FHA Changes For Condos

Beginning October 1, there will be some changes to the approval process for FHA Condo loans nationwide. The reason for this change is to complete a current due diligence of all Condo projects.

Up until now, Condo projects were either already approved and listed on HUD’s website for FHA financing, or they could be “spot approved” for FHA loans, meaning the lender could get evidence that the Condo project met FHA guidelines and approve a loan on one of the units. This did not approve the whole project through HUD though, so the next time someone wanted to get an FHA loan on a unit in the same project, they also had to go through the “spot approval” process.

Under the new rules, FHA lenders will have the authority to actually approve a whole Condominium project for HUD. This means that “spot approvals” will be eliminated. Once a loan is done on a unit in a development, it will be added to the HUD approved list and future FHA loans in the project will be easier to do. 

All current Condominium project approval will be invalid. After October 1, 2009 all Condo projects will have to go through new approval. Until a Condo project is approved and listed with HUD then FHA financing will not be an option.  Over time, this should really streamline the time it takes to do FHA loans on condos here in the Utah County area.

The drawback is that it may take longer and be far more difficult to get an FHA loan done on that first unit in the project, so keep that in mind when buying a Condo that is not on HUD’s approved list. If you would like more information about these changes and what the requirements are for a Condo project to be eligible for FHA financing, just let me know!

New Lending Regulations

New lending regulations could delay closings

New lending rules that require mandatory disclosures and waiting periods for mortgage loans have many lenders advising buyers, sellers and real estate agents to plan for at least 30-day closings and to expect possible delays. The regulations, which went into effect July 30, are part of an amendment to the Truth in Lending Act that seeks to ensure consumers receive cost disclosures earlier in the mortgage process, says the Federal Reserve Board.

The new rules apply to all mortgages secured by the borrower’s home, including primary and second homes as well as refinancings, and require lenders to give good faith estimates of mortgage loan costs within three business days after receiving a consumer’s application for a mortgage loan. The rules prevent any fees from being collected before the consumer has received the early disclosures except for a reasonable fee for obtaining a credit report.

The new rules also include various waiting periods, including the requirement that a home loan cannot close until seven days after the borrower has been issued the initial disclosures.

Furthermore, the new regulations require lenders to disclose if the annual percentage rate on the loan changes by more than 0.125 percent from the amount stated in the initial disclosure. If there is a need for a corrected disclosure, the consumer has another three days to review the new document before the loan can close. Because APR is affected by a variety of items, a corrected disclosure may be needed if there are changes in the interest rate, loan product, closing date, settlement fees or other related items. If these changes occur unexpectedly, it could push back the closing.

In similar fashion, the Home Valuation Code of Conduct (HVCC) gives home buyers three days to review a copy of the appraisal before closing on the loan, unless they waive the right.

In addition to the new review periods, mailing dates could affect closings as well. In cases where the disclosures are mailed, they won’t be considered “received” until three business days after the lender places them in the mail. For example, if corrected disclosures are mailed, the earliest the buyer could close would be on the sixth business day after the mailing (i.e., three business days for mailing and three business days for consumer review, with the consumer being allowed to close on the third review day).
Note: In terms of the three- and seven-day waiting periods, a business day is defined as all calendar days except Sundays and legal public holidays.

Taken together, the new waiting periods could unexpectedly delay closings, especially if an appraisal comes in late or the APR changes. While the borrower may be able to waive the truth-in-lending waiting periods in a “bona fide personal financial emergency,” do not rely on this exemption.
Make sure your settlement deadlines provide enough time to accommodate for the new waiting periods.
By using a realtor, if you do end up in a situation where you won’t be able to meet the settlement deadline because of the timeframes in the new regulations, then your realtor will make sure to extend the REPC with an addendum.

Housing Recovery

Are We Moving Towards a Housing Recovery?

“We have enough cumulative signs now that we’ve come through the worst and not only are things less bad, we’re starting to see pockets of improvement.” Those are the promising words of Charles Schwab Chief Economic Strategist Liz Ann Sanders during her July 28, 2009 interview with Diane Sawyer on ABC’s Good Morning America.

