The FHA will be a contributing factor to homeownership rising again in America,” said David Lykken, president and founder of Transformational Mortgage Solutions in Austin, Texas. “We’re seeing the return of first-time buyers.”
President Barack Obama’s administration, in January 2015, reduced mortgage-insurance premiums for FHA loans. That lowered the cost of getting a home loan and brought in at least 75,000 new borrowers with credit scores of less than 680, according to a November report from the U.S. Department of Housing and Urban Development.
The rate of FHA lending, which had been in decline through most of 2014, tripled the month after the insurance premium was cut, according to CoreLogic.
If you’re a first-time buyer with a moderate income and not much cash for a down payment on a condo, the availability of Federal Housing Administration financing is a big deal.
Not only do you need just a 3.5 percent down payment, but FHA is also far more flexible on credit compared with other financing sources. With a sub-par FICO score and a high debt-to-income ratio, banks and big investors such as Fannie Mae don’t want to know you. FHA welcomes you with open arms. The challenge for condo purchasers in the past several years, however, has been finding a condo project that is certified by FHA as qualified for mortgages on individual units. Because of controversial eligibility rules imposed by the agency in recent years, the number of certified projects has plunged, with barely 20 percent of previously eligible condo communities now able to offer FHA loans on units, according to real-estate industry estimates.
In another marker of the housing market’s swift recovery, a government agency that just two years ago required its first taxpayer-funded bailout said on Monday its reserves were back in line with federal requirements.
Chicagoland’s multiple listing service (MLS), announced it has introduced a new tool to help its real estate professionals sell more properties and provide greater service to the consumer.
When FHA financing is available to buyers of a property, there are lower down payment and easier credit requirements available. MRED has collaborated with RatePlug and FHA Pros to add FHA eligibility indicators to all condos and townhomes in connectMLS. MRED customers can now simply look for “traffic light” indicators on each condo and townhome listing in the MLS to see if the property is FHA approved (green light), conditionally approved (yellow light) or not approved (red light). There is also handy information regarding obtaining FHA approval for those properties that do not have it.
“FHA PROs, in partnership with RatePlug, is excited to provide to MRED, a leading MLS innovator, real time condominium data that relates to FHA approval, eligibility, and assumability information by specific property address,” said Christopher Gardner, CEO of FHA PROs. “This technology will assist agents who are selling condominiums to be much more efficient and accurate when marketing the property, as well as providing valuable information to their homebuyers regarding potential specialty financing options.”
U.S. Housing and Urban Development Secretary Julian Castro today announced the Federal Housing Administration is lowering FHA mortgage premiums by half a percent in order to save more than two million FHA homeowners an average of $900 annually. The Obama Administration estimates that as many as 250,000 new buyers would be eligible to purchase a home over the next three years.
The change comes as the FHA has been losing market share to Fannie Mae and Freddie Mac due to fee increases that began in 2008. Over the last four years, the percentage of first time homebuyers using FHA backed loans fell from 56% to 39%. The premium increase was necessary after the dramatic rise of foreclosures during the recession that reduced the FHA’s reserve fund below its congressionally mandated minimum of two percent of the value of all outstanding FHA loans. The FHA increased premiums to effectively restock reserves and is on track to meet the two percent minimum in a few months.
For young first-time buyers, people with modest down payment cash, or seniors who want to tap their equity using a reverse mortgage, it’s a growing problem: They cannot use Federal Housing Administration financing in condominiums.
It’s not that these buyers and unit owners can’t qualify on credit and income grounds for a loan personally — they often can. Instead, it’s because the entire condominium development is ineligible. As the result of policy changes at the federal level and decisions by condominium boards of directors, thousands of communities have essentially become prohibited lending zones for FHA in the past several years.
The agency has banned so-called “spot” loans and will only insure mortgages on units in condo projects that have passed a certification process that examines budgets, reserves, insurance coverage, percentage of renters compared with owners in the development and delinquencies on payment of condo fees.
As the housing recovery hits a roadblock, and the industry blames a tight and pricey mortgage market, those who hold the purse strings are finally responding. Both the new regulator for Fannie Mae () and Freddie Mac (), as well as the secretary of Housing and Urban Development, announced on Tuesday they would shift strategies by making credit more available to homeowners.
Federal Housing Finance Agency (FHFA) Director Mel Watt, who recently took over the job of regulator for the mortgage giants, said in his first public comments that he would not lower the maximum loan limits for Fannie Mae and Freddie Mac, which currently stand at $417,000 in most markets. Watt’s predecessor, Edward DeMarco, had contemplated the move as a way to shrink Fannie and Freddie’s footprint in the mortgage market.
“This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market,” said Watt.
Critics of a proposal to lower the limits said some higher-priced markets, specifically much of California, would be unfairly impacted by such a move.
Realtors, lenders and community associations are up in arms about forthcoming Federal Housing Administration rules they believe could make mortgage financing more expensive — maybe even impossible — for large numbers of buyers and sellers around the country.
The concerns are not about condo certifications this time around — an issue that has caused hundreds of condo developments to drop their eligibility for FHA mortgages on individual units. The new problem is even broader, affecting potentially tens of thousands of homeowner associations that routinely impose transfer fees whenever units are sold.
Two influential housing-industry trade groups voiced alarm this month about the fees borrowers are charged when they take out a mortgage backed by the Federal Housing Administration — a popular source of loans for cash-strapped first-time home buyers.
The National Association of Realtors and the Mortgage Bankers Association wrote to the FHA, asking it to lower the ‘‘annual premiums’’ tacked onto monthly mortgage payments. The agency has raised those fees five times since 2010, from 0.55 percent of the loan’s value to 1.35 percent. Those fees and others are used to cover lender losses when borrowers default on a mortgage. (The FHA itself does not make loans; it insures lenders against losses if the loans go bad.)
The industry groups say the fees have become too expensive, shutting out the borrowers the agency is meant to serve. The Community Home Lenders Association lodged a similar complaint in a letter to the White House this year.
The mortgage bankers group says borrowers who take out a $100,000 FHA loan in 2014 will pay about $600 more in fees each year than they would have in 2008 on a 30-year fixed-rate mortgage.
Still, the FHA is holding firm as the Obama administration pushes to scale back the government’s role in the housing market and protect its coffers.
Shopping for a mortgage? Before going the ordinary route, take some time to consider an FHA loan, which comes with a benefit that can be especially appealing at a time of rising interest rates: assumability.
In other words, when it comes time to sell your home, a potential buyer may qualify to simply take over your mortgage at today’s relatively low interest rate rather than resorting to a new loan, minimizing your buyer’s monthly payment. That could be a strong selling point if, at that time, new mortgages charged more. Assumability could make it easier to find a buyer, and perhaps to get a higher sales price.