FHA Condo Rules Make Selling Many Condos Difficult

Recently, there were changes made to the FHA condo regulations on which projects can be FHA insured or not.

According to a Washington Post rundown of the changes, a major one is the “spot approval” that used to be acceptable to be eligible for an FHA loan. Another article goes more in depth on the issues this is causing for condo home sellers.

The agency eliminated spot approval earlier this year. Now, any condo buyer with an FHA loan must stick to an FHA-approved building. A lender, developer/builder, homeowners association or management company can submit a package to the FHA seeking approval. The change was part of a broader initiative to tighten FHA condo policy. Some elements of that initiative have been temporarily loosened through Dec. 31 to try to stabilize the condo market.Why? Condos are widely considered the market’s shakiest segment because they are popular with speculators and financially vulnerable entry-level buyers. A lot of foreclosure-related losses have come from condos, which is why industry policies have forced lenders to look more closely at the makeup of entire complexes before extending loans.

Without that FHA approval, it ties the hands of many buyers, as most would then need more money for a downpayment, which they may not have.

I did a quick spot check on Timonium condos on the HUD site where you can review FHA condo approval statuses. I was sad to see how many had expired, leaving any sellers in those buildings at a disadvantage! Of the 23 Timonium condo communities that came up when I searched 21093, 16 of them have expired. Here is a pdf of the Timonium FHA condo statuses as of today.

I have written much about the FHA Condo Recertifications, because we have so many Timonium condos that are now affected by these changes.

This is not good news, and I hope that the associations are working toward their re-certifications, though I understand across the US that many have tried and been denied over technicalities or other issues, and that the penalty for a director providing incorrect information (even if in error) faces $1 million in fines & up to 30 years in jail, so many are not willing to take on the risk.

Hopefully there will be another resolution on this matter, so affected condo owners aren’t hurt more by the inability to sell to FHA homebuyers.

FHA Mortgage Insurance Premium To Rise April 18, 2011

The FHA annual mortgage insurance premium is set to rise by .25% for any loan case numbers assigned after April 18, 2011.

Bob Mowrey, from Corridor Mortgage Group, let me know just what this could mean to FHA buyers.

On average, he says, this would mean that buyers will pay an extra $30/month. For a $300,000 loan, the difference in payment would be about $60/month.

FHA Homebuyers need to have their contract on a house in place, their loan in motion, and the FHA loan case number assigned prior to April 18, 2011 to qualify for the .25% lower mortgage insurance premium amount.

Please contact me for more information and details on the FHA mortgage insurance premium changes, and how they may affect your homebuying power!

FHA Condo Approval Expiration Dates Extended

FHA Condo approval expiration dates were extended by the FHA, and this news shared by one of my mortgage partners, Brian Picker, of 1st Mariner Mortgage Corporation.

Thank you, Brian!

From Brian Picker, 1st Mariner Mortgage:

Big news as older FHA condo projects were set to expire yesterday which would have been a nightmare for getting them all re-approved by HUD in a timely manner.  In light of this HUD extended the expirations dates out based on when the original project was FHA approved.

FHA Condominium Project Approvals Expiration Dates Extended:

FHA announces extension of condominium project approvals with an expiration date of December 7, 2010. Provided below are the extension dates based on five-year time frames with the exception of those condominium projects with original approval dates from 1972 -1985.

Initial Project Approval Dates     Current Expiration Date        New Expiration Date

1972 – 1980                              December 7, 2010               December 31, 2010

1981 – 1985                              December 7, 2010               December 31, 2010

1986 – 1990                              December 7, 2010               May 31, 2011

1991 – 1995                              December 7, 2010               July 31, 2011

1996 – 2000                              December 7, 2010               August 31, 2011

2001 – 2005                              December 7, 2010               September 30, 2011

2006 – 2008 (Sept)                    December 7, 2010               March 31, 2011

The extensions were granted to reduce the impact of processing and reviewing the number of project approvals expiring at the same time while recognizing current housing market conditions.  Lenders and/or other interested parties are encouraged to begin the re-approval or recertification process as early as possible as it is not anticipated that any further extensions of project approvals will be issued.

