During a speech to the National Association of Realtors in San Diego, FHA Commissioner David Stevens said his agency is not headed for the same fate as Fannie Mae, Freddie Mac or the subprime sector. Concerns about the FHA’s financial well being were raised last week when it was revealed in an independent audit that the agency’s funds were below legal guidelines.
The Commissioner sought to minimize these concerns, reporting the agency had $31 billion in capital – an increase of $3.5 billion from a year ago.
Stevens went on to say that the FHA is “the only participant in home financing services in the U.S. economy that hasn’t needed a bailout, hasn’t needed (funds from the government’s Troubled Asset Relief Program), hasn’t needed special assistance and is still completely self-sustaining.”
The AP reports the FHA has insured almost 25 percent of all new loans made in 2009. Eighty-percent of these loans represent first time home buyers.
Stevens rejected comparisons between the FHA and the subprime market. “Nothing could be further from the truth,” he said, stressing the FHA has far more stringent underwriting guidelines for the loans it insures.
As the unemployment rate has risen, so have FHA’s losses. According to the Mortgage Bankers Association, approximately 17 percent of FHA borrowers are at least one payment behind or in foreclosure. This compares with 13 percent for all loans.
The FHA does not make loans. It insures against default, taking much of the risk away from lenders. FHA loans have grown in popularity in recent years as credit markets have tightened up. The agency’s 203K rehab loan is also growing in popularity as more first-time home buyers purchase foreclosures.
DHW asks: Do you think the FHA is at risk of needing a government bailout?
Zero percent kitchen: n. a kitchen remodeled at the height of the real estate and credit bubble, between 2001 and 2006, featuring high-end details such as granite or Corian countertops; designer cabinets; stainless steel appliances and upgraded flooring (e.g. hardwood or travertine tile). Improvements were paid for with zero percent financing programs originated at home improvement stores.
When the dust finally settles from the collapse of the housing and credit markets, one indelible mark will remain: the zero percent kitchen. Prior to the run on home prices in the early 2000’s, and easy access to credit, solid-surface countertops, stainless steel appliances, and hardwood floors were appointments once reserved for high-end homeowners. With the advent of zero percent financing by such superstores as The Home Depot and Lowe’s Home Improvement, these upgrades became easier to attain for middle class America. Of course, this came at a cost to consumers. After six moths to one year, interest rates under these credit programs skyrocketed to nearly 30% on unpaid balances.
With short sales, foreclosures and other distressed sales on the rise, today’s homebuyer has a greater opportunity to purchase an entry level home with a zero percent kitchen. Although the return on investment is not as high as it once was for these improvements, it can give a home a big edge in the market place when competing with properties that still have the builder’s standard kitchen.
If you are a buyer looking at foreclosures, and the homes you like lack a zero percent kitchen, don’t worry. The FHA 203k rehab loan may still afford you the opportunity of having your dream kitchen.
And don’t get us started on the zero-percent bathroom.
DHW: Do you think the ‘zero percent kitchen’ will stand the test of time?
Did you know: The term ‘zero percent kitchen,’ originated on desperatehousewise.com
U.S. foreclosures sank for a third consecutive month in October, down 3% from the previous month. However, many feel this trend will not continue. Foreclosure notices were curtailed in many states due to temporary, legislative intervention. CNBC reported Nevada foreclosures “dropped 26 percent from the previous month because of new legislation requiring mediation before initiating foreclosure proceedings.” Illinois had similar legislation, but foreclosure notices skyrocketed there 56% in October from the previous month.
In a CNBC interview this morning, Realogy CEO, Richard Smith, called on FHA to increase its minimum required down payment of 3.5%. Mr Smith suggested the ‘risk profile’ will have to change to stave off foreclosures. This argument only perpetuates the myth that those who put less money down are somehow less attached to their home than those who put down a significant amount. Mr Smith should have taken the opportunity to call on the administration and Congress to cure the real problems that cause mortgage delinquencies.
The Urban Institute, a Washington D.C. based think tank, issued a study recently that revealed some interesting, though not surprising, data. Those who put little or no money down tend to be more poor than those who put, say, 20% down. They are also less likely to have health insurance. Someone who has health insurance is more likely to miss less work due to an illness than someone who has no insurance. This is only one example cited in the Institute’s report.
Although many pundits, including Mr Smith, suggest the nation’s recovery is tied to housing, it is not. It is tied to job creation. You cannot have a 10% unemployment rate and expect to have a stabilizing housing market.
Reology is the world’s largest brokerage operator. They own Coldwell Banker, Century 21, Better Homes and Gardens Real Estate and ERA.
DHW asks: Do you think the FHA should increase its minimum required down payment?
The Miami Herald reported the Federal Housing Administration (FHA) is temporarily relaxing underwriting guidelines for some condominium communities. The changes are intended to increase condo sales and put occupants in otherwise vacant units.
DHW asks: Do you agree with the FHA’s decision to relax condo underwriting guidelines?
Critics of the Housing Tax Credit were quieted, if only briefly, when the National Association of Realtors (NAR) released data for third quarter home sales. According to the trade group, home sales increased by nearly 6% over this same time last year. Despite the spike in sales, prices have fallen more than 11% during the same period. The U.S. median existing single-family price for the third quarter was $177,900.
Opponents of the housing tax credit feared an inflationary reaction in home prices. Although housing inventories are down, existing units still outweigh the demand.
NAR chief economist, Lawrence Yun, predicts home prices will stabalize next spring. His prediction may be overly optimistic. Foreclosures and short sales made up 30% of thrid quarter sales. There is no real evidence to suggest foreclosures will take a breather in 2010.
DHW asks: Do you see a bottom to the housing market?
Last week, CitiMortgage suggested in a USA Today article that 1 in 5 homeowners currently in default of their mortgage are doing so strategically or voluntarily. They cite Sharon Sakson as one of these ’strategic defaults.’ Ms Sakson was laid off as a television writer and producer. After losing her job, she ‘burned through her savings to pay her mortgage.’ Burned through her savings. Ms Sakson is possibly the worst strategist I know. She strategically lost her job then voluntarily burned through her savings to make her mortgage payments. She eventually ‘walked away’ from her New Jersey home.
Clearly, we’re made to think Sakson and others who ‘walk away’ from their homes are bad people. How CitiMortgage and other lenders can get away with this type of character assassination is beyond belief. Even more unbelievable, USA Today refuses to call lenders out on this practice.
Readers should also note the USA Today article is not entirely accurate with regard to the seven-year wait period. If the foreclosed property is a primary residence, a borrower may be eligible for a new mortgage in five years.
DHW asks: USA Today’s decision to ‘blame the victim’ struck a nerve with a lot of folks at DesperateHouseWise. Have you had to walk away from your home?
DesperateHouseWise.com added a new page to its site. Modification Center offers helpful information for homeowners seeking a loan modification or refinance. Find information about Making Home Affordable and local foreclosure prevention events. You can even find a free, HUD-approved housing counselor.
DHW also added Housing Tax Credits. This page provides in-depth information regarding the recent extension and additions to the housing tax credits.
DHW asks: Have you applied for a loan modification? How was your experience?
President Obama signed bill H.R. 3548, extending unemployment benefits for all states and extending the $8,000 Tax Credit for first home buyers. The bill also creates a $6,500 tax credit for those home buyers who have owned their current primary residence for at least 5 years. See ‘Housing Tax Credits’ for more details. You can also see how congress voted.
Remember: The $6,500 tax credit took effect when the President signed the bill.