Welcome to another Monday. As is the case these days in the mortgage business, I just received an update regarding policy changes. Being a correspondent lender, we regularly get updated from the various investors/banks we work with to keep up abreast of their latest changes.
The latest update I just received states effective August 13th, non-traditional credit is no longer allowed for FHA loans. All borrowers on FHA transactions must have a traditional credit history.
Also effective the 13th, seller funded down payment assistance programs (i.e. Nehemiah) are no longer accepted.
One of the results of the "mortgage meltdown", as the media so fondly likes to call it, has been the effective elimination of the sub-prime market. As the sub-prime market dissolved, FHA has become the new sub-prime. FHA has seen an influx of poor performing mortgages enter their portfolio. As this happens, we can anticipate that FHA guidelines will continue to constrict.
FHA has been a great outlet for many borrowers and it will continue to be. With that said, buyers need to be kept informed and need to realize that requirements are continuing to change. Yes, they will actually have to prove their worthiness to borrower the money they want to use to purchase a home.
As always, make sure your customers are pre-qualified or pre-approved by a trustworthy and reliable loan officer prior to placing any offers on a home.
Thanks for the update on FHA. I'm surprised that they are already eliminating the seller-funded down payment assistance programs. I thought we had until October 1st before those were not allowed anymore.
Good information. I always get my buyers pre-qualified prior to looking at homes. This way I am not driving around showing homes that they will not be able to afford or purchase. (not to mention gas with the prices the way they are. lol)
Thank you for keeping us informed. It is sometimes a little scary on how constricting our lenders are getting. I have a feeling we are not too far from a "waiting list" even for qualified buyers.
Cheers.
I'm looking for FHA to get even tighter in some areas, but because they need the business, they should introduce a NEW 100% loan program.
Vicki - Even though FHA establishes particular guidelines, each individual lender can then issue their own guidelines for FHA loans they will write.
Debbie - Thanks for stopping by. Good news is that gas prices have been on the decline. Then again, the conflict between Russia & Georgia (not the US Georgia) could have a negative impact on oil.
George - I certainly hope we never get to that point.
Randall - That's wishful thinking, but unlikely. One of the lessons learned through this mess is that the default rate is higher on 100% financing mortgages. It is easier for someone to throw in the towel and walk away if they have not invested any money into the deal.
I thought the date wasn't until October also. Are customers that are already under contract grandfathered in?
Just to clarify, this change is effective August 13th with one specific bank/lender, not FHA itself. Other lenders may still wait until October before changing their FHA guidelines.
Like most guidleine changes, this one will allow customers to be grandfathered in as long as they are locked in prior to the effective date of the change. Typically, they will not allow for any type of a lock-extension should the loan not close by the original lock expiration date.
Thanks for the update Karl. Where do you go to find information on FHA?
Hi Justin - My company has a product development department located in our corporate operations center, which I am fortunate to work out of. Whenever there is an updated released, they will send out emails to keep us informed. Each week they also provide a Knowledge Is Power seminar on various mortgage topics.
Personally, I keep my customers and referral partners informed on guidleine changes and other pertinanent information through the Loan Toolbox. Please contact me if you'd like to be added to my database.
The ultimate source for FHA info is www.hud.gov.