Great news from FHA re condo rules

FHA announced that it is relaxing some of its condo rules to make condo loans easier to get.  This is huge and ought to improve affordability as well.  As it exists, condo complexes need to be approved by FHA in order for lenders to make FHA loans on them.  FHA loans differ from conventional loans in that the down payment and qualifying credit scores can be lower.  That makes these loans perfect for first-time buyers.  Here's the catch -- the approvals include lots of Byzantine rules and restrictions, and home owners associations have to pay to be FHA-approved.  This effectively cuts out many would-be buyers, who need to rely on FHA mortgages to get a mortgage at all.

Specifically, the new guidance extends certifications from two years to three, allows for single-unit mortgage approvals, provides more flexibility with owner/occupancy ratios, and increases the allowable number of FHA loans in a single project. The rule will go into effect in mid-October – 60 days from publication. HUD believes the changes will extend critical benefits to aspiring homeowners and confirm the agency is properly serving the public.

Good news for buyers re low down payments and lower mortgage insurance! And a teeny bit of bad news.

As you may know, low down payment loans are back.  Yes, 3%-down conventional loans (not just FHA loans) are available to buyers.  Before anybody gets all "slippery slope" on me, think about this: in L.A. and the SFV, with average home prices hovering around $500,000 to $600,000 for modest homes, who has $100k to put down on one? Or even $50k? Not young buyers, who are usually saddled with debt from student loans, have been paying high rent, and are usually salaried a little lower than older buyers.  Not move-up buyers, who have been paying a good part of their salaries for their existing homes and haven't been able to save.  (Only one buyer has to be a first-time buyer.)  Here's an article from Forbes about the new program.  Also, it's almost impossible to get a condo complex FHA-approved -- there will be far fewer condo approval issues with the new lower conventional loans.

And if that weren't enough, mortgage insurance has been lowered, too!  As many of you know, this is the premium that you pay if your down payment and loan-to-value is lower than 20%.  Here's an article from the Chicago Tribune about it.  I've always thought this was a rip-off -- this insurance sure didn't help anybody that was in trouble with their mortgage during the 2008-2009 recession.  But anyway, it's lower now, and will help buyers.

Here's the teeny bit of bad news for those of you buyers that live here.  It will still be hard to get a low-down loan accepted by your seller if you're in a multiple offer situation.  That's because sellers perceive -- rightfully so -- that high-down loans have a better chance of closing.  There are other ways to make your offer stand out, though, and we'll discuss that in future posts.

FHA may loosen condo restrictions -- this is huge

Check out this article from Sunday's L.A. Times.  FHA restrictions on condos may soon be reduced.  This should help buyers who have limited funds available for downpayments but still would like to buy a condo.  It should also help to limit short sales and foreclosures on many condos as it will expose those units to a broader group of buyers.

New listing: 2+2 across from Burbank bike path

This is 2410 Chandler, Burbank, and I just listed this for $395,000.  Yes, you read that right.  It has 2 beds, 2 baths, 1407 square feet on a 2780 square foot lot (yes, you read that right too) a big kitchen, grassy front yard, new paint, 2 fireplaces, new carpet, and lots of fix-ups.  It has been exquisitely staged by Color Me Sold and is right across from the Chandler bike path.  All appliances stay, along with the patio furniture.  The floor plan is "flexible" -- either of the bedrooms could be home office space or a studio. The upstairs space opens on to the roof which could be turned into a fabulous deck.  It's really close to everything, too, including Tony's Darts Away, (I guess you know where my priorities are), Handymart, etc., etc.  It doesn't have a garage, though, which may make it ineligible for certain kinds of financing, such as FHA.  It will be open Thursday night from 4:30 to 7:00 and Sunday from 2:00 to 5:00.

FHA loans are about to get more expensive

Uh-oh.  Here's from lender Dana:

Hey Everyone … if you have clients looking to purchase with FHA loans, this might motivate them to buy before rates start going up.    The monthly premium amounts are going to be raised and also the up-front mortgage premium.   Sounds like it’s going to start happening in April and June:

FHA to Increase UFMIP to 1.75 for New FHA Loans

6:03PM

As part of ongoing efforts to encourage the return of private capital in the residential mortgage market and strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund, Acting FHA Commissioner Carol Galante today announced a new premium structure for FHA-insured single family mortgage loans. FHA will increase its annual mortgage insurance premium (MIP) by 0.10 percent for loans under $625,500 and by 0.35 percent for loans above that amount. Upfront premiums (UFMIP) will also increase by 0.75 percent.

These premium changes will impact new loans insured by FHA beginning in April and June of 2012. Details will soon be published in a Mortgagee Letter to FHA-approved lenders.

“After careful analysis of the market and the health of the MMI fund, we have determined that it is appropriate to increase mortgage insurance premiums in order to help protect our capital reserves and to continue encouraging the return of private capital to the housing market,” said Galante. “These modest increases are one of several measures we are taking towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain a valuable option for low- to moderate-income borrowers.”

