CAAR Blog

In October 2009, FHA announced that its capital reserve fund had fallen below the congressionally mandated level of 2 percent. The drop in capital reserves has led Congress and the Administration to call for changes to strengthen FHA.

The  week  of  January  18,  2010, FHA will announce major changes to ensure its long-term financial soundness.  FHA is trying to balance three fundamental objectives: 1) financial soundness – ensuring that its capital ratio returns above 2 percent, 2) fulfilling its mission of serving borrowers not adequately served by the private sector  and 3) facilitating the recovery of the housing industry and the over-all economy.

NAR  has  met with the Commissioner on several occasions to discuss the state of the housing market and to underscore FHA’s invaluable role. In looking for solutions to FHA’s financial concerns, replenishing the insurance fund and lowering loan-to-value ratios have the most significant impact on the FHA’s actuarial soundness.  We expect changes in the following areas:

Improve FHA loan quality:
Increasing “upfront cash” that a borrower has to bring to the table by:
      Eliminating the ability to finance the upfront premium
      Increase the cash investment required above 3.5 percent by:
         o  Reduce seller concessions from 6 percent to as low as 3 percent
         o  Impose a minimum FICO score
      Down payment requirement will remain at 3.5 percent
      Impose a loan-to-value (LTV) maximum ratio by FICO score

Increase the Mortgage Insurance Premiums:
FHA can increase the MIP as follows:
      Up-front premium may be raised to 2-2.25 percent, up from 1.75 percent
      Higher premiums may be introduced for certain FHA products (such as refinance transactions)

FHA Lender Eligibility Changes
FHA is requiring significant changes for lenders.  Many changes recommended were published as a proposed rule on lender eligibility changes in late November.  Final rule has not yet been published. There are several proposed changes for FHA lenders:
      Elimination of loan correspondent approval process
      Increase net worth requirements of lenders to $2.5 million over the next 3 years
      Lenders will be required to have a net worth of $1 million within one year, of which 20 percent must be liquid assets
      Implementation of Credit Watch for underwriting lenders to monitor defaults and claims
      Codification of Mortgagee Letter 2009-31, which places additional requirements on FHA lenders

Risk Management Improvements
FHA will be overhauling its approach to risk management throughout 2010. FHA will likely begin targeting early payment defaults for reviews and loans that result in claims in the first couple of years.

Risk Management Improvements (Continued) This change will likely increase indemnification requests since FHA will be targeting their reviews on early payment defaults (i.e. loans with potential problems).

FHA will be highlighting “poor performing” lenders more prominently on their website and in press releases. This started in January when FHA and the HUD Inspector General announced subpoenas to 15 mortgage companies demanding data and documentation on failed loans.

The Commissioner has frequently discussed the development of a Lender Scorecard, which is expected in the near future.

FHA Budget Proposals (Requires Legislation) As part of the Administration’s FY 2011 budget proposal there will be several FHA legislative initiatives. They could include:
      Increase the current cap for annual premiums, currently at .55 percent (FHA has said that raising the annual premium is the “most effective means of raising capital for the fund w/ least impact per borrower”)
      Obtain  a legislative change to Credit Watch to facilitate the suspension of an FHA lender’s entire operation not just individual branches
      Increased accountability of FHA lenders for fraud or misrepresentation

These changes will require congressional action, the timetable for enacting and implementing any legislation is subject to the Congressional schedule.

Conclusion
FHA  will  be transformed over the next few years. The changes outlined above are the beginning of the process with additional changes expected during the tenure of FHA Commissioner Dave Stevens. Going forward, FHA will continually evaluate programmatic changes and will likely withdraw them when the capital ratio returns above 2 percent. However, it is unlikely FHA will relax risk management and lender monitoring enhancements.

 
You can better understand temporary FHA condo rules released a few weeks ago through FAQs the agency has released. The temporary rules ease concentration and owner-occupancy requirements and make changes to pre-sale rules and to the agency’s spot loan approval process.

Commercial real estate will see negative absorption, higher vacancies, and declining rents, NAR’s latest commercial analysis shows. Financing still poses the main challenge to stabilization. The market for commercial mortgage-backed securities (CMBS) has improved, but volume is insufficient to match maturing debt. Read more in an NAR Research commentary.

