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Wednesday, December 16th, 2009Written by Kenneth R. Harney
HUD Secretary Shaun Donovan made it official last week: Applicants for FHA insured mortgages in the coming months are going to be hit with higher costs and tougher credit standards.
In congressional testimony, Donovan said some of the changes are likely to include the following:
Number one: Higher downpayments. The current minimum is 3.5 percent. Donovan didn’t say how much higher the agency might push it, but congressional critics want to see at least a five percent minimum.
Number two: Look for FHA’s generous “seller concessions” to be cut in half — from the current six percent to three percent of the loan amount — and maybe even lower.
Under present FHA rules, home sellers can contribute to their buyers’ closing costs up to a maximum of six percent of the initial mortgage amount. Critics say that encourages sellers to inflate the prices they want from buyers, and allows marginal purchasers to buy houses they can’t really afford.
Number three: Higher mortgage insurance premiums. FHA currently charges what it calls an “upfront” premium of 1.75 percent of the loan amount. That could go a lot higher, maybe even to three percent, according to Donovan.
FHA also charges an “annual” insurance premium, which gets tacked onto borrowers’ monthly payments. Currently that premium is set at 0.55 percent of the loan amount, but Donovan wants Congress to raise it.
Finally: Look for tougher credit rules. FHA does not have a minimum credit score for applicants at the moment, preferring instead to evaluate the “total” credit picture of applicants individually.
Does anyone realize that most of the current housing market is alive because of FHA financing? Does Washington want to make it worse than it already is? Just plain dumb. How many people currently have a goal to save 3.5% now so they can buy? Now we are going to make it harder? And by the way mr and mrs hopefull first rime buyer you will actually need 3% for closing AND 5% for your down?
HIGHER FEES! This is how Congress wants to address the situation? Rather than looking at ways to line the pockets of the PMI companies, maybe they should focus their efforts on homebuyer education. I can’t count the number of times that I’ve met with first time homebuyers who did not have a clue of the cost involved with owning a home, nor the basic insights to money management. And I don’t mean one of these classes where you sit in counting the hours until you can receive your certificate. If HUD is serious about making a difference, here is what they should do:
1) Underwrite on NET income
2) Underwrite using an Essentials Ratio (utilities, food, auto expense, etc.)
3) Create a mortgage payment insurance fund; something that would assist the homeowner with making their house payments in the event of an income decline or loss
4) Cap YSP that is not credited to the buyer for their closing cost! I’ve seen house payments increase by $41 a month for the next 30 years, just so a loan officer could line his pockets with an extra $3000 in commission.
5) Start cracking down on the fraud. If any person in a trasaction (buyer, lender, realtor, etc.) knowingly and willingly participated in fraud, they should be help accountable and should be prossicuted per current law.
The answer to the problem isn’t higher fees. We all know what the defination of insanity is, ALLOWING THE SAME PEOPLE WHO CONTRIBUTED TO THIS MESS, DICTATE THE CHANGES TO FIX IT AND EXPECT DIFFERENT RESULTS!
Thank you Ron!!!! Could not have said it better.
As usual, another case of Government dumb and drummer! Are we surprised or is it just plain business as usual with the disconnected crash car dummies in Washington!
Hey Ron, YSP is coming from the lender or banks as a compensation to the loan officer .Its not a cost from the buyer. Maybe, you’re talking about the points charge by the lender to the buyer and that’s part of the closing cost.
It makes no sense to me that the upfront mortgage insurance premium (MIP) would be increased, while allowance for seller consessions is lowered. The government is essentially saying it’s ok for “us” to inflate the amount financed (as upfront MIP does just that), but we won’t let a seller pay for the buyers closing costs….in this economy….really? New appraisal guidelines don’t allow for homes to be financed for more than they’re worth.
Thanks for the input George. In your comment, you stated that YSP is coming from the lender and is not a cost to the buyer. How does a loan officer collect YSP? By charging a higher interest rate. The higher the rate, the higher the YSP, of compensation. The higher the rate, the higher the house payment for the mortgagee. Now there are some instances where YSP can be a GOOD thing for the buyer. Point at hand – working with a buyer on an FHA purchase, $170,000 purchase; $4,800 deposit; with a $5,000 credit from the seller. After reviewing the GFE, buyer would have to come up with an additional $3,600 to close the transaction. With the use of YSP, Mitzie Sambueno at Prospect Mortgage was able to reduce the additional cash-to-close down to about $1,000. Yes, the interest rate was increased from 4.875% to 5.250%. Yes, the payment went up an additional $56 a month. But, the decision of what to do was placed into the hands of the buyer, NOT the loan officer. Problem solved, client is happy, moving forward. Now how do you think this would have gone if the loan officer disclosed that the higher rate was so they could get more compensation? If loan officers want to collect YSP, I have no problem with the free market. But, it should be clearly disclosed anytime YSP is put in play that:
1) you are being quoted a higher than normal interest rate for your mortgage, which will result in a higher house payment. As a result of the higher rate, there may be extra money made available to your Broker. This money can be used for a number of purposes: additional compensation to the loan officer or credited towards your closing cost. Prior to the close of your loan, you need to identify what this money is used for.
2) illustrate the difference between the PAR rate and the rate with YSP so the borrower can see the impact of the rate differnce.
3) if there is any YSP at the time of the lock, the amount that is being collected should be disclosed DIRECTLY to the borrower, PRIOR to them going to escrow to sign.