Potential changes to FHA loans

If the changes in limits for loans through FHA do change instead of being extended it may make it hard on home buyers.

If Congress does not extend the expiration deadline, FHA loan limits will end starting on October 1, which will result in changes that can affect potential borrowers and the housing market. FHA loans provide borrowers competitive rates along with terms, and only require a 3.5% down payment.

Allowable debt ratios are higher than the normal debt ratio limits seen with conventional loans. Additionally, there are not any income limit qualifications, which allow more individuals to qualify for the loans.

In an effort to help the home buying market, Congress raised the loan limit until September 30. Lawmakers at this time have not come to an agreement when it comes to extending the loan limit. If this loan limit is dropped several California home buyers looking for larger mortgage will need to apply for jumbo or conventional loans. This may cause these individuals to have to put up larger down payments and pay higher interest rates.

Potential home buyers should keep an eye on the following if the loan limits are decreased.

• Lower loan limits – The conforming loan limit decides the maximum mortgage amount that FHA, Fannie Mae, and Freddie Mac can buy or guarantee.

• Decreases by county – Under the new FHA loan limits, some counties in California will see major drops in their loan limits. Santa Clara County will see a $104,250 drop.

• Jumbo loans – The current FHA loan limit is $729,750. After October 1, that limit may decrease to $625,500. All mortgage loans higher than this amount will be known as nonconforming jumbo loans, which normally have rates that are 0.875% to 1.5% higher than conforming rates and require higher down payments.

• More stringent requirements – FHA loan requirements may permit lower credit scores.


San Diego on the Most Expensive City List

On September 30, Kiplinger magazine published the lists of the most expensive and the cheapest places to live across the nation. San Diego was found on the most expensive list in the tenth position.

As reported by the magazine, the average home price in San Diego is $555,768, making the San Diego metro one of the most expensive places to live in the United States. The average price is not the same figure used by real estate professionals who use the median price instead of average home price. Apartment rentals on average are around $1648 per month, which is double the national average. San Diego has a median household income of $62,901.

San Francisco also made it on the most expensive list in third place. The average home price in San Francisco $808,481, with rentals around $2035, which is, triple the national average. The median household income is $74,876.

National Poverty Rate at 15.1% for 2010

The hot topic in the economy was the national poverty rate, which hit 15.1% for 2010. This is the highest rate seen in history according to the Census Bureau.

Last year the rate was up 14.3% over 2009 and marked the third consecutive annual increase. In 2010, there were 46.2 million Americans living in poverty, which is up from 43.6 million in 20009, which marked the fourth consecutive annual increase and the largest number ever seen of American living in poverty since the beginning of the Census Bureau’s reports in 1959.

The Bureau also released information on the real median household income in the United States in 2010, which was $49,445, a 2.3% fall from the figure seen in 2009.  Since 2007, the year prior to the recent recession, real median household income has fallen 6.4% and is 7.1% below the median household income peak that was seen in 1999, before the 2001 recession, the Bureau stated. This is the very first time since the Great Depression that the median household income after adjusting for inflation did not raise for an extended period.

Lawrence Katz, Harvard economics professor, stated, “This is truly a lost decade,” and went on to say, “We think of America as a place where every generation is doing better, but we’re looking at a period when the median family is in worse shape than it was in the late 1990s.”

In addition, the figure of Americans that do not have health insurance increased from 49 million in 2009 to 49.9 million in 2010, with the overall percentage still at 16.3%, according to the Census report.

Retail sales hit $389.5 billion in August, which is the same as was seen in July and is 7.2% higher than what was seen in August of 2010 as reported by estimates by the Census Bureau.

Total sales for the period of June through August 2011 were up 7.9% from the same time a year ago. Retail trade sales were up 0.1% from July 2011 and 7.5% higher than last year. Gasoline station sales were up 20.8% t from August 2010 and non-store retailer’s sales were up 10.4% over last year.

The Consumer Price Index for All Urban Consumers rose 0.4% in the month of August, as reported by the Bureau of Labor Statistics. The seasonally adjusted rose in the “all items” index was broad-based, with continuing raise in the indexes for gasoline, food, shelter and apparel. The gasoline index increased for the 12th time in the last 14 months which led to a 1.2% rise in the energy index, while the food index increased 0.5%, which is the largest increase seen since the month of March.

The Bureau reported the Producer Price Index for finished goods was unchanged in the month of August. A 1.1% rise in finished consumer foods prices and a 0.1% advance in the index for finished goods less foods and energy offset a 1.0% fall in prices for finished energy goods.

