Proposed Changes To FHA Loans In 2010. All Is Not Well In The Housing Markets
Posted December 4th, 2009 in Mortgage Loan InsightsIn the midst of what appears to be a very limited recovery in the housing markets, there are a number of proposed changes currently under consideration that could, if passed, make qualifying for a FHA-insured loan more difficult after December 12th of 2009.
Changes to the FHA Streamline refinance program are already curtailing eligible borrower applications, but other pending amendments include the following:
a) Raising the minimum qualifying credit score on FHA loans from 620 (now) to 640
b) Changes to Desktop Underwriting approval that lower the maximum eligible debt-income ratio to 50%. Many applicants are currently able to secure loan FHA loan approval with debt-income ratios higher than 50%.
c) Raising the monthly mortgage insurance on FHA insured loans from .50 / .55% (now) to .65% or more
d) Increasing the FHA down payment requirement from 3.5% (now) to 5%
e) Risked-based rate pricing. Higher rates for riskier borrowers, lower rates for better credit. Higher rates mean less who'll qualify.
In 2010, you're likely to see fewer independent loan brokers offering FHA loans. New minimum net worth requirements for FHA lenders will knock many smaller institutional wholesalers out of the FHA market — firms that typically offer FHA loans to smaller brokerages. Big banks and institutional lenders aren't willing to work with smaller broker firms today, so the net result is fewer brokers originating FHA loans, and many who'll cease to be able to stay in business as a result.
If that weren't enough, pending legislation likely to pass late this year or early 2010 aims to place a severe limitation on broker compensation for conventional loans — as little as one-percent maximum, with that allocated either to Yield Spread Premium or up-front points but not both. While one percent is fine for larger loans inherent in "high-cost" areas of CA and the country, there simply isn't enough profit in smaller loans at a 1% fee to sustain a broker's business unless he or she is closing a tremendous volume of business consistently — something few are able to do today. Net result? Fewer brokers means less competition, fewer consumer choices, and increased costs to homeowners. Exactly what the legislation is supposed to prevent. Leave it to so-called "consumer protection" lobbyists and the government to make things worse instead of better. It's no secret that Congress has wanted to put small loan brokers out of business now for the past 3 years, and their efforts are starting to pay off.
It will be a sad end to the careers of many fine loan officers and mortgage brokers who have survived the current downturn by treating their clients fairly and professionally, only to be forced into unemployment while HUD, congress, and institutional lenders make it harder than ever to qualify for a home loan.
Finally, let's not forget that the U.S. treasury will cease purchasing mortgage-backed securities by March 31 of 2010, which will result in higher interest rates. Inflation, which is INEVITABLE, is only being kept at bay by artificial stimuli at the moment, but once it sets in it's going to run away like a fire in dry grassland.
Ladies and gentlemen, there is no recovery in the housing sector in 2010. Hold onto to every last dollar you've got, because things are about to get worse.
