In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Monday, May 17, 2010

FHA will Reduce Allowable Seller Concessions this Summer

by Calculated Risk on 5/17/2010 09:27:00 PM

These changes have been under discussion for some time ...

From Jon Prior at HousingWire: FHA Set to Reduce Closing Cost Assistance This Summer

The FHA will reduce allowable seller concessions — the percentage sellers can take from the sales price of a home to fund closing costs — from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set.
In early April, the FHA increased the upfront insurance premiums on FHA-backed loans from 1.75% to 2.25% of the loan amount. Borrowers also have to pay an annual premium based on the LTV and type of loan.

The FHA is also trying to crack down on poor performing mortgage brokers and lenders, from Nick Timiraos at the WSJ: Mortgage Insurer Turns to Lenders to Police Brokers
Under changes set to take effect May 20, the FHA will stop certifying mortgage brokers or tracking the individual performance of loans that they originate. Instead, it will require lenders to sponsor brokers and to assume responsibility for those loans, including losses from fraud or poorly underwritten loans ...

The FHA is also asking Congress for greater authority to recoup losses from lenders on defaulted loans that were improperly underwritten. Currently, the FHA has that indemnification authority for loans from some 600 lenders that account for 71% of all FHA-backed loans. The new rules would apply to the remaining 1,400 lenders that account for the remaining 29% of FHA originations.
These are all small changes, but they add up.