The Producer Price Index for intermediate materials, supplies, and components declined 0.5% in the month of August, the first decrease since the month of July 2010. The Producer Price Index for crude materials for further processing rose 0.2% in the month of August.

First unemployment claims was at 428,000 for the week that ended on Sept 10, a rise of 11,000 from the prior week’s revised figure of 417,000, according to the Employment and Training Administration. The four-week moving average was 419,500, a rise of 4,000 from the previous week’s average of 415,500.

Insured unemployed workers during the week that ended on September 3 were 3,726,000, a decline of 12,000 from the prior week’s level of 3,738,000. The four-week moving average was 3,741,000, a rise of 1,250 from the prior week’s average of 3,739,750.

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Initial jobless claims data for last week
Leading economic indicators report for August

FHA Releases New MAP Guide

The Federal Housing Administration has released their new version of the Multifamily Accelerated Processing guide better known as MAP centered on improving the time it takes to process.

The new guides combine all of the multifamily program changes along with guidance such as FAQ, mortgagee letters, and notices all in one document. This information was at times hard for lenders to collect and even staff members at HUD had trouble finding. The guide will also provide precise clarity around affordable housing transactions, which is an area that has been neglected in other versions or guides.

In theory, the time it takes to process could improve via using the new guide due to the fact that lenders and HUD staff will not have to spend as much time debating on what is allowed along with saving time on research. On the other hand, do not expect this to be a fast answer to the problem as the business that has flooded in over the last year still has to be gone through which will take some time.

Phil Melton, managing director at New York–based MAP lender Centerline Capital Group stated, “The long-term effect of the MAP changes will be really beneficial,” and went on to say, “But you still have a short-term issue that’s going to take some time to play itself out. You still have to get through the current logjam.”

Turn around times are seeing improvements, however, they are still not quick. A new construction loan via a Sec. 221(d) (4) program can still take up to a year, while a refinance or acquisition loan via a Sec. 223(f) program can take between seven to nine months.

Of course, the timeline will vary according to the program as well as the HUD office you are using. A few offices such as the one in Columbus, Ohio states their turn around for Sec. 223(f) applications is 60 days.

This can be confusing once again as the definition of days was also changed in the new guide. The agency now guarantees a pre-application review of 45 days for Sec. 221(d) (4) loans with another 45-day review of the firm commitment application. Prior to this new guide, calendar days were used but now they are measured in business days, which make the time line longer.

Even with these days outlined in the new guide, the idea is of course the best practice but they are not reality.

Ed Tellings, FHA chief underwriter at Columbus, Ohio–based MAP lender Red Mortgage Capital stated, “To be honest, I don’t think many offices at this point, given their staffing and resources, can meet the time frames that are established,” and went on to say, “It’s a little better now than it was six months ago, and that has a lot to do with HUD getting through that volume of business they received last September.”

The current loans being processed are from last September. The loan changes by the FHA were changed in July of 2001 to make them less generous for market-rate deals while debt service coverage went up, and leverage went down. The deals were sent prior to September 1, 2010, which was placed in under the previous generous terms, which buried the agency in more paperwork and of course more volume.

What this did was cause the FHA to become a victim of their own guidelines. During the last fiscal year, the FHA processed a record $10.4 billion in multifamily deals, which surpassed in August, with more than a month left to go in the 2011 fiscal year.

The capital markets are improving and more lending options are slowly becoming available, several borrowers still think waiting on FHA is the best way to go. Sec. 221(d) (4) deals are quoted under 5 percent, which is an awesome rate for a 40-year, non-recourse money that can go up to 83.3 percent leverage on market-rate deals. While a Sec. 223(f) deal for a refinance or acquisition are currently being quoted in the low–4 percent range.

The FHA has made other improvements to keep it all moving. The FHA will refund the fee for an application that has not been gotten to yet while some of its overwhelmed offices, like in San Francisco, are sending their workload to less-overwhelmed offices, like Phoenix, Arizona. The FHA also overhauled its loan closing a document that has not been done in the last 20 years, regulating underwriting and narrative templates and streamlining the process.

Lenders are delighted with how the new MAP guide turned out and congratulate the HUD multifamily team, in particular Chris Tawa, Dan Sullivan, and Janet Golrick, for delivering on their promise.

Tellings stated, “By providing clear guidance, it should allow people to move quicker on those issues where HUD offices and lenders get hung up,” and went on to say, “HUD’s done a really good job of taking a lot of questions and issues and putting them all in one place.”