 
Short sale procedures for loan servicers are standardized in guidelines released earlier this week under the federal government’s Making Home Affordable loan modification initiative for troubled home owners. The guidelines create a path for a short-sale or deed-in-lieu of foreclosure for eligible borrowers for whom loan modification isn’t a viable option. The guidelines provide $1,500 in federal funds to help borrowers relocate, $1,000 to help servicers offset their  processing costs, and up to $1,000 to investors to secure release of subordinate liens. For each $3 an investor pays to secure the release of a lien, the investor receives $1 in assistance. The guidelines prohibit a reduction in agreed-upon commissions (if they’re not more than 6 percent) and take effect April 5, 2010, but can be implemented by servicers at any time. Fannie Mae and Freddie Mac are expected to follow this release with their own rules based on these guidelines. Read an NAR summary. Read the entire guidelines. The guidelines will be covered as part of a Webinar next week, Today’s Changing Short Sales Environment.

The U.S. Senate voted yesterday to extend unemployment benefits for 14 more weeks (20 weeks in states with very high unemployment rates), which would impact more than 1 million Americans scheduled to lose their unemployment benefits in the next few weeks. In that same bill (S.A. 2712), the Senate also approved extending the first-time homebuyer tax credit through April 30, 2010 (as long as they have a ratified contract, they have until June 30th to close) and adding a provision that move-up homebuyers who have been in their homes for five years or more can earn a $6500 tax credit as well. There are a few more provisions, so click the link below to see the write-up from Senator Patty Murray’s office (D-WA), a co-sponsor of the bill. 

The House is expected to vote on the bill this afternoon, which hopefully means it will get to the President for signature on Friday. 

http://murray.senate.gov/housing/homebuyer.pdf

Federal regulators are close to issuing guidance for banks to use in modifying troubled commercial real estate loans, FDIC Chair Sheila Bair testified before the Senate Banking Subcommittee on Financial Institutions. Workouts for these loans, said Bair, are often in the best interest of all parties involved during tough economic periods. The forthcoming guidance will reflect this, and is intended to give banks resources to restructure weak credit relationships and manage real estate holdings in an organized way. Bair cited commercial real estate loans as “the most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters.”

FHA Announces Flood Zone Requirements for Appraisers

The Federal Housing Administration released Mortgagee Letter 2009-37, which addresses appraiser and mortgagee responsibilities for FHA mortgages in flood zones. Appraisers are required to review the applicable FEMA Flood Insurance Rate Map (FIRM). If the property is in flood zone the appraiser is required to include a flood map with the appraisal report. The appraiser must also enter the FEMA zone designation on the report form and identify the map panel number and map date. The mortgagee letter notes that the final responsibility for determining if a property is located in a Special Flood Hazard Area (SFHA) rests with the originating lender.
Mortgagee Letter 2009-37: Flood Zone Requirements and Responsibilities of FHA Mortgagees and Appraisers >

FHA Announces Appraisal Performance Standards and Sanctions

The Federal Housing Administration (FHA) released Mortgagee Letter 2009-41 on appraiser performance and sanctions. This is largely a reminder of administrative sanctions that FHA may take ranging from a Notice of Deficiency (lowest level sanction) to civil or criminal sanctions (most severe). Appraisers are reminded that they must conform to FHA appraisal requirements and USPAP. An appraisal review is always conducted by the underwriter and compliance monitoring reviews of appraisals are routinely conducted by FHA staff reviewers. Lenders are reminded that they are responsible, with the appraiser, for the quality and accuracy of the appraisal if the lender knew or should have known that there were problems with the appraisal.
Mortgagee Letter 2009-41: Appraisal Performance Standards and Sanctions >

FHA Announces Hope for Homeowners Comprehensive Guidance

On October 20, 2009, the Federal Housing Administration (FHA) released ML 2009-43 providing comprehensive guidance on the Hope for Homeowners Program (H4H). The H4H program allows homeowners of single family, owner-occupied units to refinance into an affordable FHA-insured, 30 year, fixed-rate mortgage and is effective for all endorsements on or before September 30, 2011. Borrowers are eligible if they have not intentionally defaulted on a mortgage or other substantial debt in the last five years and if at least six full payments have been made on a delinquent mortgage. Borrowers must reside in the property securing the refinanced loan and may not have a net worth of more than $1,000,000. Borrowers in bankruptcy are not precluded from participating in the program.