Low interest rates. It's not supposed to be like this.

Haven't we all been told that interest rates would rise this year? And didn't interest rates tease us a little bit by rising in the late winter?  But now they're down again.  Buyer clients of mine got an FHA loan for 4.75% with no points on Monday.  And jumbo conforming loans -- up to $729k -- can be had at 4.85%.  And jumbo-jumbos at 5.5% (with 25% down).  Thanks, for once, banks.  You're just full of surprises, and this one is delightful for a change.

$8000 1st-time buyer tax credit can now be used for a downpayment

As we all know, The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Now, according to this HUD press release, first-time buyers can now use their $8000 tax credit towards their down payment or closing costs. While I don't quite get the mechanics of how this will work, it's good news.

Here's a quote: "Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate." Here's what that means. Often, a buyer's interest rate is a little higher for a government-backed loan, like FHA. This will enable a buyer to "buy down" their interest rate and therefore have a lower monthly payment.

Rates are down again -- yes, even FHA rates

Conforming rates are down again. Even FHA loans can be had for under 5%! That's about three-quarters of a point lower than they were last month. Thanks to that, I expect that more buyers will be looking in the next few weeks and we can expect more multiple offer situations.

If you are an FHA buyer and you are making an offer on a foreclosed property, the lender/owner of that property may never even see your offer.

Facts to know:

-As we all know, the government guarantees many loans through FHA.

-FHA puts some sensible restrictions, usually having to do with health and safety, on properties that it will back. For condo projects, restrictions have to do with HOA finances and ratio of renters to owners. Conventional lenders have the same restrictions on townhomes/condos.

-Right now, most of the buyer groups I am working with need to "go" FHA.

- There are "mega-lister" brokers out there who have hundreds of foreclosure listings.

-I had a great experience recently with a Realtor who has a normal amount of listings, some of which are foreclosures.

- Biggest fact: If you are an FHA buyer and you are making an offer on a foreclosed property, the lender/owner of that property may never even see your offer. Here's what happened to my clients this week in the form of an email string.

First, here's my email with names changed, of course: [Mega-Lister Realtor], on Sunday my clients wrote and we submitted an offer to you on [unit in large condo building in Burbank]. I had contacted your office on Friday and was told the property was available. My clients are Mr. and Mrs. _____. The offer was close to asking and was accompanied by financial information including a pre-approval. It is an FHA offer.

I phoned your office for status on Monday and spoke to [unlicensed assistant]. She told me another offer had already been submitted and that the townhouse complex was not FHA approved. She told me this was because there were too many renters in the complex. She also said that she could not submit the offer, because your company would get "in trouble" with the lender/seller for submitting an FHA offer on an un-approved complex... The mls says nothing about accepting or not accepting FHA offers.

I am very, very familiar with this complex and have been for years. It is extremely well maintained and I believe the HOA has very healthy reserves. I also find it hard to believe that it has less than 51% owner occupancy. I will check that in the next day with the HOA management company. I have also checked FHA's website, and the complex is not listed as approved or not approved. We've all been very educated about FHA requirements lately, and I know of no reason this unit/complex could not pass those.

I know this new market is a tough one for us all. But could you please guarantee and confirm that our offer has been submitted to the seller? It is a good offer and we need to know that the seller has seen it and responded.

Please phone me or email me with any questions or concerns. Thanks very much!

And here's the email that I got back from the mega-lister Realtor: I have reviewed the property prior to marketing and my recommendation is not to accept FHA offers based on the fact that it is not approved on huds website and the HOA verbally told us that there are only 45% owner occupied units. We don't have a condo cert yet however there is no sense in any of us getting into a deal that cannot be closed... I hope you understand.

Now, it probably sounds like I just have a case of sour grapes because my clients did not get the townhome. Well, okay. But, Realtors have a legal obligation to present all offers to their sellers. And Realtors should not be making the decision about what reasonable offers their clients should see. And Realtors also have an obligation to post on an mls listing if something is not eligible for FHA funding. And it seems to me that lenders who own bad assets and are getting bailed out with tax payer funds should be looking at everything.

Words of the week: FHA, tax credit

First-time buyers are really out in force. Lines of people have been snaking through the open houses that I've attended, piles of broker cards are at every listing, and properties are going in multiple offers.

I think this is due to three things: the availability of FHA loans for first-time buyers, the low interest rates, and the $8000 tax credit offered to first-time buyers. Plus, I think people are feeling optimistic again. Could the worst be over?

The one thing the local r.e. market needs now is more inventory.

FHA buyers out in force

There appear to be lots and lots of first-time buyers out looking for properties now in L.A. and the San Fernando Valley. I attribute that to the ability of buyers to obtain FHA loans -- only 3.5% down! And it can all be a gift!, low interest rates, and the new $8,000 tax credit. As we all know, prices have fallen, too.

