Reaction is wide ranging on the heels of the announcement by Secretary of Housing and Urban Development Secretary (HUD) Shaun Donovan's announcement that sweeping changes are coming for guidelines for loans insured by the Federal Housing Administration (FHA). Earlier this week Donovan announced to Congress the levels of reserves for FHA are nearly 1.5% lower than mandated by law. In an effort to recover the reserves the department expects to announce several changes in early 2010. Changes may come as early as the first week of January.
Skin in the game is the phrase of the day
""Certainly credit score isn't a guarantee that people will stay in their homes, but the more 'skin in the game' a person has the less likely they are to walk away without fighting for it." Says Jessica Horton of Jessica Horton and Associates in Hampton, Georgia.
One of the changes expected to be announced is for FHA to start requiring a minimum credit score to be qualified for credit. Many lenders have already created overlays for FHA and Fannie Mae guidelines to ensure a higher level of quality in applications delivered for insurance. AmericaHomeKey, Inc., a direct FHA lender based in Dallas, Texas, has required borrowers to meet a minimum score guideline of 620 and will now follow the new Fannie Mae underwriting rule of requiring borrowers to have a maximum debt to income ratio (DTI) of 45% or less for all payments on credit. Previously the Fannie Mae Desktop Underwriter, an automated underwriting decision engine, would allow higher levels of DTI with mitigating circumstances such as higher reserves or longer credit history.
Changes appear necessary
In support of the changes Tim Maitske, an Atlanta real estate agent, speaks in support of necessary changes. "What they have done in the past looks like it is going to make them bankrupt if they continue in the same way. You either have to raise fees or tighten credit criteria. Otherwise they won't be around to help anyone."
Maitske later commented he would not have been lending his money according to FHA guidelines as they have been to this point. Many lenders likely have been depending on FHA insurance to protect their loans and a large number of those lenders who would loan to almost any applicant are long gone from the industry.
Not everyone likes the changes
Not all industry professionals, however, support the changes. Jason Crouch, broker at AustinTexasHomes.com is concerned. "I wonder how many more hurdles we are going to see thrown in front of our industry." Crouch has indicated recently that he has seen a leveling in business and even more activity but is now concerned changes may be too deep and harm buyers who have demonstrated worthiness but will be eliminated from economic participation if the changes are too stringent.
Kerry Lucasse of Keller Williams in Atlanta adds, "Even one of the recommended changes would have an impact on the market. About 80% of my buyers only have 3.5% to put down and they need 4.5 to 6% in seller concessions. I would probably lose about 50% of my business."
Additional information
For more information you may contact the author, an Atlanta, Georgia direct FHA lender at 678-439-8683 or reibroker@gmail.com
Comments
"I wonder how many more hurdles we are going to see thrown in front of our industry."
Perhaps when you quit abusing the system and the discretionary authority given to you ? This is sound fiscal policy and a broker/realtor who says otherwise does not care about the long term health of our country or moreover their own industry. Keep it up brokers...you destroyed the economy with the subprime boom and now you want to bankrupt the federal government.
Got something to say?
Examiner.com is looking for writers, photographers, and videographers to join the fastest growing group of local insiders. If you are interested in growing your online rep apply to be an Examiner today!