives the benefit of doubt to borrowers whose pasts show credit problems.
Naturally, there is increased risk of loss when credit performance is viewed liberally in the underwriting stage. Critics of FHA policies are calling for risk-based pricing, insurance premiums based on credit scores and other schemes to provide a reduced risk.
All of these ideas are under the microscope as FHA looks for ways to increase its reserves while maintaining its eminence in the mortgage business. Hopefully, changes won't be so drastic as to eliminate a large portion of the homebuying public.
Such as? Well, how about raising insurance premiums? How about raising minimum down payment requirements? How about something else that will constrict the field of borrowers eligible for FHA financing?
FHA officials are currently reviewing these and more solutions to the tightening reserve issue. And changes would absolutely have a major impact on how borrowers obtain their first (and subsequent) homes.
Currently, for example, the required down payment is 3.5% of the purchase price of a home. Legislation has already been proposed to require a minimum of 5% on all future FHA loans. Some say that a more reasonable requirement is actually 10%.
Of course, lenders are skeptical, to say the least. Requiring first time homebuyers to have 10%, for example, would practically eliminate their opportunities to make purchases. A 5% requirement would, naturally, also dissaude many borrowers, and outright exclude an awful lot.
As for higher insurance premiums - the current "upfront" mortgage insurance premium (MIP) is 1.75% of the loan amount. Most often, that amount is financed in the loan for borrowers. In addition to the upfront premium is a monthly premium - usually at .55% of the loan amount. FHA is also looking at this area in which to make changes that will increase their reserves.
The current statutory maximum upfront MIP rate is 2.25%. The impact of a change to that rate on a typical loan of, say, $150,000 would be $750. FHA can (and is looking at) also change the monthly premium rate. However, the maximum annual percentage that can be charged for MIP is 3%, according to current congressional limits.
Raising premiums would be a more logical method to deal with the reserve problem, as borrowers would be dealt with much more gently than with an increase in the down payment requirements.
Another area being looked at is the topic of seller concessions, which are currently allowed at a rate of 6% of the purchase price. Critics claim that this percentage is far too liberal, and effectively allows many marginal borrowers to make purchases of homes they have no business buying. This, of course, raises FHA's exposure to loss. Some say that the maximum ought to be 2% of the home price. Current Fannie/Freddie guidelines allow up to 3% when the loan to value ratio is 95%; perhaps this is a reasonable solution if FHA decides to tinker with this.
Yet another area being looked at is the tightening of credit standards. Currently, FHA is the most flexible of lending agencies when it comes to the evaluation of creditworthiness. There is no minimum credit score, though most lenders impose their own. Typical FHA underwriting gives the benefit of doubt to borrowers whose pasts show credit problems.
Naturally, there is increased risk of loss when credit performance is viewed liberally in the underwriting stage. Critics of FHA policies are calling for risk-based pricing, insurance premiums based on credit scores and other schemes to provide a reduced risk.
All of these ideas are under the microscope as FHA looks for ways to increase its reserves while maintaining its eminence in the mortgage business. Hopefully, changes won't be so drastic as to eliminate a large portion of the homebuying public.
They're tightening with FHA-insured Reverse Mortgages too. On October 1st, HUD reduced benefits by 10%, and two weeks ago HUD warned of another reduction in benefits after the Thanksgiving Holidays.
A reduction in benefits with a Reverse Mortgage means the homeowner isn't able to convert as much equity into cash. The last reduction resulted in 20% fewer homeowners being able to get a Reverse Mortgage.
A reduction in benefits with a Reverse Mortgage means the homeowner isn't able to convert as much equity into cash. The last reduction resulted in 20% fewer homeowners being able to get a Reverse Mortgage.
and that's got to hit you in the gut, raymond. i've grown skeptical about the reverse mortgage program in the last year or so, frankly. i've met with folk who suffered at the hands of uneducated lenders as well as overly aggressive lenders, and i've discovered with plenty of prospective borrowers how difficult it can be just to qualify for much of a loan with that product.
a few years ago, i was somewhat enthused, but that's a rare feeling these days.
a few years ago, i was somewhat enthused, but that's a rare feeling these days.
>>i've met with folk who suffered at the hands of uneducated lenders as well as overly aggressive lenders,
I've met some of those people too, and really feel sad for them. When the subprime market crashed, a lot of them got into Reverse Mortgages. They don't last long though and I'm not seeing as many of them as I used to, but they're still around. Most leave when they find out it takes the average homeowner 6 months of research before they decide to move forward with a Reverse Mortgage - and the subprime mentality can't stand the wait. And they're unsuccessful if they try to make the loan happen sooner, so it takes them about 6 months before they get tired and frustrated.
