A move to FHA is great because it will force prices down even more.
FHA loans mean everyone has to prove income, meet DTI ratios (29% PITI and 41% overall), and pay an additional 5% down as a penalty for purchasing in a declining market. Remember, FHA is the insured, not the lender and the actual lender may have more requirements.
Frankly, I don't have a single problem with any of those requirements but a lot of first time buyers may.
I don't believe the 5% penalty you are talking about refers to FHA. Now on conventional I believe there is an auto 5% reduction on loan limit on distressed areas. I will double check on this.
There are many places that are slumping that were already within the FHA limits, I highly doubt a full doc alternative that adds ~4% to the price (upfront MIP of 1.5% and ongoing .5% a year for a minimum of 5 years if LTV > 78%) is going to impact sales very much. I think it will allow some people who got a bad loan but can afford their home to refinance but that is about it.
So what happens if this doesn't affect things very much? Are people going to finally face reality or is there another pipe dream coming down the pike that people are hoping will rescue them?
It's the old 80/20 rule on business. In this market if you're in your office waiting for buyers--you gonna wait a long time. My referral base keeps me busy - plus repeat business. The snowbirds, and relos are a bonus. Income still down about a 1/3.. from boom time.
FHA raises in loan amounts that have just been announced will vary across the U.S. Down payments NOW can be as low as 1 1/2 per cent... depending on area.
I am getting this info from one of my reps from W.F. who sent me an e-mail alert.
FHA is a great program... I hope it can help folks who are in trouble.
I have to agree with Careo yet again. Everything I've seen on the FHA jumbos seems geared toward refis and not purchase loans.
And yes, FHA IS asking for that 5% additional down as a premium on declining markets. Depending on the program, that means first time buyers will need to bring 8% to the table if the bank wants big brother to insure it against default. It's not like any of the other big insurers are lining up for new buisiness these days.
I know FHA can vary by market on loan amounts..but never heard of that. My lenders haven't either. Now they did say yes on conventional 5% less on mtg.amt. in depressed markets. Have a source for that FHA info? Would like to read it. Thanks.
I respectfully disagree with Gwyn that there is a declining market policy requiring tighter guidelines that is given out by FHA. Fannie/Freddie yes, they have declining market guidelines.
For FHA what happens is the lender doesn't want their default rate to be above the norm and have FHA review their ability to submit files. So individual lenders can have a declining market policy that they themselves overlay onto their FHA loans. But it isn't a specific FHA requirement.
However if you use their Ginne Mae calculator, a monthly income of $8500 (that's over 100k a year) would only qualify for a $313,731 _if_ you have no other debt and _if_ you can bring $12627 to the closing table.
For contrast, our median household income is about 65k in Sacramento and our median house price is still about $310k. Put 65k annual (5420 mo.) with zero debt into the calculator and see what you get.
I still say that the new plan is packaged to bailout existing home owners and does very little to help new buyers. This whole mess still has a long way to go.
This message has been edited. Last edited by: Gwynster,
Radian just announced tightening of their PMI, that is the last major mortgage insurer left doing 100% is now gone. FHA is now the next "loosest" lender on the scale.
Major portfolio lenders like US Bank have just scaled back. Citi just announced that they are scaling back portfolio lending and concentrating on GSE/FHA stuff.
Credit is contracting very fast. We also have major leveraged holders of mortgages (Thornburg, Carlyle) de-leveraging which is hurting rates. More sellers of mortgages, fewer buyers means rates are going up.
I definitely don't see the GSE jumbos helping the market (their guidelines are very restrictive), it is FHA and only FHA at this point (Full Doc + 1.5% upfront cost and ongoing .5% a year cost for their MIP).
I thought Carlyle was more interesting because they were just holding Fannie/Freddie bonds and still are getting burned.
It is clear in this whole situation that the use of leverage has helped cause the mispricing of risk (lower rates). Deleveraging will cause rates to go up as will these institutions no longer participating in the marketplace. It is possible we could mid seven percent rates by summer.
