FHA-New Guidelines Converting Existing Home to Rentals, When Can You Have Two FHA Loans, Reflection of This Market, My visit with HUD in DC This Week

I was in Washington the first part of this week because of an invitation to attend a roundtable with HUD. For the first time since 1934 (when FHA was initiated), FHA is in a deficit. But right now, FHA is our best hope for the housing market and they are committed to come out strong. Below I have listed some of the updates/changes that we are to expect with FHA in the next three months (and have also spelled out the New FHA Guidelines for Converting Existing Homes to Rentals), but first I wanted to share with you a reflection of this market. My hope is that you understand where we are, but also that “this too shall pass”- We will be here for the long haul- Let us know when we can be of assistance. Linda Today as we know it-As the nation stands amidst one of the largest financial crisis’s since the stock market crash/great depression, I like many Americans stand a bit numb and shell shocked. I ask myself, “Am I just in a bad dream or is this really happening?” We are living through a time when our children/grandchildren will look back and say “WOW, that must have really been rough living through those years.” We will be referenced in history and Economics books about the blunders of the US financial markets & how never to repeat it”. Let’s face it; we grew up seeing our country as the invincible Super Power US. We live in an EGO-filled world. The rug was pulled out from under us the first time with 9/11 and the myriad of recent events is yet another reminder that our nation does not have a bullet proof vest. The entitlement view-I think as Americans, we all suffer from a bit of entitlement to some degree. The general feeling is, “I have worked hard, I have earned it, and I deserve it- I want it all (as the commercial says)”. So when something gets taken away from us leaving our lives just a bit more uncomfortable then we were yesterday, there is a quick opportunity for resentment and anger to build. This then erodes our thinking and our view on life and how we respond to those around us. It is easy to wallow in a world of self-pity and get lost and stuck in it. This thinking self perpetuates causing emotional paralysis and negativity can leak into all facets of our life. Bad things happen to good people. Life has its ups and downs- it is what it is. There is much that can be taken from us in life that we have no control of. There is no explanation of WHY this happens. Right this minute, thousands of people are suffering a loss. Some are losing their job, others are losing their home, some are losing their family (the number 1 reason for divorce is financial stress). Worst of all, some will take their own life (suicide will inevitably be up this year). Choosing how to react- Although many things can be taken from us in life, no one can take away our right to decide how to react to a situation. This choice remains exclusively ours. I encourage you to reflect on this a bit in your own life. Are you going to let bitterness erode your heart as we move through these next few tough years or are you going to choose to persevere and focus on what you do have vs. what you do not? You can get up every morning and count your blessings (the love of family, friends, health, the gift of food and shelter) or you can get up grumbling about what you do not have. As I have said before, someone will be purchasing a home and needing a mortgage loan officer… why not me! It is a choice every day to take action plans to make certain that business still comes in. Realties of our Industry- For most of us, we lived through the “glory days” of our industry, we rode the wave of prosperity. Every industry is cyclical and we are now finally experiencing the downturn of our own. I encourage you to ask yourself, “Do I like the core of this business?” If the answer is yes, then you need to put your best foot forward and say “this too shall pass. “ We will experience what feels like normal times again in a few years and as I keep saying, there will be no competition at that juncture. If you were in this business for the money and have no passion for what we do on a daily basis, I encourage you to get out and start looking for something that will ignite excitement in your life. Embracing Change- 98% of people do not like change. It is uncomfortable; it pushes us outside of our comfort zone. Interestingly I have found that all of my personal growth does not come when I am in the confines of my own happy ideal world. It is when I get pushed outside these walls that the opportunity for growth flourishes. Change builds character. Consider viewing these current times as a unique opportunity that will make you a better & stronger person even though it doesn’t feel so fabulous as you are actively walking through these life trials. Change is inevitable- The Davidson Mortgage Group and Service First Mortgage will continue to make changes daily, weekly, monthly to stay ahead of the curve and to ensure our safe delivery through the industry storm. Higher ground and prosperity awaits all of us committed to staying the course. Thanks for your continued commitment to us and allowing us to be a part of your team. We are here for the long- haul for you and your clients. Linda From the FHA Home Front (HUD Round Table in DC) It was my pleasure this week to meet some really sharp people from FHA/HUD as well as strong mortgage professionals who really care about our industry. The round table was attended by 100 mortgage leaders and I came back with a new appreciation of HUD employees as well as those who strive to keep our industry strong. Here were some of the major subjects: · As we stated. for the first time since 1934, HUD is in a deficit. Changes have been made to turn this deficit around, but FHA is very concerned about the next 12-24 months. Will HUD need a bailout like Freddie/ Fannie? Time will