FHA policy changes to be announced today:
"Under this plan, the agency would increase the up-front insurance premium that borrowers pay at the closing table from 1.75 percent to 2.25 percent of the loan's value starting this spring.
While most FHA borrowers can continue to make down payments of as little as 3.5 percent when they take out a loan, those with a credit score of less than 580 will have to make a down payment of at least 10 percent, possibly starting in the early summer.
The agency also plans to propose limits on the amount of money sellers can kick in, including by paying closing costs or giving free upgrades. The agency will reduce seller concessions from 6 percent to 3 percent of the home's value, in line with the industry norm, this summer.
40 comments:
Too little too late? The next multi-billion dollar bailout has already been set in motion.
I meant multi-HUNDRED-billion bailout.
Will this drive sales this spring?
VA-
I would think once this goes into effect in the spring it would slightly lower sales. If you mean will it drive sales before the spring I would think this would drive sales a little, but far less than the 8K credit. Increasing fees 0.5% would only be 1-2K for most people using FHA loans, which is obviously a lot less than the 8K.
Notice that other than for the 500-580 FICO borrowers this doesn't increase the skin in the game, just helps shore up FHA's balance sheet against losses. Tells me they're not concerned about the defaults from 2010 issuance, they're worried more about 2004-2008, presumably particularly 2008 early 09 when the seller funded downpayments were still allowed and the market share was rising.
But yeah, 0.5% more upfront costs? Sounds like a nothing burger to me unless the average seller subsidy was close to the full 6%.
Watch that 3% get loosened to 4% in the public comment period...
"The burden to the individual borrower is modest and should ensure, overall, that borrowers have access to responsible credit," Berenbaum said in a statement. "While some less credit-worthy borrowers will need higher down payments, this is a necessary move in markets where a decline in home value can wipe out a new buyer's equity within weeks after the settlement."
Wow...he's worried about a 10% down payment evaporating within weeks of settlement.
The required 580 score is slightly above the minimum 500 currently required by the agency, but well below what many FHA lenders require and far below the national 720 median.
How do you get a score of 500? I don't think anyone with a 500 should be given a loan for several hundred thousand dollars. I'm no expert on FICO, but is there any way to have a 500 and not be a very high risk?
novahog,
I believe that sentence was saying that the 3.5% would be wiped out within weeks, not the new 10%. Given that the transaction costs of 5-6% put all 3.5% borrowers in a loss position immediately I don't see how the statement is controversial...
How do you get 500 without being a huge risk? Be a new immigrant with a documentable income? With tons of credit history overseas, but not here yet?
(although, honestly I don't even know what the bottom possible score is...)
nova-
The two ways you can get there without being a huge risk is a through divorce (you and the spouse don't pay the opposite persons bills/things fall through the cracks) or you used to own your own business that failed and you went bankrupt with the business. If you now have a job at a different company I don't think you are necessarily a huge risk. Obviously this is not how most people got to that range, but some people are credit worthy and got there through these ways.
shamrock--
Certainly way too little.
I'd love to see EVERYONE required to have 20% CASH at the table to buy a house--and no second-loan BS either.
Or 25%.
And the same for cars, too.
But it will never happen of course.
(And if it had, 10 years ago, I suppose I never would have been able to buy the condo I did as a first-time buyer, so I suppose I should shut up now.)
How do you get 500?
My brother ruined my nieces credit by taking our cards in her name when she was a minor/young adult. I don't know her score but she says anyone who hears it is shocked.
What if you are a convicted felon, with jail time instead of job history? That might lower your score...
When does the 8K go away?
And, yes, most of the people here that want a 20% down requirement just want to lower their competition. Few people buying a first home have 20%.
Apr 30.
Scott,
Same here but is was my felon ex-brother in law. We had to co-sign for her car loan.
April 30 for the 8K. I see a buying frenzy in Feb and March. Lower prices and low interest rates and, perhaps, some FHA related demand.
If we don't see the inventory pick up considerably, I wouldn't want to be looking for anything under 400K.
to clarify: contract signs by 4/30, settlement by 6/30.
Ok,
Feb, March AND April.
I might sell something I bought last spring. It's not really in an area I want to be in. I believe it's gone up 40%. It'll be under 150K where there is very little inventory.
Cara said: "I believe that sentence was saying that the 3.5% would be wiped out within weeks, not the new 10%. Given that the transaction costs of 5-6% put all 3.5% borrowers in a loss position immediately I don't see how the statement is controversial..."
Maybe you're right about 3.5% vs 10%. Wasn't clear, although i don't think he was considering the transaction costs since he specifically mentioned declining markets.
"How do you get 500 without being a huge risk? Be a new immigrant with a documentable income? With tons of credit history overseas, but not here yet?"
