FHA Announce Changes

The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FHA will continue to allow the financing of the UFMIP.

Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.

FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the upfront premium.

Seller concessions will be reduced to 3 percent from 6 percent.

HUD takes action to speed resale of foreclosed properties to new owners

(From Florida Association of Realtors News) WASHINGTON – Jan. 18, 2010 – In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan announced a temporary policy that will expand access to FHA mortgage insurance to allow for a quicker resale of foreclosed properties. The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties or properties resold through private sales.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” says Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan says.

Acquiring, rehabilitating and reselling foreclosed properties to prospective homeowners often takes less than 90 days in today’s market; and FHA’s 90-day rule can adversely impact buyers if a seller is unwilling to hold a property 90 days thanks to holding costs and the risk of vandalism.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” says FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on Feb. 1, 2010, and be effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping,” the waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.

• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.

• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

• Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website:
http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

New Short Sale Regs in Brief

Short sales are becoming an attractive options for homeowners who are significantly upside down with their loans and want to avoid foreclosure. As a result, banks are now being overrun with requests to consider approving the short sale for the individual owner. Lenders/investors are bickering over what dollar amount the bank will need to satisfy the defaulting loan. Short sale deals are turning into drawn out processes for homeowners and buyers. Some deals can take over a year to complete.

On the positive front, new federal guidelines will give lenders a 10-day limit to respond to offers. Hopefully, opening the log jam caused by banks -- allowing buyers to close on properties quicker without as much frustration.

The new U.S. Treasury rules will include financial incentives to sellers and lenders, and will figure prominently in Broward County's market as the housing slump continues into a fifth year.

However, many real estate agents question that the guidelines will be enforced, Conversely, bankers are concerned that the 10 business days will not be enough time to reply to offers.

Nearly half of approximately 838,000 single-family mortgage holders in Palm Beach, Broward and Miami-Dade counties are "under water," meaning they owe more than their homes are worth, according to third-quarter data from Zillow.com, a Seattle-based real estate firm.

Frustrated buyers often renege on the deal during the delays, or worse houses depreciate significantly from the original offer and make the offer unattractive to the buyer. In some cases, lenders require that borrowers share in the financial loss, holding up the transactions even longer. As a result, homes stay on the market, prolonging the housing downturn. Sometimes, the lenders who are often not based in the community believe a property is worth much more because the comparables indicate higher value, even though the local realtors understand the true market value. For example, in eastern Ft. Lauderdale, the quality of houses can change from street to street, making a similar sized house not truly comparable.

In addition to a 10-day deadline, the Treasury rules call for sellers to receive $1,500 moving allowances, and the sellers will not have to repay any of the debt.

Also, lenders will get $1,000 to cover administrative and processing costs, while investors owning the mortgages will receive a maximum $1,000 for allowing up to $3,000 in short sale proceeds to be distributed to less senior lenders.

The 83 loan servicers participating in the Obama Administration's Home Affordable Modification Program, including Bank of America and JPMorgan Chase, are required to follow these guidelines for all borrowers who request short sales or who did not complete loan modifications.

The rules do not specifically apply to loans guaranteed by Fannie Mae or Freddie Mac, which represent about half of all U.S. mortgage debt. The two government-run mortgage companies are working to finalize their own guidelines.