FHA and Fannie Mae Propose Rule Change
FHA and Fannie Tighten Up
Because
of ongoing weakness in the real estate sector, the institutions that
have filled the vacuum left by lenders, have run into trouble... they
need to change the rules.
In order to assure that mortgage
originations continue, its become necessary for FHA and Fannie Mae to
reduce risk. The FHA proposes to increase the net worth requirements of
FHA-approved lenders, strengthen lender approval criteria, and make
lenders liable for the practices of their correspondent mortgage
brokers.
Lender Approval
1.FHA-approved Mortgagees must assume liability for all the loans they originate and/or underwrite
2.
Mortgage brokers will no longer receive independent approval for
origination eligibility. The FHA-approved mortgagee will have to assume
responsibility and liability for the FHA-insured loan underwritten and
closed by the approved mortgagee.
3. FHA has required approved
mortgagees have a minimum net worth of $250,000. To assure financial
vialbility in the future, the proposed rule would require mortgagees
maintain a minimum net worth of $1 million in the first year and at
least $2.5 million within three years.
New Credit Policy Rule Changes
1. Mortgagees will be required to submit audited annual financial statements to the FHA.
2.
Proposed rules to establish new requirements for seasoning, payment
history, income verification, and demonstration of net tangible benefit
to the borrower
3. A cap maximum on LTV at 125 percent.
Appraisals Rules May Change Too
1. An appraisal will be required in all cases where a borrower wants to add closing costs to the transaction.
2. Mortgage brokers and commission based lender staff are prohibited from ordering appraisals.
Fannie Mae Also Changes The Rules
loans for those who can afford it and prove they can keep it
Data
now shows that buyers with lower FICO scores/excessive debt defaulted
at rates nine times higher than those with solid FICO scores and more
manageable debt load. So beginning Dec. 12, Fannie Mae will reject
borrowers who have at least a 20% down payment but a credit score below
620.
Whats it Mean For Buyers and Sellers.
- Many buyers that were pre qualified may now find they no longer qualify for the price range they had been shopping.
- Tighter financial requirements may mean they have to settle for less house.
- Buyers expectations may have to adjust downward, given stricter financing rules.
- Seller pricing strategies will adjust, buyers will have more trouble meeting new debt-to-income requirements.
- We should see more private equity come into the market to fill the vacuum and possibly more seller financing.
- The higher end may suffer as buyers that could have stretched into more home, no longer can.
- It will hurt the younger person with 20% down, but no credit history.
*
Some of these rules may be applied at this writing. The FHA and Fannie
Mae web site will have updates and changes to proposals.
*Photo thanks to Queens University Canada
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