The Condominium look-up page and the FHA Connection databases were updated on December 7, 2010 and now reflect the extended expiration dates.  The links to the sites are:

Condominium look-up page: https://entp.hud.gov/idapp/html/condlook.cfm

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I have written much about the FHA Condo Recertifications, because we have so many Timonium condos that would be effected by these changes. Luckily, it appears, if they haven’t been recertified, they have some time to do so!

FHA Condo Recertification Due December 7, 2010

With the many changes in the mortgage industry, it is hard to keep up with what deadlines are coming up next.

On December 7, 2010, the FHA condo recertification process must be completed by each individual condominium complex in order to be eligible for homebuyers to receive FHA financing in their building.

There is an application and process that must be completed in full for the building’s recertification to have the opportunity to be approved. Thank you to Dan Plunkett, of Prosperity Mortgage, a part of the Wells Fargo Home Mortgage company for sharing the two forms they must use to submit for approval.

One is the FHA New Condo Approval Process for condos that have never been approved for FHA financing in the past. These would usually be newly built units.

The other is the FHA Recertification Project Submission Form for developments that were approved before and need to go through the certification process again, which would be most condominiums.

The good news for most Timonium condo owners, most of the ones in the area have already been recertified. I wrote about the updated Timonium condo approvals in August, and even more have been added to the HUD site since.

During these confusing times, it is best to have an agent and a mortgage specialist who understand the muddy waters. Contact me if you are considering selling or buying a Timonium condo. My team of professionals can help!

*Since writing this, HUD & FHA have extended the FHA condo recertification deadlines. Here is more information about the FHA condo recertification deadline extensions.*

Will FHA Be Flexible with Seller Closing Cost Assistance?

Will FHA be flexible with seller closing cost assistance?

That is possible, according to a report from National Mortgage News late last week.

FHA guidelines have changed, and more changes are on their way. Beginning Monday, October 4, the new FHA changes take effect, including lower upfront mortgage insurance premium and higher monthly insurance premiums.

In July, HUD asked for consumer comments on their proposed changes, including the lowering of allowed seller closing cost help from 6% down to 3%. The major problem with reducing seller closing cost help is that in Maryland, closing costs are very high. Many times buyers need 4-5% above the required 3.5% down to help them close on the house, since most FHA homebuyers do not have much money to put down, many times their reason for using an FHA insured loan. By reducing the closing cost assistance down to 3%, many buyers would be disqualified from being able to purchase homes, and this could hurt the Baltimore housing market tremendously.

Though I understand the need to lower seller concessions, hopefully the amount will not be reduced as drastically as originally planned.

Maryland FHA homebuyers should take advantage of the low prices, high inventory, and high seller contribution allowance before any more planned changes go into effect. Contact me and I can help you navigate your way through the FHA mortgage process before there are more modifications!

New FHA Mortgage Changes H.R. 5981

Beginning October 4, 2010, new FHA Mortgage changes will be coming through, due to bill H.R. 5981 signed into law August 11.

Thank you to Dan Plunkett with Prosperity Mortgage, who clarified the changes in H.R. 5981:

The new FHA Mortgage changes include a reduction in the upfront mortgage insurance premium (also known as Upfront PMI) from 2.25% to 1%. The monthly mortgage insurance premium will rise from .50% to .85% on loans with more than 5% down over 15 years. It will rise from .55% to .90% on loans with less than 5% down (which many FHA loans are, since their minimum downpayment is only 3.5%).

Dan states that the amount borrowed will be lower, but the increased monthly mortgage insurance premium could effect approvals when the borrower is close in their income-to-debt ratio for qualifications.

It also will mean that monthly mortgage payments, in general, will rise for FHA loans.

Buyers wanting to take advantage of the FHA loan standards as they are need to be under contract and make loan application by the end of September, to ensure they have their case number assigned prior to October 4. Contact me today to take advantage of the FHA loan guidelines as they stand now!

