Condo Uh-Oh: FHA Going Away?

Federal Housing Authority funding has floated condo sales for the past several years, buoying developers and pre-crash owners. What would happen if FHA funds dried up, leaving buyers scratching for other funding sources?

Many associations are about to find out.  The Orlando Sentinel (which, like ForSaleByOwner.com, is owned by Tribune Co.) just reported that FHA-backed mortgages are drying up in central Florida. In the past, the Florida market has been an early indicator of trends for all markets.

Here’s the rub, according to the Sentinel’s Mary Shanklin:  FHA approval of condo associations (validating the financial viability of the association, which is a key factor to the valuation of each unit) comes up for renewal every two years. Lots of associations either don’t qualify any more or don’t know that they have to renew their FHA status.

Shanklin reports that nationally, only 10% of the 25,000 associations that lost their FHA status have recaptured it. But in Orlando, 64% of condo complexes that once had FHA approval have lost it.  That’s the situation that could be facing condo buyers nationally. What can sellers do?

• First, check out the FHA rules and your association’s situation.
• Find out what your association board plans to do if the association falls out of FHA compliance.
• Finally, scout alternative financing options so you can show buyers other ways they could line up a lender to buy your unit.

Down and a Way Out

The ceiling just dropped for mortgages that conform to Fannie Mae and Freddie Mac standards: in even the most expensive markets, like New York, Washington, D.C. and California, the most that will be accepted by the two secondary market giants is $625,500, down from $729,750. The drop only makes sense, given that home values have plunged more than 30% since their 2006 peak, according to the Case-Shiller Index. 


Individual homeowners can't do a whole lot about the drop. Those trying to sell move-up houses to buyers well enough off to afford a half-million-dollar-plus house, but not so rich that they can pay cash, will be most affected.


Condo owners, though,  might be in luck. Getting their entire building qualified for FHA mortgages could help offset the lowered ceiling, because FHA loans require smaller down payments, thus realigning buyers' qualifications. Today's Chicago Tribune, which, like ForSaleByOwner.com, is owned by Tribune Co., outlines how to get buy-in from your association to qualify the entire building for FHA buyers.

Low Interest in Low Rates…What’s Up With That?

Thanks to the Federal Reserve, mortgage rates are at an all time low – 4.32% . But so are mortgage applications.

The market is still stuck, according to the latest reports from various real estate organizations. Sales are down 3.5%, or 12.7%, depending on who you listen to. And prices continue to deteriorate, along with consumer confidence.

In the past, low interest rates have spurred economic recovery, with housing always a driver. But what good are low rates if you can’t get a loan?

As reported by Mary Ellen Podmolik, in the Chicago Tribune (which, like ForSaleByOwner.com, is owned by Tribune Co., ) the roadblock is not the cost of mortgages, but qualifying.

 

• Down payment requirements are high – currently 20% - and rising 

• Take a look at this graphic to see how long it takes to save 20% for a down payment 

• FHA requirements are about to change – again – limiting loan limits
• Credit standards continue to tighten
• Lenders are examining total debt and living expenses as never before

Keeping up with these changes is practically a full time job for buyers, who are aiming for an ever-shifting target.

Meanwhile, here are a few tactics sellers can adopt to minimize barriers for buyers:

• Track FHA requirements for your area so you know exactly what buyers are facing 
• Make sure your house qualifies under FHA standards, which have detailed requirements for compliance with local code and safety standards and maintenance 
• Stay very, very flexible in your plans. If a potential buyer loves your house, but has to save just a little more for the down payment, consider postponing the sale.

No More Cheap Loans for High-End Houses

With housing prices down by a third across the country, is there any rationale any more for FHA loans for high-priced houses? As reported in the Sun Sentinel, (which, like ForSaleByOwner.com, is owned by Tribune Co.), it’s likely that owners of more expensive houses soon won’t be eligible for low-interest, low-down-payment, government-insured  mortgages available through the Federal Housing Administration. Raising the FHA loan limits was one of the Federal government’s first moves to stanch the losses of the housing bubble. But as the bubble continues to deflate, it is becoming harder and harder to justify maintaining the higher limits.

