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.
FHA Cracks Down on Dubious Lenders
The Federal Housing Administration served subpoenas Tuesday on 15 mortgage companies with high default rates for FHA-backed loans.
The agency has previously taken action against several lenders with questionable records, including Lend America and Taylor, Bean & Whitaker Mortgage Co.
Department of Housing and Urban Development’s Inspector General, Kenneth Donohue said he plans to determine why these 15 lenders had so many loans that defaulted shortly after they closed.
Troubled lenders include: First Tennessee Bank N.A, of Memphis, Tenn.; Alethese LLC, of Lakeway, Texas; Security Atlantic Mortgage Co., of Edison, N.J.; Pine State Mortgage Corp., of Atlanta; Birmingham Bancorp Mortgage Corp., of West Bloomfield, Mich.; Alacrity Financial Services LLC, of Southlake, Texas; Assurity Financial Services LLC, of Englewood, Colo.; D and R Mortgage Corp., of Farmington, Mich.; Webster Bank, of Cheshire, Conn.; Mac-Clair Mortgage Corp., of Flint, Mich.; Americare Investment Group Inc., of Arlington, Texas; 1st Advantage Mortgage, of Lombard, Ill.; American Sterling Bank, of Independence, Mo.; Sterling National Mortgage Co., Inc., of Great Neck, N.Y.; and Dell Franklin Financial LLC, of Columbia, Md.
John Courson, CEO of the Mortgage Bankers Association, applauded the crackdown. “We’re concerned about the viability of the program and we want to make sure that the bad apples and the bad players, frankly, are eliminated,” he said.
First Time Homebuyers Tax Credit Extension/Expansion is Approved
- 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.
IRS Cracking Down on False Tax Credit Claims
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.
