The high number of foreclosures, the demise of several large subprime lenders, the clampdown on lending to people with less than perfect credit, the fight against predatory lending practices and fraud, and the vast numbers of Adjustable Rate mortgages (ARMs) that have become unaffordable has created a situation where many fewer people qualify to purchase a home or to refinance an existing loan. There is a growing pent up demand for affordable mortgages especially among first time buyers and homeowners whose monthly payments have become too costly. This situation has had a dramatic effect on real estate sales throughout the country.
The Expanding American Homeownership Act, which is also known as FHA Reform, was introduced in the 109th Congress in 2006, and is awaiting reintroduction in the House of Representatives. When enacted, the bill will enable HUD to reach more potential borrowers and allow millions more low- and moderate-income families to achieve the goal of home ownership.
Features of this legislation will include:
1. There will no longer be a minimum 3% down payment which will mean less cash needed at closing.
2. The FHA maximum loan amounts will become significantly higher, meaning that many more homes and people will qualify.
3. 40 year mortgages will become a reality.
4. Condominiums will be much easier to finance with FHA loan insurance.
5. Perfect credit scores won't be required to qualify for a loan. This is a huge benefit in the current market!
6. More senior citizens will be able to get reverse mortgages using FHA loan insurance.
All of this and more is under consideration in Congress. The House overwhelmingly passed their version of the Act and as of this writing (10-07) the Senate has sent a version of the bill back to the House. Once all of the provisions are ironed out and agreed upon by Congress, the President is expected to sign it into law and the stage will be set.
FHA-insured loans were once a very significant part of the market but FHA market share has declined in recent years. This was due in part to the emergence of many subprime lenders offering attractive alternatives to borrowers and agents. I believe it was also due to the relatively harsh climate for lenders, appraisers, and real estate agents in the form of severe property condition requirements and a variety of punitive measures for market participants who failed (or were perceived to have failed) a large number of minimum standards set by HUD. In short, it because quite hard for a less-than-perfect home to qualify and too many lenders and agents became annoyed with or simply afraid to deal with FHA loans. Much has changed however, even prior to the new reform legislation. For one thing FHA repealed a lot of its property requirements in 2005. The standards for a home have become more in line with Conventional underwriting standards. FHA also eliminated a cumbersome set of forms that lenders and appraisers were required to submit.
The new FHA Reform legislation will take FHA to the next level and should go far toward restoring FHAs place as the standard bearer for mortgage lending to the little guy and will do a lot to fill the void left by the now defunct subprime lenders. But it will also open up access to upper middle class borrowers as well. This will mean a lot of new business for the stable lenders that have remained, and there is a real opportunity for out of state lenders to do a lot of business across the country. But there is a small problem in that a lender looking for an FHA-approved appraiser in another area may have difficulty finding contact names and contact information for them.
HUD maintains a page on its website where anyone can search for appraisers by name, location, zip code, etc. The primary problem with this is that the results returned do not provide any other means of contact other than the address of the appraiser. No phone numbers, email addresses, or web site information. Lenders working on a significant number of loans simply do not have the time to chase down this information for a large number of non-local appraisers. There are a lot of appraiser directories out there that do contain contact information for FHA appraisers, but not every lender knows where these directories are or which ones to use. The problem is compounded by the fact that many of these directories are very costly for appraisers to join. A simple low cost solution is needed that lenders can easily find and that FHA appraisers can easily afford to join.
Author: Harry E. Davis
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