Timonium Condo FHA Approval

At the end of 2009, HUD changed its’ condo approval process for FHA condo financing.

No longer can a community be given a “spot” approval when a unit goes under contract if a buyer desires to use FHA financing.

Condominium developments must be approved in advance of an FHA sale and the approval is only for a certain amount of time.

Many Timonium condo buildings have been approved already.

Luckily HUD has set up a website to check whether a condo development has been HRAP or DELRAP approved.

I entered the Timonium zip code 21093 to see all approved units. You can do this for any zip code if you are unsure of the condo development’s name!

Contact me if you are considering selling or buying a Timonium condo. I can help you navigate these tough waters!

New FHA Changes May Be Coming Soon

New FHA changes may be coming soon as HUD asks for consumer input on three issues that would affect borrowers.

I wrote about these possible changes in January, in my post “More FHA Changes to Happen Mid Summer.” Also in January, HUD made major changes in FHA fees and upfront mortgage premiums. These changes are to keep the FHA afloat to be able to continue to insure mortgages.

HUD released a letter Thursday asking for public comment, and posted the three questions for comment in the next 30 days on their website:

Question 1:

Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

Essentially, if you have a low credit score, you would need to put 10% down rather than the usual 3.5% FHA financing minimum downpayment. This appears to be due to the large number of lower credit score borrowers defaulting on their FHA insured mortgages. The higher downpayment would give FHA more to work with should they need to foreclose on the FHA mortgaged home.

The good news is that the originally proposed increase for all FHA borrowers to 5% is not one of the questions posed.

Question 2:

Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home’s sales price to offset a buyer’s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to three percent will bring FHA into conformity with industry standards.

This is the one that many of my clients in the past would have had issues with. Maryland closing costs are very high, and many borrowers need approximately 4-5% to cover the additional closing costs in addition to downpayment. This could really cause a big problem with Maryland FHA borrowers.

Question 3:

Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.

This one would be the easiest change, because loans that must be manually underwritten tend to have big reasons that the digital systems would not allow them to go through.

What are your thoughts on the proposed changes?

Would any of these FHA changes prevent people you know from buying a home? It is very likely!

The one that concerns me the most is #2. The high Maryland real estate transfer tax rates are already an issue, and without a seller concession to help with the majority of the closing costs could make homeownership for many an impossibility.

Contact me today to take advantage of the FHA loan guidelines as they stand now, before any of these proposed changes may go into effect.

FHA Approves Electronic Signature

On April 8, 2010, FHA sent out a mortgagee letter stating that the FHA approves electronic signatures on documents, including contracts.

This is wonderful news, as I have recently begun to use Docusign electronic signatures for the convenience of my clients.

I also wanted to use this to prevent the use of paper as much as possible, since contracts can be anywhere from 35-50 pages, and often times many copies are made, wasting so much.

Here is a copy of the mortgagee letter from the US Department of Housing and Urban Development.

In speaking with T Jeremy Loomis, my mortgage partner, he stated that Wells Fargo’s policy is that the settlement papers must be done “wet” — actually signed in person with ink.

This is very exciting that FHA is trying to help make the contract process easier and more environmentally friendly.

Since implementing electronic signatures through Docusign for my Towson real estate clients, it has made things so much more efficient and “green”, and my clients have enjoyed the ease of contract completions!

HUD Temporarily Waives FHA 90 Day Policy to Move Foreclosed Homes

In an attempt to move foreclosed properties more quickly, HUD has temporarily waived the 90-day ownership guideline, making these foreclosed properties available to FHA homebuyers.

RISMedia reports that:

In today’s market, FHA research finds that acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

This comes just before FHA’s announcement of their likely fee hike coming down the pike, helping to soften the blow of the new regulations & fees.

Buyers who have been considering foreclosed properties but could not use FHA insured financing can now, which is great news. Hopefully many of these qualifying buyers will get in to these homes with this change before the first FHA fees go up on April 5, 2010.

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