FHA "No Money Down" Time bomb

FHA wants to end the down payment assistance program and eliminate FHA allowed 100% financing. It's about time.

HUD states the foreclosure rate and resulting losses on these types of loans are 2-3 times greater than traditional FHA loans. These losses contributed to FHA's total loss of 4.6 billion dollars in 2007 and delinquency rates that were up 12.7%.

The down payment assistance works like this. Let's say a buyer needs $7500 for a down payment. The seller can donate that sum plus an administrative fee to a nonprofit organization like the Nehemiah Corporation. Nehemiah Corporation then gifts the buyer back the money and pockets the $400 to $600 administrative fee. HUD reports that 1/3 of the FHA loans originated today have some form of down payment assistance.

The end result is the buyer can buy a house with no money down. The seller can even pay all the closing costs after covering the down payment. Essentially allowing buyers to walk into property ownership with NO MONEY OUT OF POCKET.

With none of their own money invested and no equity, there is little incentive for the buyer to weather the storm if they are having trouble making payments. Many strapped homeowners will simply stay in the house and make no payments until the bank finally throws them out.

So when the bank does foreclose, it is stuck with a property that has more liens than value. Let's say a house is bought for $250,000 and is currently worth $215,000. Now, tack on $48,000 in missed mortgage payments. The resulting $83,000 in negative equity forces the bank to sell at a loss, a short sale. FHA is liable to the bank for these losses since it insures the loan.

By eliminating down payment assistance and 100% financing programs, the FHA could limit these situations in the future. Hopefully they will. Because, if the FHA keeps racking up these losses it will either go under or require yet another government bailout financed by us the taxpayers.

Conventional guidelines keep tightening.


Recent Conventional Loan Changes

1) Ocean and Monmouth County has been designated a Declining Market Areas for Conventional loans.

What it means: For example, if your buyer is putting 10% down they are now considered a 5% down loan. This will cost your buyer an additional $65 a month in PMI costs on a $300,000 mortgage. In addition, this also eliminates no money down loans.

2) Conventional buyers now have to pay increased fees if they are putting less than 30% down and have credit scores below 680.

What it means: For example, if a client applying for a $300,000 has a score less than 620 it will cost him around $123 more a month!

Credit Scores less than 620
Additional 2 points or approximately 5/8% to the interest rate.

Credit Scores between 620-639
1.75 points or approximately 1/2% to the rate

Credit Scores between 640-659
1 1/4 to the points or approximately 3/8% to the rate

Credit Scores Between 660-679
.75 to the points or approximately 1/4% to the rate

3) Conventional loans now require a minimum 10% down on all condominiums.

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Avoid these Restrictions : Think FHA

FHA still allows as little 2.25% down.

There are no rate increases on FHA loans until credit the score is below 585

Select Mortgage is a direct endoresement FHA underwriter draft

FHA also allows non-occupant cosigners

	STRETCH YOUR CLIENT'S BUYING POWER
SELECT will pay up to $3,600 of closing costs (or 1% of the total loan amount)
...and still offer great rates Today's Rate: 6.000% + 0 Points 6.198% APR 30 Year Fixed Rate Only 2 1/4 % down Credit scores as low as 600 Loans also available with scores as low as 540 with 2 1/4 % down, slightly higher rates apply.

FHA , DEAL OR NO DEAL

REASONS FHA WILL BE HUGE IN 2008

Reason #4 Flexible Underwriting

Subprime is dead. Clients with lower scores are either getting rejected for Conventional loans or being charged astronomical rates.

FHA does not have a minimum credit score requirement.

Select underwrites their own FHA loans. All FHA loans are initially put through a computerized underwriting system. Select, as a direct endorsement underwriter, can overturn any computerized decline if we can document compensating factors. This gives Select the flexibility to approve many more borrowers.

REASONS FHA WILL BE HUGE IN 2008

2008 THE YEAR OF FHA

Reason #3 FHA ALLOWS NON-OCCUPANT CO-SIGNERS.

Your buyer can use a relatives income in conjunction with their own income in order to qualify.

The co-applicant does not have to occupy the property.

This becomes especially important as the availability of no income verification loans have been greatly reduced. In fact, Fed Chairmen Ben Bernanke has put forth a proposal to eliminate all no income verification loans. (This proposal is still in the discussion phase and has not yet been approved.)

You may be turning away potential clients if you refer them to mortgage companies that do not offer FHA or are not experts in it. Put my 22 years of FHA expertise to work for you.

FHA, BACK TO THE FUTURE

REASONS FHA WILL BE HUGE IN 2008

Reason #2 FHA LOAN LIMITS ARE EXPECTED TO INCREASE TO $417,000.

This increase has already passed the Senate 93 to 1. The Senate is also asking for the minimum down payment requirement to be reduced to 1.5%.

These changes will allow for more FHA financing in our area. Nationally, it is estimated that FHA mortgages make up just 4% of the financing for single family homes. However, just 10 years ago FHA made up over 19% of single family financing.

FHA's higher loan limits combined with lower down payments and flexible underwriting will enable more of your clients to purchase the home they desire.

I have been closing FHA Mortgages in New Jersey for over 22 years. Please call me so I can highlight some of the ways FHA can help your clients.