Sanders was responding to Standard & Poor’s/Case-Schiller’s latest Home Price Index which revealed that though housing prices were down nationally 17.9% since June 2008, the rate of home price deterioration has in fact slowed and the Standard & Poor’s/Case-Schiller home price index saw its first monthly gain in the three month period ended in May, from the same period ending in April.

Sanders went on to note, “You have to go through less bad on your way to good.” This viewpoint certainly concurs with what we’re seeing locally as well. While there are many more “bargains” now than at any time in the past few years, the latest numbers show that prices may be stabilizing—but we don’t anticipate that we’ll suddenly see giant leaps in home prices anytime soon.

What we do know is that the housing market was the first to enter the down market and probably will be the first to emerge from it. But it all takes time.

To emphasize that point, Sanders noted, “We’re not going to go into positive gain territory anytime soon but we were looking at declines down in the 18 to 19% so they’re getting a little less bad and that’s just a sign that the turn has come in so I do think prices are bottoming here. It’s not universal but broadly, nationally you can say that. There is still going to be some pockets of weakness but also some pockets of significant strength.”

Locally in pockets along the Wasatch Front there has been a surge in home sales over the last several months. In fact, in its July 28, 2009 Decline in home sales along Wasatch Front slows, ABC 4 reported that, “The decline in home sales along the Wasatch Front is starting to slow. The Salt Lake Board of Realtors released new statistics Tuesday that have a bit of good economic news in them. There were 5,428 single-family homes sold in the second quarter in Salt Lake, Davis, Utah, Weber and Tooele counties. That's only down about 2% from the same time last year. And, in Utah County, home sales were actually up nearly 15%.”

The reported continued, “The Salt Lake Board of Realtors says buyers have been motivated to buy new homes by the lower prices and government incentives.”

So what does all of this mean for today’s buyers?

The latest news shows that prices may be stabilizing but they’re likely to remain at these levels for some time. The Wall Street Journal Reporter Nick Timiraos wrote in his July 29, 2009 blog posting What the Case-Shiller Numbers Mean for Home Buyers, “A purchase could make sense for borrowers who plan to live in their home for a long time now that prices are more in sync with incomes.”

What should we watch for?

During the Good Morning America interview, Sanders, and Mike Santoli, an associate editor of Barron’s, both provided their key vital signs to watch for in calling for a recovery. Among them:

Liz Ann Sanders’ Three Improving Economic Vital Signs to Watch For:

- Index of Leading Economic Indicators, which has enjoyed three months of increases

- New unemployment claims are down 93,000; “We’ve never still been in a recession when we’ve seen that kind of drop,” said Sanders.

- The spread between short term (set by the Fed) and long term interest rates (driven by the market) is widening; these numbers are telling us that the economy is recovering

Mike Santoli’s Three Improving Economic Vital Signs to Watch For:

- Dow above 8,000; if it stays above 8,000, Santoli noted, this would be a good indicator that we’re on the road to recovery. As an aside, the week ended July 31, 2009, we danced over the 9,000 mark, closing Friday, July 31 at 9,171, making it the best July for the Dow in over 20 years, according to CNNMoney.com’s July 31, 2009 article Dow ends best July in 20 years.

- Santoli concurred with Sanders’ new unemployment claim indicator

- Back to school retail sales; Santoli stated that this is a check on consumer psychology; Santoli noted that we should watch sales reports from companies like Target and Wal-Mart to report to determine if consumer psychology is improving.

In the end, what all of this information is telling us is that though we are starting to show signs of improvement, we probably won’t see huge surges in home prices any time soon. Home prices seem to be realigning more closely with incomes in most markets. With mortgage rates remaining attractive, the $8,000 first time home buyer tax credit that is on the table until November 30 and foreclosures on the decline, the key signs are finally pointing in the right direction.

If you are ready to make an informed decision about real estate, please contact me today!