III. Guest Speaker Ivery Himes, Acting Director of the REO Division at FHA
IV. Policy Issues and Discussion 1. Federal Guarantee of FHA Mortgages As FHA financially struggles to stay solvent while they work through old loans that continue to underperform, some policy makers and real estate industry participants are asking if the current FHA model is an appropriate one.
V. Legislative/Regulatory Updates 1. FHA Premiums/Legislation In March, HUD announced changes to the FHA single family mortgage insurance premiums that would be implemented in April and June of this year. These changes include:
• Increasing the upfront premium from 1 percent to 1.75 percent (effective for case numbers assigned on or after April 9, 2012), • Adding .25 percent to its annual mortgage insurance premium for loans exceeding $625,500 (effective for case numbers assigned on or after June 11, 2012), • Increasing the annual mortgage insurance premium by .10 percent as required by the Temporary Payroll Tax Cut Continuation Act (Effective for case numbers assigned on or after April 9, 2012).
The first two changes were made in an effort to increase the financial health of the Mutual Mortgage Insurance Fund, which continues to be below its statutory minimum of 2 percent reserves.
2. Condominium Policies In July of 2011, the FHA released Mortgagee Letter 2011-22: Condominium Approval Process for Single Family Housing - Consolidation and Update of Approval Requirements. The Mortgagee Letter was released along with an implementation schedule and the Project Approval and Processing Guide in an effort to clarify, expand, consolidate and update existing guidance.
In the new guidance, FHA made permanent the temporary measures from Mortgagee Letter 2011-03. The concentration limit is 50 percent but Homeownership Centers (HOC) may grant exceptions to go beyond 50 percent. FHA requires that 50 percent of units be owner-occupied but FHA will reduce this to 30 percent for new construction. At least 30 percent of units must be sold prior to endorsement of any mortgage by FHA. This pre-sale requirement is not applicable to existing projects or non-gut rehabilitation projects.
These changes have become a deterrent for condominium complexes to apply for FHA approval or renew their expiring approval. FHA has recognized there is a decreasing number of condo complexes approved for FHA financing and they are reviewing their requirements for possible adjustments.
3. Seller Concessions In March the US Department of Housing and Urban Development ( HUD) announced a proposed rule on permitted seller concessions for loans insured by the Federal Housing Administration (FHA). This proposed rule is one of three initiatives HUD is undertaking to contribute to the restoration of the Mutual Mortgage Insurance Fund (MMIF). Similar to what was proposed in the President’s budget, the rule limits concessions to 3 percent or $6,000, whichever is greater. It also limits acceptable use of concessions to borrower closing costs, prepaid items, discount points, the FHA Upfront Premium, and interest rate buy-downs. The seller concession cannot exceed the actual closing costs prohibiting cash to the borrower at closing. Comments are due March 26, 2012. When the rule was initially proposed in 2010 HUD was working to reduce permitted concessions from 6 percent to 3 percent with no $6,000 cap.
4. REO pilot program On February 27 the Federal Housing Finance Agency (FHFA) announced a pilot program, to be operated by Fannie Mae to sell nearly 2500 foreclosed properties in six hard hit foreclosure states, for the purpose of providing rental housing. This is the first pilot project to be offered in the Obama Administration’s plan to expedite the disposition of foreclosed properties held by Fannie Mae, Freddie Mac, and FHA. Applications for pre-qualification for investors began on February 1. The latest announcement begins a further round of qualification with potential bidders required to demonstrate financial capacity, management capabilities and other qualifications. Only fully qualified bidders will be allowed to bid on pools ranging from 99 properties in Chicago to more than 600 units in the Riverside/San Bernardino/Los Angeles area.
C.A.R. continues to express the opposition of members from around the state about whether this pilot should be conducted at all in areas with diminished REO inventories, making the point that owner occupants and small investors should have more assistance to take advantage of foreclosed properties. The FHFA Announcement and further details are available at: www.fhfa.gov/webfiles/23403/REOPR22712F.pdf.
5. Rural Housing The Rural Housing Service (RHS) continues to experience delays in funding the Section 502 single family loan guarantee program. This program provides zero-downpayment loans to low-income rural families (defined as those making less than 115% of local area median income). In 2009, the program provided financing for approximately 85,000 families in rural communities.
In 2009, the program experienced a expiration of credit authority, halting the program for nearly 6 months. NAR was instrumental in the passage of legislation to restore the commitment authority for the 502 single-family rural housing program. The law also allows RHS to increase premiums on borrowers (although they can still be financed), to make the program self-sufficient. NAR continues to work with the Administration to ensure this program is available and affordable for rural residents.
VI. Other Business 1. RPAC Challenge 2. REALTOR® Rally