Last month I closed a Reverse Mortgage in Ohio I started 2 years ago. They did a lot of research and asked lots of questions before they decided they were ready. Most Loan Officers wouldn't be able to tolerate a wait time of 24 months.
It's worthwhile to keep in mind it's not the Reverse Mortage that's bad - it's the people taking advantage of the Seniors that are bad. They use the Reverse Mortgage to convert the homeowners equity into cash, and it's downhill after that.
I always ask the homeowners if they have a Financial Advisor that can assist them with 1. Deciding if a Reverse Mortgage is a good solution and fits well with their retirement strategy, and 2. To help them decide how to receive and invest the cash.
I've met some of those people too, and really feel sad for them. When the subprime market crashed, a lot of them got into Reverse Mortgages. They don't last long though and I'm not seeing as many of them as I used to, but they're still around. Most leave when they find out it takes the average homeowner 6 months of research before they decide to move forward with a Reverse Mortgage - and the subprime mentality can't stand the wait. And they're unsuccessful if they try to make the loan happen sooner, so it takes them about 6 months before they get tired and frustrated.
Last month I closed a Reverse Mortgage in Ohio I started 2 years ago. They did a lot of research and asked lots of questions before they decided they were ready. Most Loan Officers wouldn't be able to tolerate a wait time of 24 months.
It's worthwhile to keep in mind it's not the Reverse Mortage that's bad - it's the people taking advantage of the Seniors that are bad. They use the Reverse Mortgage to convert the homeowners equity into cash, and it's downhill after that.
I always ask the homeowners if they have a Financial Advisor that can assist them with 1. Deciding if a Reverse Mortgage is a good solution and fits well with their retirement strategy, and 2. To help them decide how to receive and invest the cash.
raymond, i think you're a breed apart, frankly. your posts have already convinced me that you know what you're doing, that you're sincere in what you're trying to do for the folk you work with and that you're careful not to put someone into something they can't handle.
we need more of us around (yes, i count myself among the few).
we need more of us around (yes, i count myself among the few).
nice to see at least some people in the industry and have morals
I definately agree with Mr. Akerley, you definately highlighted some great points in your statement.
Michael Curkowski
1st time homebuyer
10 days till closing!!! Maybe?
Michael Curkowski
1st time homebuyer
10 days till closing!!! Maybe?
Im just glad I got in before all this starts happening.
amen to that flag - this has been 3 years of turmoil and it's not over.
and only 10 days to closing? let us rejoice - don't be dismayed if it's 11, though. that's typical.
and only 10 days to closing? let us rejoice - don't be dismayed if it's 11, though. that's typical.
Ive been dismayed since I put my offer in! :) I work in windsor and buying in Waterbury..
what's the source of your dismay, guest? is it your loan officer, your mortgage company, your agent, your lawyer, your wife? sorry...i got on a roll there.
seriously, throw your grievance out here and let's see if we can't assuage your feelings.
seriously, throw your grievance out here and let's see if we can't assuage your feelings.
Well I was going to go with one broker that the bank needed preapproval from. Then I compared with my original broker and found out that I was dont have to pay the points, and that I was saving 4k on closing vs the banks preapproval broker. It was a headache and a half to get it through their heads I didnt want to go with them, so then I had my attorney call them. Then They had no problems. Charged me for an appraisal next day, I refused. Then needed the house dewinterized and water turned on, realtor couldnt get the water on for appraisal because of back payments, then I called the water company personally a week later, they said they can turn it on for 24 hours for appraisal. So I told her, got it turned on next day. house appraised. Just a big mess, but hopefully things go smoothly now after the underwriter approval.
it's a definite issue when the lender selling a home requires a preapproval from its preferred lender. it's a major issue for loan officers who work their butts off to get a borrower to a point of prequalification/preapproval, only to find out that the seller's preferred lender steals them.
there's a "captive audience" kind of thing going when there's a preferred lender - it's not a terrible thing, necessarily, but it often causes conflict for those, like you, michael, who have been dealing with one loan officer only to now be required to work with another.
there's no way around the required use of the preferred lender, but it'd be really nice if the borrowers don't derail the plans of the original loan officer. i'm glad to know you stuck to your guns.
8 days, right?
there's a "captive audience" kind of thing going when there's a preferred lender - it's not a terrible thing, necessarily, but it often causes conflict for those, like you, michael, who have been dealing with one loan officer only to now be required to work with another.
there's no way around the required use of the preferred lender, but it'd be really nice if the borrowers don't derail the plans of the original loan officer. i'm glad to know you stuck to your guns.
8 days, right?
I don't really know how many more days really. Guesstimating... But hoping before the holidays... My fiance, son and I have to be out of our apt by the first...
push for a speedy closing.