Here’s the official word:

We can STILL DO spot approvals, at least for now, for FHA case numbers issued prior to Nov 2.  Call me if you have any buyers who are trying to close on a condo for the First Time Homebuyer Tax Credit!

Realtors may still provide comps to appraisers on FHA transactions, but not an estimate of value - a fine distinction.

Keep in mind - this change will have no impact on Wells Fargo, as we are already in compliance.  We have a good process already for appraisals, no worries with us on this one!

Additionally, FHA announced some items they are considering - instead of a net worth of $250,000, lenders must have a net worth of $1 million.  Mortgage brokers will no longer get individual FHA licences, they would originate through larger lenders who would assume the risk for those loans.  It is unclear what these proposed changes would mean - it could mean that more brokers will have access to FHA, but it could also mean that many medium size companies will no longer meet the net worth requirement.  Regardless of how that plays out, remember that you really want an FHA expert working with your buyers - don’t let loan officers get their “on the job training” on your files!

Due to the widespread damage by the flooding, and with 17 counties declared as “Disaster Areas” - lenders will generally require that any appraisals completed PRIOR to the flood, on deals not yet funded, must be re-inspected to insure they were not affected by the disaster.  With many lenders, this means they will need to order a re-inspection by the appraiser, which will generally cost about $100.  Talk to the lender on any deals you have in process to ensure they are on top of this, so that your closings are not impacted.

Here at The Ryan Mortgage Team, we have a commitment to superior customer service, and we have the manpower to assist in times like these.  Our policy is that the re-inspections can be completed by a an employee, as long as that employee is not directly compensated on that loan.  That means that we have been able to complete the needed re-inspections with no impact to closing dates, and with NO FEES charged to our borrower clients.

Just one more reason to work with us!

Beginning October 1, 2009, spot approvals on individual condo units will no longer be allowed.  Instead, the entire condo project must be determined to be eligible by the lender or by HUD.  HUD will continue to maintain their list of eligible developments.  And for all FHA applications after October 1st, the condo project in question must either be on this list or must be added to the list prior to the loan closing.

How does a complex get added to the list?  The lender can follow one of two processes.  HRAP (HUD does the review and approval) or DELRAP (the lender does the review and approval).    Each of these involve reviewing the development for compliance with HUD’s guidelines.  Below are a few of the highlights, but there are additional requirements that you can see in Mortgagee Letter 2009-19.

• Projects consist of two units or more.
• Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.
• Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.
• No more than 25 percent of the property’s total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.
• No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to non-owner occupants.
• No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.
• At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).
• Projects consisting of three or less units will have no more than one unit with FHA financing.  With four or more units, no more than 30% of the units shall have FHA financing.

In Summary:

• HUD has taken huge losses on condos over the past couple of years partially due to abuses of the spot approval process
• Spot approvals are dead as of 10/1/2009
• As of 10/1/2009, expect a huge bottleneck as HUD is flooded with project approval packages
• Get your condo sellers to sell now while FHA financing is available
• Get your condo buyers who need the 3.5% downpayment option of FHA to buy NOW while financing is available
• All future FHA condo financing requires entire project to be approved
• HUD has somewhat simplified the project approval process
• All approvals expire after 2 years - and this includes projects which were placed on the list prior to 10/1/2009

If you are a real estate agent who works with a lot of condo buyers or who lists a lot of condos, act now to get those buyers and sellers off the fence.

Requirements:

• Find a HUD home at this site.
• Minimum middle credit score of 620
• Property must be your primary residence
• Product is available without restriction in the entire state of Georgia

Features:

• Borrower is only required to bring $100 to the transaction
• Borrower can finance up to 110% of the sales amount to include closing costs as well as minor repairs up to $5000.
• Max loan amount in the Atlanta Metro is $346,250 through the end of 2009
• Program is temporary and is subject to end at any time

The S&P/

One important note to make is that there is no sharp increase in home prices in the 2001 to 2007 time frame as we saw in markets such as Florida and California.  One could infer from this that much of the punishment we have taken over the past couple of years has a lot more to do with the overall perception of the housing market than a bubble in the Atlanta market.  Hopefully, when the foreclosure situation corrects itself, we will recapture many of the losses sustained.

Overall we are down right at 20% from the peak in July of 2007.

Restrictions for borrowers with 5 to 10 properties:

• The borrower cannot have any history of bankruptcy or foreclosure within the past 7 years.
• The borrower cannot have any delinquencies (30-day or greater) within the past 12 months on any mortgage loans.
• Rental income on the subject investment property must be fully documented.  Rental income from other properties owned by the borrower must be supported by 2 years’ federal income tax returns.
• Federal Income Tax Returns must be verified by transcripts obtained from the IRS
• The borrower must have reserves for the subject property and for other properties currently owned by the borrower (no other financed second home and investment properties).

Reserve Requirements

When the borrower will own 1-4 financed properties (including the subject property) the minimum reserve requirements are:

• 2 months of reserves on the subject property if it is a second home,
• 6 months of reserves on the subject property if it is an investment property, and 2 months of reserves on each other financed second home or investment property.

When the borrower will own 5 - 10 financed properties (including the subject property) the minimum reserve requirements are:

• 2 months of reserves on the subject property if it is a second home,
• 6 months of reserves on the subject property if it is an investment property, and
• 6 months of reserves on each other financed second home or investment property.

Multiple Properties and the Fannie Mae Homepath Mortgage

Homepath financing is available for borrowers with 5 to 10 properties, however, the 90% financing option is not available.  Even on Homepath the limit will be 75%.  Given the additional cost of the Homepath option, in this case, the borrower would be better served with the standard conventional option.

See our previous post regarding the Homepath Mortgage.

What about my existing second mortgage? — If there is a second mortgage or Home Equity Line of Credit, it can be subordinated, and remain in place behind the new first mortgage.  Big if here.  IF the 2nd lender will allow the 2nd mortgage to be subordinated.  At the current time, that is unlikely.

What if the combination of the first mortgage, existing second or HELOC, and closing costs [these three together are the Combined Loan-To-Value - “CLTV”] will exceed 105%? – That is OK, there is no cap on the CLTV.   Again, it is currently difficult to get your 2nd lender to agree to the subordination.

What about Mortgage Insurance? – If the loan currently has private mortgage insurance (MI), that MI policy will simply carry through the refi, and will stay in place. If there is no MI on the current loan, then MI is not necessary for the new loan, regardless of the new LTV.

What properties are eligible? – Owner-occupied primary homes (detached and condos).

What payment history is required on the existing mortgage? – One 30-day late payment is allowed.