Say the magic word; win a hundred dollars. (Financing)

Evening watching television
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It’s time for some housecleaning. There have been a few news items of import this week related to real estate and since, from time to time, we are a bit of what you might call a “real estate blog” here,  I thought it appropriate to hit the high points.

The magic word this week is “financing,” otherwise known as that thing that most, normal people need in order to purchase a home.  At the top of this category is the news that the Federal Housing Administration (FHA) is proposing to tighten their lending standards.

The short of it is that due to rising defaults, FHA is expected to announce policy changes next week which may include an increase in the minimum down payment required of borrowers (from 3.5 percent to 5 percent), an increase in the minimum qualifying FICO scores (from the current, anyone-with-a-nose can qualify 500 to something, well, higher), and a reduction in the allowable seller credits (from the current 6 percent to 3 percent). Notice I said “may;” the specific details will be coming from a House Financial Services Committee meeting to you next Wednesday.

The down payment and credit score policy changes seem overdue; the part about seller credits is practically moot in our market, as it is hard enough to get appraisals to hit the number these days. Inflating the price to reflect seller-to-buyer cash prizes is nearly impossible, since the home has to appraise at the higher price for the loan to fly.

Also on the table is the possibility of raising the up-front loan premium for FHA financing, now set at 1.75%.

Next up are the guidelines which were issued this week by the Treasury Department to assist troubled homeowners with the short sale process. The supplement directive to the Making Homes Affordable program, intended to accelerate the short sale process (which now runs, on average, 72 years) includes incentives such as $1500 to the homeowner who agrees to a short sale or deed-in-lieu of foreclosure for moving expenses and a $1,000 payout to mortgage companies who participate.

There is a lot more of course, and I confess I haven’t navigated my way through the 43-page document yet (that’s Steve’s job). But, the best part from my seat on the sidewalk is the provision that borrowers be given short sale terms prior to listing their homes for sale. Right now, the procedure goes like this:

  • You notify the bank of your desire to sell short;
  • Bank tells you to go away and do whatever you want until/if you have an offer;
  • You get a viable offer, and notify the bank;
  • Bank tells you to fax your “package,” which includes the offer, a hardship letter, tax returns dating back to your birth, and your recipe for chicken cacciatore, one and a half pages at a time for their consideration. You are told to follow up in six weeks;
  • You follow up, at which point the bank says that they have never heard of you nor do they know where the forty-seven faxes comprising your “package” are (and, yes, they end their sentences in prepositions); and,
  • You continue waiting and following up and faxing for six to eight months, during which time six qualified buyers have moved on to purchase other properties, at which point the bank notifies you that they have assigned a negotiator and that you should check back in six weeks.

Admitting you have a problem is the first step to recovery.

New on the settlement procedures front are the standardized Good Faith Estimates and statements going into effect in January and brought to you by the Department of Housing and Urban Development (HUD).  The idea here is to protect borrowers by making darn sure that they understand their loan terms and closing costs before committing – no last minute surprises allowed. Go HUD!

What does all of this mean? For one, pity the part-time agent. Our industry is changing faster than the mother of triplets. Agents no longer have the luxury of being “specialized,” leaving the lending nuances to the loan guys or the market trends to the economists and analysts. We need to know this stuff to properly advise and represent our clients.

More importantly, it’s a mess out there, and some days I feel like we have a lot of fingers in the dike but are still a few digits short. “How is the market?” we are asked daily, and there are at least a dozen answers depending on your city, your neighborhood, even your block. The answer depends on your price point and the current events affecting that particular buyer pool. And about the only thing any of us knows for certain is that the answer will be different tomorrow.

(For more on the new short sale guidelines and the rules to play, check out this great summary by my buddy Jonathan Dalton.)

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