Here’s how this is playing out in central Florida, according to the Sun Sentinel: 

A buyer looking to borrow $300,000 could qualify for an FHA loan with 3.5 percent down, or $10,500. A $350,000 house, which would not qualify for FHA under the new limit, could mean a buyer with no mortgage insurance would need to put down 20 percent, or $70,000.


South Florida has been a buyer's market for the past five years during the housing crash. But as the glut of homes for sale has cleared recently, sellers are enjoying more power. Would-be buyers complain they're losing bidding wars as demand for more affordable homes intensifies.

Nearly a quarter of Broward County homes for sale are priced above $345,000, according to Movoto.com, an online real estate brokerage based in San Mateo, Calif. In Palm Beach County, 35 percent of the homes are above the new limit.

FHA loan limits vary by region.  In Broward County, FL, for example, tne new loan limit would be $345,000, down from the current $423,750. The new limits go into effect Oct. 1.

Image courtesy of Morguefile contributor dave.

Getting Unstuck from a Bad Mortgage

Relief might be in sight for those teetering on the edge of foreclosure. Regulators are closing in on a plan forcing lenders – and more importantly – their servicing arms – to adopt orderly and – dare we hope? – logical processes for working with folks who can’t afford their houses any more.

As reported by our sister publication, the Federal Housing Finance Agency announced last week that servicers will be required to contact homeowners earlier, more often and to actually make decisions…or else.

The hoped-for outcome: that homeowners won’t be stuck having two contradictory conversations at once with their lender – one conversation about walking away from the house and the other promising to work things out so the homeowner can keep the house.

Here’s the official quote:

"The updated guidelines ... address the so-called 'dual track' by requiring servicers to contact borrowers as soon as they become delinquent and focus solely on remediating that delinquency," the agency said. "The foreclosure process may not commence if the borrower and servicer are engaged in a good-faith effort to resolve the delinquency. The servicer must conduct a formal review of each case to ensure a borrower has been considered for foreclosure alternatives before the loan is referred for foreclosure. Even after foreclosure processing begins, financial incentives are provided to encourage servicers to continue to help borrowers pursue a foreclosure alternative."

What does this mean for you? If you have little to no equity, and you need to sell, it might be worthwhile to wait for a few weeks. Then, choose a low-transaction-cost sales channel (yes, like selling by owner!) and you might be able to squeak out with minimal additional financial damage.

Image courtesy of Morguefile contributor jdurham.

New Lending Policies Are Like Dandelions

The spring selling season is trying – really trying hard – to get going. But lending complications are sprouting already, rather like dandelions crowding out the first spring daffodils.

Did you know that you get socked with an interest penalty simply for paying off your FHA (Federal Housing Administration) loan when you sell?

And did you know that the Feds are moving rather rapidly to require a 20% down payment to get the best mortgage rates? The same proposal also caps the debt-to-income ratio at 28%, and totally monthly household debt of only 36%.

(We gleaned these showstopping developments from stories just published at the websites of the Los Angeles Times and the Hartford Courant, which are, like ForSaleByOwner.com, owned by Tribune Corp.)

Both policies will derail home sales this spring. With equity shrunk and shrinking, sellers need every scrap to roll over to their next home purchase. (See the new ForSaleByOwner.com pricing guide for more about home value trends.)  And what’s the point of the 20% down payment threshold to capture the best mortgage rate? Gauging your ability to pay back the loan is the entire point of credit scores. Sure, a higher downpayment means you have more skin in the game. But it’s downright punitive to link it to lower mortgage rates.

Image courtesy of Morguefile contributor haligi.

Second Chance for First Time Buyers?

Rents are rising by as much as 10% in some cities.

Mortgage rates are still low. And, as the latest reports indicate, the housing market is worried about how this spring’s market will unfold, in that prices are soft and demand…who knows yet?

Is this a set-up for a resurgence of first-time buyers?

