By Nobu Hata
The skinny: The Department of Housing and Urban Development is seeking public commentary through Aug. 14 on three “measures” that “reduce financial risk and preserve affordable mortgage financing for responsible consumers.”
1. Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.
2. Reduce allowable seller concessions from 6 percent to 3 percent. Allowing sellers to contribute up to 6 percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to 3 percent will bring FHA into conformity with industry standards.
3. Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.
So the question you need to ask yourself is: How many deals have you been a party to this year that involved FHA financing? That’s what I thought. The three “measures” listed above, directly affect what is – and will be going forward – the primary loan our clients will be using to buy their homes. How do changes in the above guidelines affect your business? More-over, how do these changes affect your clientele?
State your case! Provide feedback to HUD. Blog about how these changes impact your market. Talk with your property management company contacts about the pros and cons of FHA approval. And de-mystify mortgage financing with your prospects, FHA or not. It’s a fantastic conversation starter, relevant to both buyers AND sellers.
Just so you don’t have an excuse:
Let’s get HUD commish David Stevens Tweeting again! http://twitter.com/davidhstevens
Nobu Hata is a sales associate for Edina Realty in Minneapolis, and a founding member of the Minneapolis YPN group, the YoPros. Visit his Web site at www.nobuhata.com.