Problem: for single family homes, inventory is very short. Once again, half-way decent properties are listing and selling in a few days. No, I haven't seen a price spike, but if everything starts selling with multiple offers, that will follow.

There is a better supply of condos, although not all of them can be approved for an FHA loan, which will be the subject of another post. Many of the condos I've seen lately are new, too, and the developers are still attempting to get top dollar for them. Or they're really old, and need mondo updating. Stay tuned for news about our ever-changing market.

Boots-on-the-ground perspective for the end of February

Here's my perspective on our local market. Inventory is very, very low for single family homes under $600,000. I'm seeing properties go under contract in a short amount of time -- a few days, even -- and often in multiple offers. Of course "under contract" is relative when you're talking about REOs and short sales, but you get the picture.

I attribute this to favorable loan conditions for first-time buyers. FHA loans ask for only 3.5% down (which can be a gift from a relative) and let the seller contribute to closing costs. Interest rates are low. And there's an $8000 tax credit for first time buyers.

Boots on the ground perspective: move-up buyers are getting the short end of the real estate stick

As we all know, lending conditions are currently favorable for buyers. Rates are low, and FHA loans are not nearly as restrictive as they've been in the past. While lenders favor buyers with large downpayments, FHA allows 3-1/2% down on a purchase, and there are 10% down loans and even some 5% down loans (hard to qualify for, but still).

Unless you're a move-up buyer, e.g., somebody who owns a home but would like to move to a larger house. Many move-ups need to sell their homes in order to buy a new one. Bridge loans are uncommon. And it's extremely difficult to pull equity of your existing home for a down payment, because so many people have suffered such equity erosion lately. Saving money and having a large nest egg for a down payment is a nice thing, but who do you know that has thousands and thousands of dollars sitting around for that?

To me, in my market, this is where the bottle-neck is. Lower-priced homes have been selling quickly to first-time buyers. It's the people who are trying to move up from their first-time purchase that are being stymied.

I think the solution will be for lenders to begin giving bridge loans again, if equity warrants it. Or even making 100% loans to buyers with excellent credit.

Fannie Mae will be charging certain extra fees

Fannie Mae has announced that it will charge certain extra fees as of Feb. 2. Here are the details in brief. Thanks to lender Dana Dukelow for bringing this to my attention.

Condos - rates will be .5% higher than for single family homes
Duplexes - rates will be .75% higher than for single family homes
Cash-out refinances - rates will be .5% higher than for rate-and-term-only refinances.

While this is not necessarily good for buyers, rates are still low. It indicates a policy that favors purchasers who want to live in neighborhood family homes over investors.

New Conforming Loan Limits

Starting soon, conforming loan limits will drop to $625,500 from $729,000 for L.A. County. Still pretty good, in my opinion. And interest rates are good this week and still in the band between 5.5% and 6.75%, depending on the size of the loan.

I'll list the new FHA guidelines once they're set.

As always, thanks to lender Dana Dukelow for this info!

New jumbo conforming loan limits will be lower

As you may know, loan limits are now as follows: conforming loan limits are $417,000, and jumbo conforming limits are $729,750. These limits will expire soon. The last day to lock a rate at these limits is December 1; the last day a loan can fund at these rates is December 10 (thanks, Dana). The new limits have not been confirmed yet, but it looks like the jumbo conforming limit will drop to $625,000.

And more news from FHA: the minimum downpayment will rise to 3-1/2% from 3%. Right now, FHA interest rates are over 7%. Yikes! Are they trying to kill us?

Dab of FHA news

Here's a little FHA news: a 3.5% downpayment will soon be required. That's up from 3%. Also, the mortgage insurance on FHA loans will be going up .25%. Not deal breakers, but still...

FHA may shut down "gift" programs

For your Sunday reading pleasure, here's an article from today's L.A. Times regarding the charitable gift "programs" that allow sellers to give a lot of money back to buyers. The way it works is this: a seller contributes up to 6% of the sales price to the organization like Nehemiah, which is set up as a charity. Then, for a fee, the charity gives it back to the buyer as a grant for their home. There are restrictions on both sides, of course -- but I've often wondered why this isn't looked upon as money laundering. So this comes as no surprise to me.

WaMu takes its business to another level -- and it's not good

Washington Mutual announced today that it would no longer make wholesale loans. What does that mean? A regular broker can no longer get a buyer a deal through WaMu. If you want a WaMu loan, you must go to a WaMu office. This is just another way that consumer choice is being eroded now in our new lending "climate."

Quoted re FHA Guidelines

Our friend Patrick Duffy at Housing Chronicles.com has quoted this blog on FHA guidelines. Thanks, Patrick! My original post is below; it's dated March 11. I'm still finding that many lenders haven't received a lot of direction on this from their management.