FHA reform bill gets one step closer..... Passing the Senate today - 12/14/07
Today the Senate passed the FHA Modernization bill aka the FHA reform bill.
This bill is the American Homeownership Act of 2006 (H.R. 5121) which
has been through several approval stages since its inception. This bill
now heads back to the House for “reconciliation” before heading to the
White House where President Bush has his pen inked, ready for his
signature.
In regards to everything that has happened this year; the subprime meltdown and just recently the fannie mae & freddie mac (by Rey Gallegos), this is a huge lift for the mortgage industry.
So what are these changes going to be in the near future? Tim Bradford explains it all hear. Proposed change to FHA MIP scheduled for change Jan 1, 2008. But I will give you a quick breakdown from a source close to this issue. The new bill would :
- Increase the fha mortgage limits. There are still mixed reviews on what direction will be finalized when the bill is signed by the president. HUD has proposed that they use $417,000 across the board. And in high cost areas, keeping that number around $500,000 and in low cost areas around $290,000. The old calculation was a little more complexed. FHA's current loan limits for high-cost areas are derived from 87% of the government sponsored enterprise (GSE) and in lower-cost areas are 48% of the conforming loan limit. The other side of the new proposal would be that HUD uses 95 to 100% for the high-cost areas and 65% for the lower-cost areas. Which would be better? Keeping the main number at $417,000. But either way would be a huge improvement over what we currently have.
- The original bill was looking at zero down payments. But what seems to be on the horizon is that they will be lowering the down payment of 3% to 1.5%.
- Allow FHA to offer another type of term, such as a 40-year mortgage. This would serve two different purposes. It would make it easier for someone to qualify for a little more of a house while keeping their payment the same if the house value was less. Or, it would just give them a cheaper payment if comparing the same price of a home.
- Also allow FHA to price borrowers accordingly to the credit risks that are described in Tim Bradford's post mentioned above. Even though this is defined as risk base pricing, something that we have seen with the conventional market just recently, this will still be cheaper for everyone involved. How this will work? Those with least amount of money down and with the lowest credit scores will pay the highest premium. You might think that this is negative, but it really isn't. Right now, the premium adjustment, which is called One-Time Mortgage Insurance Premium, is only 1.5% of the base loan amount. There is talk that they would raise it to 3% as a maximum. Again, this is not as bad as it seems because back in the mid '90s it was 3%. It's been lowered 3 times since then.
Some interesting facts in regards to previous loan amounts :
- FHA has been priced out of many area housing markets. In California, FHA insured only about 5,000 home mortgages in 2005, down 95 percent from 109,000 in 2000.
My Opinion : Will there be a Negative Impact? Yes. Those lenders and loan officer's that don't know the basics of FHA financing
prior to the new bill being approved. And those lenders that are trying
to get FHA approved now so they can jump into the game. Why will this
be negative? I can say that I know for a fact that there were many
loan officers that didn't take their client FHA because conventional delegated underwriting and subprime was easier. I even worked with some that even told me so. But the end result? This will be very positive for so many Americans. Even those that have 660 credit scores, FHA will be better now.
I would have to estimate that over 80% of the FHA loans approved are approved manually. Which means that you just can't fool an underwriting system. An underwriter has to physically review the income, assets, and most of all, the credit. It has to make sense and most of all, that underwriter's license could be on the hook. Keep in mind, it costs the lender money to be FHA approved, hence why so many never signed up in the past. But now so many want to jump onto this fast moving vessel that will be sailing into the sunset. The ship that might just ridden some of this mess that was created in the last several years. Make sure that you speak with an FHA Expert and not someone claiming to be part of this elite crew.
Some key FHA tips :