First-timers are facing a fresh raft of barriers:

• Lenders are demanding higher down payments 
• Condo deals can be shaky, if the building has too many rentals. (Too many rentals complicate lending through Fannie Mae and Freddie Mac.)  
• 10% of house deals (or more) fall apart because the appraisal comes in too low  
• Cash buyers – i.e., investors – dominate in many markets. First-time buyers can’t trump a cash offer

But, first-timers also have a surprising advantage: many municipalities have put into place temporary programs to incent first-time buyers to make the move this year. We’ve noticed such programs in Florida, Georgia, and North Carolina. To find a program in your state or city, Google “first time buyer” + program + [your city or state]. The results should flush out any relevant programs.

Don’t overlook live-near-work programs sponsored by your employer, either. And to get the big picture and the details about buying your first house at the ForSaleByOwner.com First-time Buyer’s Guide. 

Just In Case You Thought The Market Was Going to Overheat

Most homebuyers have to get mortgages, and now that we are back to the days of cookie-cutter mortgages, most people can only get deals that will fit on the Fannie , Freddie or Federal Housing Authority assembly line.

That’s why lenders and realty agents sighed in exasperation Friday when the Federal Housing Authority announced that the current limits for conforming mortgages will stay put. (Conforming mortgages is bureaucraticese for ‘cookie cutter.’)

The current state of affairs is that the limit is $417,000 for most areas of the country, and as much as $729,750 for ‘high cost’ areas, like New York and San Francisco.  The lenders’ argument is that raising the ceiling to $729,750 to all markets would revive the market because people would be able to get more loan.
Fortunately, the bureaucrats did not buy this ridiculous argument. With housing prices continuing to slide, and more predicted for 2010, there is no rationale for increasing the maximum loan amounts.

As pretty much every analyst now agrees, employment is the key factor for reviving the housing market. That, and working off the huge overhang of foreclosures and bank-owned properties. Raising loan limits would throw the market into confusion. What we need now is stability and consistency.

Memo to lenders: please focus your efforts on cleaning up the loan portfolios you now have, instead of trying solve a problem that doesn’t exist.

Image courtesy of Morguefile contributor emmip.

Paper Cuts

Whoa, there, Mr. Banker. Not so fast.

For the first few weeks of the robo-signer foreclosure documentation scandal, the party line was that this was just a matter of a few stray pieces of paperwork that got waylaid. The banks could easily regenerate new copies, and lickety-split! Problem solved.

Uh, no. Turns out that many of the original documents, when they can be located, are faulty. Those are just the ones that can be unearthed. Apparently, reams of critical legal documents have vanished. Are they important? Only if you think that people should have reassurance that they mortgage payments they've been making are actually credited to the correct mortgage accounts. Or that people should be be able to rely on proof that they actually own what they bought. You know: property rights that go back to the men-in-tights era, Sherwood Forest and all that. Documents must count. That's why you sign so many at closing. Right?

With 17 new attorneys general soon to take oaths, and the robo-signing plague spreading to the Federal Housing Administration, bank bureaucrats are running out of safe havens. The AGs will be eager to make their reputations. The FHA doesn’t want to be the last ones standing in this high-stakes game of musical chairs.

Here’s what should happen: The new consumer protection agency will make happy with the newly manned up House to put the kind of pressure on lenders that Obama, et. Al. should have brought to bear to begin with. The AG’s represent the other flank of this pincer strategy. The two sides will close in. the banks will suddenly decide that it’s really better for their investors, for homeowners and – pass the Kleenex, please! -- for America that foreclosures-in-process be handled very differently. It will suddenly make financial sense that homeowners get refinanced en masse or at least get to relinquish the title but keep renting their houses at current market rates, with an option to buy them back.

Is this what will happen? Depends on the testosterone levels of the newly elected. The lenders can get ahead of this by taking their writedowns now and putting a charitable spin on it. Or they can choose death by a thousand paper-wielding lawyers and politicians.
Image courtesy of Morguefile contributor jppi.