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Proposed Changes to FHA Lending Guidlines

Testifying before the Housing Financial Services Committee yesterday, Secretary of Housing and Urban Development (HUD) Shaun Donovan announced possible policy changes for Federal Housing Administration’s (FHA) borrowers.Rising defaults on FHA loans have led to the FHA’s cash reserves falling below federally mandated levels. FHA officials hope that policy changes will ensure borrowers have a stronger equity position and are less likely to default.Proposed changes include:· Raising the minimum credit scores requirements: Currently borrowers with FICO scores as low as 500 may qualify for an FHA-insured loan. The new minimum credit score has yet to be determined.· Increasing down payment requirements: FHA borrowers currently can put down as little as 3.5 percent. A proposed change would raise that amount to a minimum of 5 percent.· Limiting the amount sellers can provide as concessions: The agency is considering lowering the maximum permissible level to 3 percent from its current 6 percent limit.· Raising up-front insurance premiums: Agency staff is reviewing whether to increase the monthly insurance premiums charged to borrowers, which come on top of insurance paid up front. The current up-front premium is set at 1.75 percent of the value of the loan. The FHA may decide to increase that premium. The amount has yet to be determined.According to Donovan, the rules will not be finalized until the FHA determines how to craft them in a way that weeds out the most problematic borrowers while ensuring that qualified borrowers will not be inadvertently shut out, thereby derailing the housing market's recovery.Fore more information about the changes to FHA borrowers, please visit the following:
Wall Street Journal: FHA Considers Ways to Boost Its Reserves
Washington Post: HUD chief defends efforts to aid borrowers
Los Angeles Times: Home buyers will have to lay out more cash for an FHA mortgage

Home sales contracts rise in October

Hello!

I thought this fresh article by Les Christie, CNNMoney.com staff writer is well worth sharing:

National Association of Realtors index spikes 32% as buyers take advantage of first-time homebuyer tax credit.

NEW YORK (CNNMoney.com) -- Americans are inking a lot of deals to buy homes.
In October the National Association of Realtors recorded an unprecedented ninth consecutive month of increases in the number of signed contracts.
Although these are not closed sales, and some deals can fall through, signed contracts are a good indicator of where the housing market is headed.
Between September and October NAR's Pending Home Sales Index rose 3.7% to 114.1 from 110 in October. But the index is 31.8% higher than a year ago, when it was 86.6. That's the biggest year-over-year gain in the history of the index.
The PHSI is also at its highest level since March 2006, and the rise confounded expert expectations. A panel of industry analysts put together by Briefing.com had forecast a 1% drop in new contracts.
NAR's chief economist, Lawrence Yun, gives much of the credit for increased sales to the homebuyer's tax credit, which first-time homebuyers could claim to reduce their taxes by up to $8,000.
"The tax credit is helping unleash a pent-up demand from a large pool of financially qualified renters, much more than borrowing sales from the future," Yun said in a prepared statement.
The credit had been due to lapse on Dec. 1, so many October buyers may have acted to get in under the wire.
However, the credit has been extended through the middle of 2010 and expanded to include many move-up buyers. The housing industry hopes that will keep sales perking until the economy picks up and markets return to a more normal condition.
In a related story, the Census Bureau reported that private residential construction spending surged 3.9% during October.
Yun cautioned, however, that housing market indicators, such as pending sales, may weaken over the next few months.
"The expanded tax credit has only been available for the past three weeks, but the time between when buyers start looking at homes until they close on a sale can take anywhere from three to five months," he said.
"Given the lag time, we could see a temporary decline in closed existing home sales from December until early spring when we get another surge," he added. "But the weak job market remains a major concern and could slow the recovery process."
The good news is that number of homes on the market has declined, removing some of the bloat that has depressed prices. There is now a seven month supply of homes on the market at the current rate of sale. which is down from 10.2 months a year ago. Yun predicted that housing conditions could return to near normal and home prices firm up by mid-2010.
"That would mean broad wealth stabilization for the vast number of middle-class families," he said.