I would think an overseas credit history counts, but i just don't know.
I always thought of 600 as bad and 500 as real bad, but i think you can get down to as low as 300. I'd like to hear from those people to find out what you have to do to get 300.
Since the majority of 500 scores are a result of a bad credit history, i thought the 500 limit for FHA seemed too low. I guess that's why they're raising it to 580.
novahog,
Take it from someone with tons of post-doc friends, overseas credit means zip to CC companies here. You have to start with a credit union pre-paid debit card and build from scratch from there.
I do think with simply a thin file you get over 600 quickly though.
Anyone have any guess as to whether we are pretty much done with subprime foreclosures or will the mods be a real factor?
Guesses on further under 400K distress sales? Under 200K?
As I understand it (from reo agents) the bulk coming on in the future are over 400K.
This is probably good news for many of you.
btw, I got a new listing alert today. It looks like it went back to the lender at the Courthouse for 142K and is now listed as bank-owned at 172K. It appears that there are some deals to be had. The "vultures" wouldn't pay 142K. Not enough profit. If I had to guess, I'd say it will get bid up a good amount based on comps. I would have paid 142K.
It's a TH in the same neighborhood where I posted an reo a few months ago. That was 189K (I believe) and got multiple bids.
I have started to see more attractively priced houses over the last couple of days in several areas that are close to Tysons
This is a short sale so you may not be able to get it for this, but at 480K for a large brick colonial it looks like it could be a fairly good deal http://franklymls.com/FX7241214
Also for fairly nice looking 4 bedroom house in a decent part of falls church this looks like a decent deal http://franklymls.com/FX7240829 at 338K. I was just curious if either of these are getting close to the prices TBW/Spider are looking for. I admit they are two miles from where they are looking, but that is still pretty close
These new standards are nothing more than a coat of fresh paint on the old standards.
Will it be enough to keep FHA from going under? I won't pretend to know...
Leroy,
It's a balancing act. Suppose the only worry were the year 2008 originations and that 20% of those default over the next 5 years. The FHA mortgage insurance only compensates the MBS holder or bank for 16.5% of the equity lost in foreclosure. Let's call it 18% to cover paper trail costs. That would mean a 3.6% total loss on the 2008 originations over 5 years, or .7%/year. If that's all one had to cover with new originations and new originations stayed at the same pace and dollar amount, then a .7% PMI premium would be sufficient.
So, if the old premium was enough to cover all the normal run of the mill expected losses, then the new .5% additional premium is just a touch shy of covering the additional expected losses from 2008. Except that some of those losses were also "normal" so maybe .5% is just about right.
There were so few FHA in 2007 and earlier I don't think those are a concern, the concern is if 2009 and later go sour more frequently than expected.
So they need to balance keeping the price low to maintain the income stream that will cover the losses and trying to insure that no additional new losses are incurred unnecesarily.
Thus, I expect them to incrementally raise either more fees or DP requirements as prices slide further and such costs become less onerous and more expected to new buyers. Say maybe an alternation plan, today .5% on the upfront PMI, six months from now .25% on the ongoing PMI rate, six months later raise the DP to 4%, etc. only adding fees as needed to offset losses and DP as needed to look like their not gauging FHA buyers but rather helping them have more equity to start off with.
Leroy-
I agree that the new standards don't make a huge difference. I think switching the upfront fee from 1.75% to 2.25% is a pretty big deal for them. This is increasing their upfront insurance fee almost 30%. So although this is not much money for the buyer it is a lot of money for them. I don't think it will necessarily help enough to handle their last 5 years of bad underwriting. But it will definitely make new loans significantly more profitable
HB,
the REO wants offers within two days on MLS. is this a new scare tactic or is market really that hot in that segment?
MM-
I basically ignored that because later is said they would give 3.5% if you gave them an offer by 1/31. So If anything I think the 1/21 was a typo and they are giving you a couple of weeks, which is reasonable.
MM,
That tactic has been fairly common in the areas I've watched. It's not necessarily a sign of a hot market as much as a getting things rolling and done tactic, and with a price of $338k to an extent setting a firm and known deadline is more honest than what often happens. (The deadline exists but is only in the realtor version of the MLS, not the public one, or with such a low price it goes before you can get the offer together, whereas with a deadline you know to move fast and that any submission before the deadline will recieve equal attention)
2 days essentially excludes 'avg' buyers and caters mainly to investors who will bid to market and can close. it almost guarantees the bank won't get the highest possible bid but a fast settlement might worth more to them.
MM,
Excludes average buyers? Your agent isn't willing to go see listing with you on the same night you email them to him, when there's a clear and specific deadline? Get a better agent.
