New Orleans, November 08, 2010

The National Association of REALTORS® urges the mortgage lending industry to reassess and amend their policies so more qualified home buyers can become home owners. NAR’s Board of Directors adopted this policy today during the 2010 REALTORS® Conference & Expo.

“REALTORS® believe in a responsible, sustainable model for home ownership, and current credit policy restrictions are not conducive to that model,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. “The Federal Housing Administration, Fannie Mae and Freddie Mac have a mission to provide mortgage liquidity to qualified home buyers, including low- and moderate-income families and first-time home buyers. That mission is being impaired by unnecessarily restrictive limits on the availability of credit, and these extremely tight credit policies are significantly delaying a housing market and economic recovery.”

Currently, FHA, Fannie Mae and Freddie Mac account for more than 90 percent of the mortgage market. Lenders refuse to make loans unless FHA will insure them or the GSEs will buy them. Stricter FHA and GSE underwriting rules eliminate many buyers with credit scores as high as 750, and lenders are imposing credit overlays of their own, restricting the availability of credit.

http://www.realtor.org/press_room/news_releases/2010/11/qualified_buyers

Most buyers purchasing with FHA loans are doing so needing seller concessions to avoid depleting all of their savings. FHA currently allows seller concessions up to 6 percent. They are proposing a rule which would reduce the seller concessions to a maximum of 3 percent. In some states, (read OURS) closing costs are often hight than 3 percent. NAR (National Assoc. of Realtors) President Vicki Cox Golder said a reduction in permitted seller concessions will have a detrimental effect on the recovery of the real estate industry and make it more difficult for buyers to purchase a home. In a letter dated 8/16/2010, sent to FHA Commissioner David H. Stevens, NAR comments on the “Federal Housing Administration Risk Management Initiatives: Reduction of Seller Concessions and New Loan-to-Value and Credit Score Requirements” Federal Register Notice.

NAR also calls on FHA to lower the proposed the credit floor exemption for all FHA-insured borrowers seeking to refinance and to ensure that borrowers with nontraditional credit scores are not unduly burdened manual underwriting. FHA proposes a temporary exemption for refinances that involve a reduction of existing mortgage indebtedness but this excludes borrowers with a credit score below 500. Many borrowers have had credit scores above 500 when they purchased their homes but now have lower credit scores and they may still be good candidates for a refinance. Lastly, FHA proposes manual underwriting requirements for borrowers with nontraditional credit histories. NAR believes that the Technology Open to Approved Lenders (TOTAL) scorecard was created to consider unique factors presented by borrowers with nontraditional credit histories

FHA LAUNCHES SHORT REFI OPPORTUNITY FOR UNDERWATER HOMEOWNERS

Effort designed to encourage principal write-downs for responsible borrowers

WASHINGTON – In an effort to help responsible homeowners who owe more on their mortgage than the value of their property, the U.S. Department of Housing and Urban Development today provided details on the adjustment to its refinance program which was announced earlier this year that will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth. Starting September 7, 2010, the Federal Housing Administration (FHA) will offer certain ‘underwater’ non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least ten percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage.

http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-173

Struggling in a recession and seeing some increases in markets and signs of positive growth.  It’s interesting this type of reform is being brought about at this time.  A lot of 1st time buyers as wells as those who could not obtain conventional financing have been utilizing FHA mortgages for purchases.  The House has passed its version of the FHA reform, and now it is on the Senate to vote on their version of the bill.  Up front mortgage insurance has already seen an increase and now the monthly mortgage insurance may TRIPLE!  Many within the FHA claim that this additional premium will help to strengthen the Administration’s balance sheet while building additional reserves to guarantee more loans and reduce long-term costs for borrowers.  Others would argue that present borrowers’ monthly expenses will rise and make it harder for others to qualify.

The bill also mandates additional oversight as the FHA will now be able to further tighten underwriting standards and enforce additional accountability on providers of FHA guaranteed financing. Lenders will now have to sign indemnification agreements in order to provide these loans, so that in the case where a lender is judged to have originated a loan via fraudulent means, that lender will be forced to repay the FHA for any claims related losses.

This  new bill might very well purge our market of the bad apples, leaving behind only the good guys to service the buyers. The reverse could also very well happen as well. For example, to ensure that what happened never happens again, our regulatory system fails us and a vital path to homeownership dries up, whereby no lender wants to use the programs out of fear, which is now a legitimate concern. 

On the surface, making the same product more expensive in our current market doesnt appear too attractive.  However, removing some of the “bad apples” from the lending marketplace does.  (FEEL FREE TO DO THIS WITHOUT CHARGING BUYERS MORE…..)

Like with a lot of changes, we will have to judge in hindsight whether good or bad.