Any type of mortgage is eligible for refinancing under the H4H Program, however, the primary mortgage holder must agree to waive all prepayment and late fees, agree to accept proceeds of H4H mortgage as payment in full, and release any outstanding mortgage liens. The refinance must include an appraisal conducted by an appraiser on the FHA Appraiser Roster and must be conducted using FHA guidelines. The Upfront Mortgage Insurance Premium (UFMIP) is 2.00 percent of the loan amount and the annual premium is .75 percent. The maximum loan-to-value (LTV) ratio on the new H4H mortgage is 105 percent of the current appraised value (excluding UFMIP). For borrowers with a credit score below 500 the maximum LTV is 90 percent of the current appraised value.
Mortgagee Letter 2009-43: Hope for Homeowners Program – Comprehensive Guidance >
ML 2009-43 Exhibit A >
ML 2009-43 Exhibit B >
ML 2009-43 Exhibit C >
ML 2009-43 Exhibit D >

On October 22, 2009, the Department of Housing and Urban Development (HUD) issued twelve new FAQs on reverse mortgages under the new RESPA rule. The new reverse mortgage FAQs are posted on HUD’s website and appear in bold on pages 24-28. In addition, HUD issued FAQ #25 under “GFE General” on p. 9 and FAQ #1 under “GFE-Page2″ on p.20 of HUD’s accumulated FAQs.
HUD’s FAQs >

After a thorough and open process that included several days of candidate interviews and member input, CAAR has determined the best candidates for the REALTOR® Party. Although REALTORS® often vote based on other issues that personally motivate them, these candidates have been determined to be the best on issues important to the real estate industry, including private property rights and housing affordability.

• CAAR Supported 8 candidates so far in 2009 – 3 republicans, 3 democrats and 2 independents.
• CAAR has supported 2 candidates in Albemarle, 2 in Fluvanna, 2 in Charlottesville, and 2 candidates for the VA House of Delegates. We also interviewed two candidates in Greene that declined support.
• CAAR policy is to invite all official candidates for an office to be interviewed prior to making any support decisions. In 2009 we interviewed 14 candidates from 6 different jurisdictions/districts.

Charlottesville

CAAR has supported two candidates running for City Council:

David Norris

Kristin Szakos

• We feel both of these candidates are high caliber individuals that will make excellent city councilors.

Albemarle

In Albemarle County, CAAR has support:

Duane Snow in the Sam Miller District

• CAAR believes Mr. Snow’s long-time community presence and solid support of business and private property rights makes him an ideal candidate for Supervisor.

Rodney Thomas in the Rio District

• CAAR believes Mr. Thomas was the strongest candidate on three key issues: personal property rights, economic development, and real estate taxes.

Fluvanna

In Fluvanna, CAAR is supporting two challengers:

Shaun Kenny in the Columbia District

Keith Smith in the Cunningham District

• CAAR believes both of these candidates will bring needed change to the Board of Supervisors in Fluvanna. Both have strong resumes as pro business leaders and both are strong private property rights advocates.

Va House of Delegates

CAAR has supported 2 Candidates for the House of Delegates:

David Toscano, 57^th District

Rob Bell, 58^th District

• Both of these incumbents have a strong history of working with CAAR and VAR to support key objectives in the General Assembly.

There are more than 16 million renter households in the U.S. with enough income to buy a home at the national median price, far more than in 2000, before the housing boom, says NAR Chief Economist Lawrence Yun. This large number of renters with the financial wherewithal to buy is one indication of the pent-up demand in the housing market that can be tapped if Congress extends the home buyer tax credit. It’s also an indication that the tax credit won’t just be attracting households that would buy anyway. Hear Yun’s remarks on market conditions and the tax credit in an audio podcast.