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The FHA Solution

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Writing the Contract with FHA Lending. Housing Meltdown. Why home prices could drop 25% more on average before the market finally hits bottom... – PowerPoint PPT presentation

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Title: The FHA Solution


1
The FHA Solution
  • New Loan Limits Reform
  • For 2008

2
Todays Topics
  • Credit Crunch
  • Current Lending Landscape
  • Historical Perspective
  • The 2008 Economic Stimulus Package I II
  • New Loan Limits
  • FHA Modernization
  • Differences between FNMA and FHA
  • FHA Loan Types
  • Eligible Properties/Condo Issues
  • Property Considerations and FHA lending
  • Property Inspections and FHA Lending
  • Writing the Contract with FHA Lending

3
Housing Meltdown Why home prices could drop 25
more on average before the market finally hits
bottom BusinessWeek January 31st, 2008
4
The 2008 Lending Landscape
  • Jumbo Secondary Market Seized up
  • Declining Values-Reduced LTVs
  • FNMA FHLMC Charging New Fees
  • Private Mortgage Insurance More Expensive
  • Stated Income No More
  • ALT A Subprime Lending Halted
  • Seconds vanishing
  • 100 Financing almost Non-Existent

SIMPLY PUT Buyers must qualify and have a down
payment.
5
Historical Perspective
  • In the 1930s, mortgages in default reached 50,
    after a period of prosperity and easy lending,
    IOs, short term balloons, the assumption of
    rising house prices and the firm belief in easy
    refis sound familiar?
  • Three institutional creations of the 1930s,
    involving government guarantees, helped stabilize
    the market then, and the expanded use of each
    will aid in this turn around as well.
  • They are
  • FHA (The governments own subprime mortgage
    credit provider)
  • Fannie Mae (originally created to buy FHA
    loans-but since expanded)
  • Federal Home Loan Banks-Providing large loans to
    financial institutions-Recently 50 billion to
    WAMU, 50 billion to Countrywide and 100 billion
    to Citigroup

6
Congressional help is on the way with The 2008
Economic Stimulus I and The Omnibus Housing
Bill Bring your Passion to this Opportunity!
FHA
Calling all Heroes!
7
Economic Stimulus I
  • Get Money circulating
  • Tax Refunds
  • Temporary lift on Conforming loan limits
  • Temporary lift on FHA loans

8
How high did they go?
  • FNMA, FHLMC and FHA to 125 of Area Median to a
    max of 729,750 in High Cost Areas.

New Economic Stimulus I Loan Limits
9
Omnibus Housing BillEconomic Stimulus II
  • FHA Modernization
  • Higher FNMA/FHLMC/VA to 625,500 permanently
  • Tax Credit of 7,500 for first time buyers
  • Foreclosure rescue program (300 billion in loan
    guarantees for troubled loans)
  • GSE Reform (New regulators for Fannie Freddie)
  • Liability protection for servicers making loan
    modifications
  • 12 month moratorium on FHA risk based premiums

10
FHA Modernization
  • Permanent limit to 115 of median to 625,500
    kicks in January 01, 2009
  • 3.5 Cash Investment-loans
  • Seller-funded DPA to end 10/1/2008
  • Easier Condo approvals
  • HECMs OK for purchases for seniors

11
Why FHA vs. FNMA/FLMC?
  • Fannie Freddie
  • FHA
  • 3 Down
  • Max Financing OK-Declining Value Areas
  • 6 seller contribution
  • Gift OK for 100 of down payment
  • Non-Occupant Co-Borrowers OK with true blend of
    income/debt
  • Scores down to 620 no adjustment to rate
  • Non Traditional Credit OK
  • 2 years from Discharge of Ch 7 BK, 1 yr Chapter
    13, and 3 years on foreclosure
  • 10 Down
  • LTV restrictions-Declining Value Areas
  • 3 gt 90 LTV
  • Gift for 100 not OK until 20 down
  • Not Allowed at higher loan to values occupant
    must nearly qualify
  • Scores below 720 charged higher rates/Higher PMI
    lt660
  • Not Allowed
  • 5 years from Discharge of BK and 7 years on
    foreclosure

12
Not your Fathers FHA
  • Old FHA
  • New FHA
  • As is appraisals allowed for minor property
    defects
  • Industry standard appraisal requirements
  • Termite, well and septic inspections no longer
    mandatory
  • All closing costs can be paid by buyer
  • New FHA Total AU engine allows higher ratios
  • All structures on the property had to be termite
    cleared
  • VC Sheets (appraisal conditions)
  • Were always required on every structure on
    property
  • Many closing costs could not be paid by borrower
  • Qualifying Ratios 31/43

13
Available FHA Programs203b for Single Family
234c for Condos
  • 30 15 year fixed
  • 1 year Adjustable with 1/5 caps, 2.25 margin,
    qualify at 1 over start loan gt 95
  • 3 5 year Hybrid Arm with 1/5 caps, qualifies at
    start rate
  • 7 10 year Hybrid Arm with 2/6 caps, qualifies
    at start rate
  • Buydowns are available-Qual at Note rate
  • No Stated Income and No Interest Only options
  • No First Time Home Buyer requirement
  • No Income Limits

14
Maximum LTVs in California
  • For SP lt 50,000 98.75 LTV
  • For SP gt 50,000 up to 125,000 97.65 LTV
  • For SP gt 125,000 97.15 LTV

15
Mortgage Insurance prior to 7/14/2008
  • UFMIP (one time)
  • Annual MIP (paid monthly)
  • 1.5 of the Base Loan Amount
  • Can be financed in the loan amount
  • Percentage Refundable for up to 3 years if buyer
    refis into another FHA loan
  • .5 monthly based on base loan amount on 30 year
    loans
  • Required at all LTVs regardless of amount of down
  • Automatically drops when loan reaches 78 of
    original purchase price 5 year payment history

