Showing posts with label loan underwriting. Show all posts
Showing posts with label loan underwriting. Show all posts

Thursday, January 7, 2010

FHA Loans More Difficult and Expensive

FHA Loans More Difficult and Expensive

According to this MSN Money article, Last chance for lowest-cost loans (Coming soon to FHA-backed loans: Higher FICO scores and more cash at closing. The changes are needed to help keep the agency afloat.), Federal Housing Administration (FHA) loans are about to get more expensive and more difficult to obtain due to the financial problems that the FHA is experiencing that are a result of record FHA mortgage loan default rates. Simply put, the FHA is paying more out to cover loan losses than it collects in Mortgage Insurance Premiums (MIP) from FHA borrowers and, as a result, the FHA is going bankrupt. As usual, I am ahead of the curve and told you about this in my blog posts: FHA Will Tighten Underwriting and FHA in Deep Trouble: Default Rates Skyrocketing.  The debt hot potato game continues with private debt becoming public debt.  Rest assured that the end result will be more short sales and foreclosures.

According to the article, the Obama Administration announced that there will be 4 changes to the FHA loan process that are aimed at lowering the FHA default rate. Those changes are as follows:
  • Increasing the minimum down payment required to obtain a FHA insured loan.
  • Raising the minimum credit score needed to qualify for a FHA insured loan.
  • Raising the cost of the FHA Mortgage Insurance Premium (MIP) and possibly changing how FHA mortgage insurance premiums are collected.
  • Reducing the amount of the buyer's closing costs that the seller will be allowed to pay (i.e. possibly reducing this amount from 6% to 3%).
If you are a Middle TN homeowner, property owner, condo owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, condo owners, owners of high end homes and properties (estate homes, luxury homes and executive homes), real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Robertson County TN, Maury County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN, Belle Meade TN, Nolensville TN, Spring Hill TN, Gallatin TN, Springfield TN and Mt. Juliet TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Wednesday, September 30, 2009

Could Tighter Loan Underwriting Standards Hurt the Housing Recovery?

According to this RISMEDIA article, Credit Woes to Threaten Housing Recovery?, "Nearly two-thirds of single-family home builders are reporting a severe lack of credit for housing production, threatening the fragile housing recovery before it has time to take hold, according to a new builder survey of acquisition, development and construction (AD&C) financing conducted by the National Association of Home Builders (NAHB)."

The article quotes NAHB Chairman Joe Robson, a home builder from Tulsa OK, as saying "Across the country, home builders and developers are reporting a deterioration in credit availability and intensifying pressure on borrowers with outstanding loans. Lenders are cutting off loans for viable new housing projects and producing unnecessary foreclosures and losses on AD&C loans. With the pending expiration of the $8,000 first-time home buyer tax credit, these challenges threaten to halt any positive developments we have seen in the housing market in recent months.  There can be no meaningful economic recovery until the flow of credit is restored to housing."  (My thoughts: Since when has housing been a legitimate driver of the economy for any extended period of time?  How can over priced asset prices such as housing create long term jobs?)

According to the article, the most recent NAHB survey of AD&C financing conditions, showed that some 63% of builders thought that the "availability of credit for single-family construction loans worsened in the second quarter of 2009."

The article states that home builders reporting worsening credit conditions cited the following reasons for the decline in lending:
  • 80% said that lenders are lowering the allowable loan-to-value ratios.
  • 76% reported that lenders are not making new loans."
  • "75% stated that lenders are reducing the amount they are willing to lend"
  • 62% said that lenders are requiring personal guarantees or collateral not related to the project.
According to the survey "Two-thirds of respondents reported putting single-family construction projects on hold until the financing climate gets better."

The article notes that lenders, as an explanation for the reduced lending activity, have told home builders that banking regulators are forcing them to tighten lending standards.  Federal regulators, on the other hand, say that they have not restricted lenders from making more loans.

The article states that the "NAHB believes that regulators and lenders should provide leeway to residential construction borrowers who have loans in good standing by providing flexibility on re-appraisals, loan modifications and perhaps forbearance on loans to give builders time to complete and sell their inventory."

I have to say that I have had enough of this nonsense.  We do not need more credit to help a housing market that has imploded as a result of too much credit.  I do have a serious problem with lenders due to their taking of taxpayer bailout monies and their grossly incompetent handling of short sales and foreclosures, but I do not blame them for reducing their loan activities or tightening their credit standards in the face of rising unemployment and increasing loan delinquencies.  It appears that the NAHB is doing nothing but advocating something that will help home builders sell their over priced homes to naive home buyers - all at tax payer expense as these loans go bad and the federal government steps in to continue to bail out the lenders that made these loans when the financially strapped home buyers need to short sell their homes and/or fall into foreclosure.

Therefore, the answer to the blog post title question is "No" for the following 2 reasons.
  1. There is no actual housing recovery. Housing prices continue to fall and foreclosures continue to increase.  Where is there is more than average government intervention, such as CA with their $10,000 new construction home purchase tax credit, there has a been a slight bump in prices that will only get worse when that government intervention is stopped.
  2. Tighter housing credit will actually the housing market in the long run due to weeding out financially unstable buyers. Long term housing market stability is the most important thing now.
Given the absurdly high levels of new construction still going on and available for purchase in Middle Tennessee (Rutherford County: Murfreesboro TN, Smyrna TN and La Vergne TN) the housing market here will continue to decline for years to come as there will be more builder bankruptcies, short sales and foreclosures in the Middle TN market.