Flurry of FHA changes

There have been a flurry of FHA changes.  For once, it seems like our federal government is acting quickly to help our real estate market.  Yesterday, I wrote about HUD waiving the 90-day wait required to buy a flip property and the expected implications.  Today I will cover two significant items.  First, you can buy a home immediately after doing a short sale.  Second, HUD has updated requirements for FHA loans.

You don’t have to wait 2 years to buy after completing a short sale on your home

Yes, you read that correctly.  Of course qualifying for this program is quite strict, but the idea that HUD has considered this is a fantastic idea.  Essentially, with every foreclosure that has occurred, inventory has been hurt twice.  First, we add one more home to our long list of homes, and second, we take one more buyer off the market because their credit is ruined.  Likewise with a short sale, with every short sale that is completed, we lose one more potential buyer.  Now with this program around, the person that short sold their home can now step up and buy another one immediately.  Here is the summary of the program:

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to
• take advantage of declining market conditions, and
• purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

Borrowers are considered eligible for a new FHA-insured mortgage if
• they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
• the proceeds from the short sale serve as payment in full.

That sounds simple enough.  What’s the catch?  Well, good luck getting your short sale approved while you are current on ALL of your debts.  Put yourself in the bank’s shoes.  Would you forgive a debt if the borrower has made all their payments on time?  It seems like the people best able to take advantage of this program are those that are relocating or are currently commuting to work.  For example, if you live in Maricopa, Queen Creek or Surprise and you work in Phoenix or Tempe, you may qualify for this program.  It’ll be interesting to see one of these through to the end.  Read more from HUD: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-52ml.pdf

Updated FHA loan requirements

FHA commissioner made an important announcement this morning.  Effectively, HUD is losing a lot of money when they foreclose, and to offset their losses, they have become more strict.  To summarize the letter, here are the changes:

• 10% minimum down for ficos less than 580.
• Upfront MIP raised to 2.25%
• Right to raise the monthly MI payment
• Lowering max seller concessions to 3% to conform to industry standards
• Compliance enforcement efforts increased

The 10% minimum down payment is an increase from the current 3.5%.  Of course, this is really a moot point because NOBODY is lending to anybody less than a 580.  In fact, if you deal with a mortgage broker today, they won’t talk to you unless you have a 620.  I do have a lender that I use, though, that will get a 600 score done.  Maybe when they require 10% these bankers will change their tune.

MIP is currently at 1.75% of the loan.  So it looks like they had to raise it half a point in order to recapture all the money they have lost.  Don’t fret with the MIP as it is rolled into the loan.  The right to raise the monthly insurance premium is a scary prospect.  Let’s hope that they don’t act like the banks that send you a fine print brochure telling you that your interest rate has been raised, again, for the 3rd time this year, and for absolutely no reason.  Lowering max concession to 3% is not really an issue.  Most sellers won’t do more than 3% anyway.  Although a little known secret is that we can ask for 10% concessions, so that is a huge reduction.  But like I said, no seller was agreeing to that.  Read more from HUD: http://portal.hud.gov/portal/page/portal/HUD/press/speeches_remarks_statements/2010/Speech_01202010

Anyway, it’s exciting to see that HUD is doing everything in their power to help us little people.