Sacramento Real Estate Views

New FHA Guidelines Make It Harder To Qualify

Changes Could Affect Values

The new FHA guidelines, along with the expiration of the first time home buyer tax credit, could adversely effect home values in the Sacramento real estate market.

And let’s not forget the regions 15% unemployment.  This is not a good combination for our region.

Just when we thought it was safe to go back into escrow.

With guidelines changing and loans for first time home buyers, or anyone for that matter, getting tougher to qualify for, a sales decline and resulting inventory increase could depress home values in the region again.

The word on the street is that more homes will be coming on the market soon.  A quick inventory check doesn’t show that there have been any significant increases yet.

Is that hissing sound the air being let out of the nice little recovery we had going?  Or just the ringing in my ears that’s been there since 2007?

Changes In FHA Policy

The FHA policy changes are as follows:

1)  Borrowers with less than 580 credit scores will be required to put 10% down instead of 3.5%.

This is actually a prudent move to reduce risk by the FHA and will most likely affect the fringe borrower more than anything else.

2)  Upfront mortgage insurance, MI, will increase to 2.25% from 1.75%.

This is a hit for borrowers and could make the difference in being able to qualify or not.  It would be better to spread MI out over the life of the loan rather than make it an upfront cost.

3)  The maximum seller contribution is now 3% rather than 6%.

Now this sucks but I understand it.

Allowing a seller to contribute 6% to the sale inflates the sales price of the home artificially.  Realtors are not good at documenting these concessions in the MLS when a property sells and rarely answer phones or return calls to answer questions like these.  Some do, most don’t.  (They’re so darn important, you see.)

That said, seller contributions are the only way some home buyers can get in and have been around for decades.  This change could result in fewer borrowers qualifying for an FHA loan.

4)  Lenders will now be graded and performance reported.  Lenders found violating FHA rules will no longer be allowed to make FHA loans.

This is a good thing but it’s like throwing the baby out with the bathwater.  The government allowed lenders to create this mess and they want everyone else to pay for it.  Nothing new there.

How much will this affect borrowers?  Tough to say maybe 20% fewer loans?  What do you think?

Loan Modification Program A Huge Success!

In the same breath as they are making it harder for people to get financing, David H. Stevens Assistant Secretary for Housing and FHA Commissioner goes on to say that they’ve been working to “tackle the housing crisis on every front” and that they’ve launched an “unprecedented and multifaceted modification program to keep people in their homes”.

A program with a 30% re-default rate is not a success and those numbers are still largely preliminary.  Sweet program!

The loan modification program is like putting a band aid on a decapitation.  Please!

These changes in FHA policy, while I feel they make sense, could be bad timing for the Sacramento region by decreasing sales and stalling what recovery has occurred.  I feel that’s the best case scenario.

Housing has not stabilized in the Sacramento region to the point where we can take these hits and still fully recover in the near term, in my opinion.  I can’t even guess when this will be back to normal or if it ever will.

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This entry was posted on Friday, January 22nd, 2010 at 8:48 pm and is filed under First Time Home Buyer Info, Mortgage Information. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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