HUD Attorney Clarifies Add-on Fees

Add-on fees have been a source of confusion since a U.S. District Court last year ruled that these fees violate federal law when the bill doesn’t detail specific services for which the fees are being billed.

Recently, Helen R. Kanovsky, general counsel for HUD, released some more detailed guidance about the court ruling. She wrote:

Commissions may be quoted “using a flat fee, a percentage of the sales price, or a combination” — all listed on the revised HUD-1 sheet. But Kanovsky said that if the total charges “exceed the amount of the commission for listing and selling the home that is reflected in the real estate broker’s or agent’s listing agreement,” then HUD has the right “to determine whether additional services were provided” to justify the add-on.

If few or no services appear to have been performed, HUD can consider these charges a violation of the Real Estate Settlement Procedures Act. Such a violation is subject to significant penalties.

Kanovsky also warned against charging fees when there is no contract or other agreement that permits the levying of these charges. For instance, an administrative fee with no contractual language could be considered by HUD as an illegal fee.

FHA Head: Don’t Raise Down Payments

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.

Foreclosed Borrowers May Get Loans Again

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.

FHA Toughens Down Payment Rules

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.

What is a Simultaneous Closing?

With a simultaneous closing, 2 transactions take place on closing day with regard to the subject property.

In the past, this transaction referred to a seller financing technique where the seller financing note is purchased at the closing table to allow the seller to obtain their proceeds quickly, rather than over a period of years.

In recent years; however, a simultaneous closing can also occur when an investor wholesales a property.  For example, buyer A enters into a sales agreement with seller to purchase seller’s property for $25,000.  Buyer A decides not to rehab the property, but instead, to sell to Buyer B for $30,000.  Sometimes, Buyer A will just assign or sell his contract to Buyer B; however, unless there is a provision in the contract permitting the Buyer to do so, Seller may not allow the assignment. That is when a simultaneous closing may be the solution.

Next, keep in mind that some states do not allow simultaneous closings and some title companies will not conduct them.

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