Despite record-low interest rates, an increasing number of Americans can’t afford to buy a house. The nation’s two largest mortgage lenders, Wells Fargo & Co. and Bank of America Corp., have raised the minimum required credit score on FHA-insured loans.

At Bank of America, its minimum credit scores are 620 for purchases and 640 for refinances.

Requiring a 640 credit score excludes about 15 percent of FHA borrowers, FHA commissioner David Stevens said.

Such a high limit will further delay a recovery in the real estate market, says Ron Phipps, president of the National Association of REALTORS®.

Source: Bloomberg, Jody Shenn and John Gittelsohn (11/17/2010)

For the third consecutive month, the number of delinquent home mortgages insured by the Federal Housing Administration has declined.

The delinquency rate is still high – 8.5 percent in April – but that is down from 9.4 percent in January.

The FHA was unwilling to applaud this as good news. “We’re not declaring victory by any stretch,” says David Stevens, the FHA’s commissioner. “There’s plenty of room for caution.”

But outside analysts were more positive. “It’s a very important trend to the extent that we’re not continuing to get worse,” says Thomas Lawler, an independent housing economist in Leesburg, Va.

The Senate approved the most extensive overhaul of the banking system since the 1930s.

The legislation must still be reconciled with the House bill passed in December.

Measures in both bills that directly affect property transactions include:

• Limits on the ability of mortgage lenders to penalize borrowers who pay off loans early.

• Stated-income loans would be effectively eliminated.

• Lenders would be required to obtain proof from borrowers that they can pay for their mortgages. Buyers would be required to provide tax returns, payroll receipts, or bank documents.

• Lenders and brokers will be prohibited from pushing borrowers to accept loans with higher interest rates or with risky features.

Now is not the time to raise the downpayment requirement on a Federal Housing Administration loan, warns FHA Commissioner David Stevens.

Stevens, testifying before a committee of the U.S. House, said his agency would probably insure 300,000 fewer home loans per year if the mandatory down payment was raised from 3.5 percent to 5 percent — a 40 percent increase.

Congress has been considering various ways to put FHA on a sounder financial footing. Besides increasing the downpayment requirement, another suggestion under discussion is raising the upfront mortgage insurance premium to 2.25 percent of the loan amount, up from 1.75 percent currently.

The National Association of REALTORS® also opposes the proposal to raise the mandatory down payment for an FHA loan. The FHA remains financially strong because it has taken steps to ensure solid underwriting standards and responsible lending practices, said Charles McMillan, NAR immediate past president, in testimony before the House Subcommittee on Housing and Community Opportunity.

“As the leading advocate for housing issues, NAR believes that one of the best ways Congress can help strengthen FHA is to quickly consider and pass legislation that would make current loan limits permanent,” McMillan said. “It’s important to note that higher balance FHA loans perform better than lower balance ones. While some argue that higher balance loans put taxpayers at risk, such loans actually strengthen the program and reduce risk to the fund.”

Explaining that FHA has played an important role in the recent housing and economic crisis by filing the gap left by private lenders, McMillan said FHA insured almost 30 percent of single-family mortgages in 2009 and more than 50 percent of first-time buyer loans. “Historically, FHA’s market share has hovered between 10 and 15 percent of all loans. And when the private market is strong enough to return, we welcome a reduced FHA market share,” he said.

McMillan said NAR was also concerned that FHA wanted to decrease seller concessions to 3 percent. Reducing seller concessions could put homeownership out of reach for many buyers, he said, because it could require buyers to pay more at closing.

Will people who currently face foreclosure or short sales or who walk away from their underwater properties ever be able to get financing to buy another home down the road?

Banks haven’t been very forthcoming on this issue. However, knowledgeable observers of the situation say that while it may take some time, the situation will right itself for most people.

Because bankrupt borrowers have eliminated their debts, they should “constitute attractive fodder for mortgage lenders,” says University of Michigan law professor John Pottow, whose specialty is bankruptcy.

As home prices and the mortgage market stabilize, lenders will be motivated to lend to people who previously had financial troubles if they look like they can pay the next time around, says Alan Riegler, a consultant with CCG Catalyst, which advises banks.

“The lender who figures out how to do more of this case-by-case stuff cost-effectively is going to end up ahead of the pack,” Riegler says.

The Federal Housing Administration will raise the minimum down payment for its least credit-worthy borrowers, the agency announced Tuesday. The change is among a number of major changes the FHA is making to ensure its long-term financial soundness.

Borrowers with credit-rating scores below 580 will be required to put down at least 10 percent. Those with a credit score above 580 will be able to continue to put down only 3.5 percent. The changes are intended to shore up the agency’s finances.

The FHA also will increase its upfront mortgage insurance premium from 1.75 percent to 2.25 percent. The agency is expected to seek congressional approval to raise annual mortgage insurance premiums, paid by borrowers over the life of the loan, above the current 0.55 percent maximum. The amount it will seek has yet to be announced.

• Last week, the U.S. Senate and House passed legislation that included an extension and expansion of the tax credit for homebuyers. President Obama signed the bill into law at the end of the week.
• The $8,000 first-time homebuyer tax credit will continue until April 30, 2010, and the income limits have been increased to $125,000 for single filers and $225,000 for join filers.
• Additionally, current homeowners who have lived in their home for five of the previous eight years are eligible for a $6,500 tax credit.
• There is a purchase price limit of $800,000 for the home, and it must be maintained as the purchaser’s primary residence for three years or the tax credit will be due back to the IRS.
• Unlike the current tax credit program, the extended program allows any purchaser who has a binding contract in place by April 30, 2010 to close by June 30, 2010 and still qualify.

The IRS is cracking down on people who don’t qualify for the first-time homebuyer tax credit but try to claim it anyway.

The IRS says it is investigating 24 cases of people who falsely claimed the first-time homebuyer credit on their federal income tax returns. Getting caught making a false claim carries a penalty of up to three years in jail and a fine of as much as $250,000.

The First-Time Homebuyer Credit, enacted in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser must be someone who has not owned a primary residence in the previous three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. 

The home purchase must close before Dec. 1, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.

The Treasury Department on Tuesday announced that only 9 percent of eligible home owners had been helped by the federal program to modify home loans and prevent foreclosure.

It scolded banking giants Bank of America and Wells Fargo, both of which received federal bailout money, pointing out that these banks have been among the least willing to assist troubled borrowers.

Bank of American modified 4 percent of eligible loans, and Wells Fargo modified 6 percent.

Big banks that did better included JPMorgan Chase & Co., which modified 20 percent of eligible loans, and Citigroup Inc., which modified 15 percent.

The bank with the best results was Saxon Mortgage Services Inc., which helped about 25 percent of its eligible borrowers.

Source: The Associated Press, Alan Zibel (08/04/2009)

Daily Real Estate News  |  July 21, 2009  |   Share

FHA Loans Set Record
The Federal Housing Administration guaranteed 186,000 mortgages in June, a record number in its 75-year history.

FHA loans are popular because they are one of the few sources of low downpayment mortgages. In the last year, they have accounted for about 46 percent of all mortgage applications.

Along with increasing numbers of FHA activity comes a rising number of delinquent loans, with the level of FHA mortgages in some stage of foreclosure reaching 7.4 percent in May.