Hud announced new Risk Based Premiums implemented
7/14/2008
16
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17
Congress says Hold it! 12 month moratorium on
Risk Based Premiums, effective 10/01/2008. New
Bill says HUD cannot base premiums on credit
score. They can, however, base premiums on
product type or LTV. FHA will announce a new
across the board premium structure to be
implemented on or after October 1st, details yet
to be announced.
18
Investor loans
  • Generally HUD does not insure Investor loans
  • Makes exceptions on HUD REOs
  • Allows Investors to assume FHA loans on HUD REO
    properties
  • Allows streamline refinancing of a loan
    originally purchased as owner-occupied, but
    presently used as a rental

19
Allowable Property Types
  • Single Family Residence
  • 2-4 Multi Family as primary residence
  • Town Homes/PUDs
  • Condominiums-Require HUD project approval-can do
    Condo Spot Approvals with the following
  • 51 Owner Occupied
  • 90 project presold
  • No Litigation
  • No more than 10 already HUD insured project gt 30
    units and 20 project lt 30 units
  • Cannot have been previously approved/rejected by
    HUD

20
FHA Disclosures with the Contract
AMENDATORY CLAUSE
It is expressly agreed that notwithstanding any
other provisions of this contract, the purchaser
shall not be obligated to complete the purchase
of the property described herein or to incur any
penalty by forfeiture of earnest money deposits
or otherwise unless the purchaser has been given
in accordance with HUD/FHA or VA requirements a
written statement by the Federal Housing
Commissioner, Department of Veterans Affairs, or
a Direct Endorsement lender setting forth the
appraised value of the property of not less than
__________________. The purchaser shall have
the privilege and option of proceeding with
consummation of the contract without regard to
the amount of the appraised valuation. The
appraised valuation is arrived at to determine
the maximum mortgage the Department of Housing
and Urban Development will insure. HUD does not
warrant the value nor the condition of the
property. The purchaser should satisfy
himself/herself that the price and condition of
the property are acceptable.
REAL ESTATE CERTIFICATION We, the borrower,
seller, and the selling real estate agent or
broker involved in the sales transaction certify
by our signatures below that the terms and
conditions of the sales contract are true to the
best of our knowledge and belief, and that any
other agreement entered into by any of these
parties in connection with this real estate
transaction is part of, or attached to, the sales
agreement. Borrower Date_________________________
_______ Borrower Date____________________________
____ Seller Date_________________________________
__ Seller Date___________________________________
Listing Agent __________________________________
Selling Agent__________________________________
21
Property ConsiderationsRepair Inspection
Requirements
FHA has shifted from its historical emphasis on
the repair of minor property deficiencies and now
requires repairs for those property conditions
that rise above the level of cosmetic defects or
normal wear and tear. Repair Requirements FHA
now permits an as is appraisal for existing
properties when minor property deficiencies,
which result from deferred maintenance and normal
wear and tear, do not affect the safety of the
occupants or soundness of the property.
22
  • Examples of minor property conditions that
  • no longer require automatic repair
  • Missing handrails
  • Cracked or damaged exit doors that are otherwise
    operable
  • Cracked window glass
  • Defective paint surfaces in homes constructed
    post 1978
  • Minor plumbing leaks (such as leaky faucets)
  • Defective floor finish/covering (worn through the
    finish, badly soiled carpeting)
  • Evidence of previous (non-active) termites where
    no evidence of unrepaired structural damage
    exists
  • Rotten or worn-out countertops
  • Damaged plaster, sheetrock or other wall and
    ceiling materials in homes constructed post 1978
  • Poor workmanship
  • Trip hazards (cracked or partially heaving
    sidewalks, poorly installed carpeting)
  • Crawl space with debris and trash
  • Lack of an all weather driveway surface

23
  • Examples of property conditions that may
    represent a risk to the health and safety of the
    occupants or the soundness of the property and
    will require automatic repair
  • Inadequate access/egress from bedrooms to
    exterior of home
  • Leaking or worn out roofs (if 3 or more layers of
    shingles on leaking or worn-out roof, all
    existing shingles must be removed before
    re-roofing)
  • Evidence of structural problems (such as
    foundation damage caused by excessive settlement
  • Defective paint surfaces in homes pre-1978
  • Defective exterior paint surfaces in homes
    constructed post-1978 where the finish is
    otherwise unprotected

24
Inspection Requirements
  • FHA no longer mandates automatic inspections for
    the following items
  • Termites inspection required only if evidence of
    active infestation
  • Well test required if mandated by state or local
    jurisdiction, within ¼ mile of coal mining, dry
    cleaning, landfill, factory, etc. Or, water has
    objectionable taste or smell (if feasible to
    connect to public-Hud requires-3 of value)
  • Septic test if evidence of system failure or
    mandated by local jurisdiction
  • Flat and/or unobservable roof
  • Examples of conditions requiring automatic
    inspection
  • Standing water against the foundation
  • Hazardous materials on the site
  • Faulty or defective mechanical systems
    (electrical, plumbing or heating)
  • Evidence of possible structural failure
    (settlement or bulging foundation wall)

25
Other Contract Considerations
  • No additional time needed for close of escrow due
    to FHA financing-however bank owned properties
    can take longer
  • Seller or Buyer can pay any of the closing costs
  • Seller can contribute up to 6 toward recurring
    or non-recurring closing costs-cannot exceed
    actual
  • All sales concessions, gifts, down payment
    assistance, should be noted on contract and all
    financing data reported to the appraiser

26
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28
We started the year playing Musical Chairs..
And now, we are in the third quarter of
Survivor! Team up with a good HUD approved
Mortgage Broker in 2008!
29
Loan Approved!
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