But HB is probably right, the 1/21 is probably a typo and the 1/31 is probably correct, one would first ask their buyer's agent to check the realtor-only comments section, and if that doesn't provide clarity, then to contact the LA (as useless as that can be with an REO agent).
On multiple offers they will either ask for highest and best or go back to the higher offers and ask if they want to re-submit their highest and best.
Who'd a thunk it a couple years ago?
reecon,
I don't think Arlington's occupancy limits forbid two parents and two kids from sharing a two bedroom. Also, your anecdote about a famous Arlingtonian only confirmed that it can be done.
HayfieldGrad's anecdote was that, an anecdote. It's not what normally happens to families of four and thus is not a reason for low down payment requirements.
Va_Investor said
Few people buying a first home have 20%.
Any hard data for this assertion? I bet it was common for first time homebuyers to have 20% until the 2000s.
I'm not asking for overly strict lending. Just the lending standards that were the norm pre-2000.
This could be quite interesting:
WASHINGTON — President Obama, cracking down on tax cheats, said on Wednesday that the federal government would no longer award contracts to companies that did not pay their taxes, and called on Congress to pass legislation allowing the Internal Revenue Service to share information about businesses that owe back taxes.
...
The president cited the case of one company — he did not name it — whose owner, he said, owed more than $1 million in back taxes and was nonetheless “paid over one million dollars as a defense contractor — and instead of using that money to pay his back taxes, he chose to buy a boat, some cars and a home abroad with his earnings.”
I would not be shocked if Obama is referencing one of the well known defense contractors.
tbw,
In the 80's we never put more than 5% down, and many were 1yr arms. We had friends getting neg am loans in the mid=early 80's.
No, I don't have a link or hard data. I do, however, have a good memory and did closings for a living.
tiredbubblewatcher The problem was not two parents and TWO children living in a two bedroom condo, but two parents and THREE children living in a two bedroom condo. The second bedroom was not large enough to meet Arlington Co. square footage requirements for THREE children. I also said the person was well-known not famous. He was well-known because he had the hot dog stand at the Ballston Metro Station, which actually makes more money than you would think.
HB et al
I wondered about the FX7240829 propery too. One day? I wondered if this was a pressure tactic to eliminate the ability to perform due diligence on a property that had something horribly wrong with it. But you think that this a typo? Or is it a new pressure tactic to drive sales?
tbw,
This report from a 1996 issue of the Journal of Housing Research has a chart that used data from Chicago Title and Trust that shows the dp percentages for 1st time homebuyers in two year intervals as follows:
1976-78 16.5%
1979-81 19.2%
1982-84 14.7%
1985-87 15.1%
1988-90 15.4%
1991-93 14.3%
As you can see the average never reached 20%.
Now this USA Today report had this data for median downpayments in 1989:
All buyers 20%
Repeat buyers 23%
First-time buyers 10%
This report indicates that their data source is the National Association of Realtors. You will note that 1st time homebuyers did not put down 20% even 20+ years ago.
hayfield
Bear in Mind First time buyers are
distorted by FHA (Low Down Low Income, Low End), VA (2% down)
and HUD( 10% down) conventional
was always 20% down
pat,
"distorted"?
Odd choice of words don't you think? Those are all amongst the choices some 1st time buyers have, and thus they are part and parcel of the aggragate picture of first time buyers that results in averages under 20% down.
Hayfieldgrad,
Thanks for the numbers! I was a bit surprised that those were consistently above 10%. Given the "distortion" this implies that indeed many 1st time buyers must have put down the full initial 20% to keep the average so high. At a guess, 1st timers don't generally part with any more cash than they absolutely have to, even at conventional, so it takes a lot of 20% down buyers to average out with the 5% down and less crowd. (like a ratio of 2 20% buyers for every 1 5% buyer).
Too bad we don't have the ratios for today.
I do however think the driving factor here is prices, not responsibility levels or even underwriting standards (although obviously there's feedback there). The lower the dollar amount a 20% downpayment is the more people will be able to save for it, (and just as importantly conceptualize the ability to save for it, rather than just go ahead and buy now).
Cara-
There are also some first time buyers that put 50+%, down which can really skew the average. Obviously there are some wealthy people that do this, but I think the real driver of these people are using inheritance money. Plenty of people can't afford to buy until they sell their parents house and use that money to make the monthly payment reasonable.
Also because mortgage rates were much higher and prices were lower it was easier to save the 20%. Back then savings 20% was like saving 1-1.5 years worth of mortgage payments. Now saving 20% is like saving 3 years worth of payments.
housebuyer,
Makes me wish yet again that they would report distribution functions not just averages, doesn't it?
Hmm.... where did I see that scatter plot of price versus downpayment precentage? I'm pretty sure it wasn't separated into 1st time versus not 1st time anyway, so it's not directly relevant.
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