Posts Tagged ‘HUD’

So I took the S.A.F.E. Act test last week and I started last week’s blog with some of the injustices of the new system. Go read it if you haven’t already.

The test is 100 questions (of which 10 don’t count. Why?) and to pass you have to get 75%. To be fair the test is designed to weed the weak people out. In other words it is HARD. As I said last week why wouldn’t HUD and the rest of the U.S. Government want all loan originators tested, not just the little guys? Didn’t the big guys have just much responsibility for the mortgage meltdown as we did? Clearly not!

Anyways, the test is very heavy on federal statutes (RESPA, TILA, FACTA, ECOA, etc.), lending practices and the new policies that have been enacted since the meltdown. Again, I want to stress something had to be done and our government did. Just like the case of the HVCC appraisal debacle, the new regulations are designed with the big guys in mind (In case you hadn’t heard most of the HVCC companies are owned by the Banks that ask for them to be used). I knew that there would be a day of reckoning when the meltdown started; I just didn’t think that such a large segment of mortgage industry was going to be exempt from feeling the pain.

The new age of the government ruling the people, not the people ruling the government (like it was in my parent’s day) is upon us. I don’t want to get too far off the topic from the SAFE Act test but I was more than a little upset…can you tell? The bottom line is this, the test, while excessive, is passable (if you study). I did pass and am happy to say I am now “S.A.F.E Act” approved. I am realistic enough to know that my opinions fall mostly on closed eyes and deaf ears.

Thanks for reading my blog Dad. But the new guidelines hit home.

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Just a quick word about the impending changes to the FHA rules that are set to take effect on May 20th 2010. Specifically two items that are going to drive all but a select few from being able to originate FHA business. The first item is the increased net worth requirement for all FHA lenders from $250,000 to $1,000,000. I agree with HUD’s net worth increase. Most warehouse line providers will not look at an applicant before they have that same amount so why shouldn’t the government be up with the times. Second, is the elimination of the FHA correspondent program.

As of the end of this year HUD is eliminating the FHA correspondent program and making the FHA lender responsible for all approval criteria for a third party originator. The most significant part of this change is that it will prohibit loan correspondents from using FHA systems like the Technology Open to Approved Lenders (TOTAL) Scorecard and the FHA Connection software systems. Both systems are crucial to the mortgage origination process. So what does this mean? Less competition for the industry in turn means higher rates and fees to the consumer. My recommendation is to increase the net worth requirement for Loan correspondents and have HUD still oversee this category of originator. I know that I am not alone in my feeling but it remains to be seen if HUD will listen.

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The Department of Housing and Urban Development or HUD has launched a new program to help with job creation through a series of grants. Armed with 150 million dollars provided by Congress the entity that is overseeing the project is the Office of Sustainable Housing and Communities or OHSC. According to HUD, W-2 employed households are still feeling financially pressured. According the Department of Labor, January saw the first unemployment decline in over a year to 9.7%. While it is a decrease we are still close to the historic highs. In addition, HUD has determined that the average household spends half of its monthly wage on housing and transportation. What this all means is the OSHC has been set up to help the average homeowner. The new office will provide grants to metropolitan planning organizations, state governments and non-profit organizations to improve access to affordable housing. It will also invest in energy efficient homes and buildings and put emphasis on energy efficient retrofitting for new home purchases. What does all of this mean? It means that President Obama is trying to make good on his promise to improve our economy through housing subsidies. Whether this plan will have any significant impact to the average home owner remains to be seen.

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As promised I want to explain how this new “temporary” HUD rule, of eliminating the 90 day flip restriction to get FHA mortgage insurance, will help with REO’s, Short sales, and conventional financing. First, investors will be able to buy a dilapidated home, fix it up, and sell it in a much shorter time frame. Right now the average time to sell a home that has been purchased by an investor after it has been rehabbed is 6 months. The main reason for this is HUD’s old anti-flipping rule which said an investor could not market a property until the 91st day of ownership. Now they can start to market the home as soon as they have taken title to the property. Why is this beneficial to the buyer/investor? It decreases the amount of time that an investor’s money is out on one property so the investor can invest in more properties per year which will decrease the supply of REO’s and Short Sales. This means that demand will go up thus increasing values. This will eliminate the glut of inventory the banks have on their books which will put the banks in a position to start lending money on homes again. This will enable Banks to satisfy their appetite with a mix of FHA and conventional products. I know that my opinion will be met with some skepticism, but this very same thing happened in the 90’s after the government bailed out the Savings and loans industry.

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The Department of Housing and Urban Development or HUD has had a policy for years that stated no new home purchases are eligible for FHA insurance until a 90 day waiting period had expired (from the closing date). HUD has since adopted a “temporary” policy that allows new purchases of homes to take place within the 90 day time frame. According to HUD Secretary Shaun Donavan, “this temporary policy will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration’s commitment to addressing foreclosure.” At issue is the vacancy that occurs when a home is foreclosed. President Obama’s aim is to help the urban blight that is taking place in many cities due to the increase of empty houses. By changing its stance, HUD has actually done a great service to the potential homeowner and the neighborhood as well. The only snag may be with the large banks (B of A, Wells Fargo, Citi, etc) that aren’t under any mandate to accept the new change. But it seems unlikely that the new change will not be adopted by the banks because FHA is insuring the deals. Next week I will tackle how this change will affect REO sales, Short Sales, as well as conventional financing.

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Let’s talk about short sales. The definition of a short sale is to sell a home short of what is owed to a lending institution thereby making them lose money. Short sales are used when a home owner decides that their property is no longer worth what they paid for and they don’t want to go into foreclosure with their lender. The homeowner will list their property with a real estate agent who, upon receiving an offer, negotiates with the lender to get them to accept a deficiency on their loan. As you can imagine lenders are not fond of losing money so they fight with the agent and homeowner to not accept the negotiated price. It is up to the agent to prove the deficient value and up to the homeowner to show that they can no longer make the payment. This process is a lengthy one and can take up to 6 months, even more in certain situations. But this is a far better alternative than foreclosure for all parties concerned. The homeowner gets to stay in the house, sometimes without payment, the agent makes a commission, and the lender gets the property back damage free. President Obama, HUD, FNMA, FHLMC, and most servicing company believe that this is a WIN/WIN for all concerned. So why is it this not the preferred method for upside homeowners to dispose of their properties? Simple, most lenders are stuck in the old REO (real estate owned) days where the homeowner is foreclosed on and physically removed from the property by law enforcement. I will compare the two methods of home transfer, REO vs. Short Sale, next week.

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