Everett mortgage: More Government screw ups

More Government Interference in the Real Estate Market

or

The LAW of unintended consequences

HVCC (Home Valuation Code of Conduct) was supposed to help with inflated appraisals. It was supposed to keep appraisers from being pressured by lenders. Instead it killed the real estate market. It lead to fewer choices for the consumer, lower fees to appraisers, non certified non professional people doing appraisals and many more unforeseen consequences. It practically killed the conventional mortgage market.

• It is true that FHA mortgage insurance funds are below federal mandated minimums but this is really an accounting issue. It is not a solvency problem. It is true that some FHA mortgages are behind or into foreclosure. But so are many prime conventional loans. A vast majority of these bad loans were the result of a ZERO down scam type of FHA mortgage. These loans were called Nehemiah or Hart or some other name but allowed for a FHA mortgage to be used without any money from the buyer. These loans are no longer allowed.

• Currently if you have at least 620 (and most lenders are going to 640) credit and 3.5% down you can buy a home with an FHA mortgage. Until early this year FHA rules allowed a buyer to qualify with a credit score as low as 560 in some cases. Now it's 620 and more often 640. So now a buyer needs pretty good credit to buy. Critics say the credit score should be increased but that defeats FHA's purpose and that is to serve the marginal buyer. A 620-640 score is not a bad score. Critics also say 3.5%  isn't enough "skin in the game" and want to increase the down payment. Some want 5% and few even want 10%. I want you to know that raising the minimum down payment would defeat the basic idea of an FHA mortgage.

• Currently there are 2 different types of mortgage insurance on every FHA mortgage. First there is UFMIP (Up Front Mortgage Insurance Premium) and is 1.75% of the loan amount. This is up from 1.5% at the end of last year. Next there is a MI (Monthly Insurance) and this is .5% or .55% of the monthly payment depending on the amount of down payment. Here I think we can tweak some. We can raise the UFMIP or increase the monthly MI or increase both. Please remember that increasing these fees will lower the loan amount that a buyer can qualify for. This will lower the amount of home they qualify for. I believe that minor adjustments here is the only way to improve the insurance coverage without screwing up an already fragile market.

• Next some would cut the amount a seller can contribute to a buyer for closing costs. Again this is short sighted. Currently a seller can give back to a buyer up to 6% of the purchase price for closing costs. Usually closing costs will run around 3.5% +/-. Well any good loan officer will use the extra money to buy down the buyers' interest rate and make the loan / home even more affordable to the buyer.

• Next some say we should toughen the credit standards. Well the free market has already done that. Because the buyers of mortgage backed securities (MBS) will not buy a loan that has credit score of less than 620 there is no need to do this. In fact the market has said that unless the buyer has a 640 score most will not buy the MBS.