tell. · The good news is because of the major tightening in Freddie/Fannie and the implosion of the subprime world, FHA business has increased. Right now it is taking HUD 60+ days to approve test cases for bankers/ brokers that are trying to get their ability to originate FHA loans. A minimum of 10 test cases must be approved by HUD in order to obtain their designation. Over 3200 mortgage companies have applied for the FHA licenses so far from January 2008 through August 2008. HUD states that over 50,000 appraisers that have also applied this year for their FHA designation. It is important to realize that a lot of “practicing” is going on by inexperienced loan officers. · In 2007 there was a total of 13 Mortgagee Letters issued by FHA (mortgagee letters are HUD announcements of a guideline change). So far in 2008(through Friday, September 26) there has been 25 Mortgagee Letters written and FHA is anticipating up to 15 more by the end of the year. · The “new and improved” FHA call center should be up by the end of this year. Changes will be made that underwriters can access the HOC centers without going through the call center (that was my suggestion :)). · FHA states that 87% of their Home Retention claims successfully avoided foreclosure due to their aggressive Home Retention and Disposition Options. It is also estimated that there has been over 340,000 homes saved due to the FHA Secure Program. In addition, HUD states that it is costing them an average of 30% to foreclose on a property. The Customer Service Help Desk can be reached at 888-297-8685. · There have been 10,529 Originators that have been caught in the last five years to have criminal records and still handling mortgages (typically the largest transaction their clients will need guidance). And those are the ones that have been caught. We should see some (more) major changes in FHA as well as Freddie, Fannie and PMI over the next three months. Our commitment to you is to make certain that you stay up to date and we will continue to communicate these changes and updates to you. FHA- New Guidelines Converting Existing Homes to Rentals- IMPORTANT READ! Not wanting to be involved in financing "buy and bail" home purchases, the Federal Housing Administration will no longer count rental income when home buyers choose to vacate, rather than sell, their principal residence. Home buyers seeking to rent out their existing home and buy another with an FHA-backed mortgage must now demonstrate they have sufficient income to pay both mortgages. The FHA won't allow lenders to count rental income for the home being vacated unless borrowers have a 25 percent equity stake or can prove they are relocating for employment and obtain a one-year lease on the home being vacated. The new rules are intended to prevent the practice known as "buy and bail," where the buyer purchases a more affordable dwelling with the intention to cease making payments on the previous mortgage. See link for HUD’s mortgagee letter http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc Because FHA will insure principal residences only, and not income properties, the property being vacated by definition could not have an FHA-insured mortgage (unless it falls under the exception ruling*). But FHA feels that if the property ended up in foreclosure, it might have an impact on the value of nearby homes with FHA-guaranteed mortgages as well as the industry as a whole. The new rules took effect Sept. 19 (we are given a four hour notice!), and are temporary pending a determination whether a permanent rule change is needed. The rules apply only to a principal residence being vacated in favor of another principal residence, and not to existing rental properties disclosed on the loan application and confirmed by tax returns (with at least a year of being reported on Schedule E). *When can you have two FHA loans at the same time? A buyer cannot have two FHA loans at the same time unless: 1) The second FHA loan is for a primary residence and the old home which has the current FHA financing is not in a "reasonable driving distance to the first one" from the new one. An example would be: First home with FHA financing is in New Mexico and they are being transferred here with their company. Since the first home with FHA financing is not in a "reasonable driving distance" from the next home, the buyer can obtain another FHA loan. Note that they would have to qualify for both payments or have a 12 -month lease agreement against the first one (The 12-month lease can only be used to offset the mortgage payment provided that there is 25% equity in the first one OR they are relocating for employment). 2) The second exception of when a buyer can have a second FHA mortgage has two parts (and both parts must be satisfied): A) Current home with FHA must have 25% equity into the home (as per an appraisal) AND (not OR) B) must be able to prove increase of family size (i.e., births of additional children) so that the current home does not now adequately fit the family needs. Note that they would have to qualify for both payments or have a 12 -month lease agreement against the first one. 3) And third exception of when a buyer can have a second FHA mortgage at the same time is if they are non-occupying co-signing for someone. If the parents already had an FHA loan on their current property and they are Non-Occupying co-signing, that is OK. 4) The forth exception would be if a husband and wife are on an FHA mortgage and they get a divorce. The divorce decree specifically awards the home to one spouse. This would release the other spouse (the one not awarded the original home) to obtain their own FHA financing on another home. Obviously in any situation, if a buyer has FHA financing on their current home and it is sold, then that would release them to obtain an FHA loan again. Have a blessed weekend. When we can be of assistance to you and your buyers, please don’t hesitate to contact us at 972-278-3400. Linda