Tuesday, June 30, 2009

HUD Conference Call on Condos

Want to get the scoop on all the changes to the FHA condo approval process? Following is the HUD announcement for a conference call.

FHA will be holding an industry conference call on “FHA Mortgagee Letter 2009-19, Condominium Approval Process – Single Family” on Wednesday, July 1, 2009 at 3:00 pm Eastern Standard Time (EST). (That's 1:00 pm Mountain Time.) The conference call will feature a brief overview of the mortgagee letter, followed by an open question and answer session.

To participate in the FHA condo conference call on July 1, 2009 at 3:00 pm EST, please dial: (866) 207-0413 and provide to the operator the conference ID #17834469.

Please note: FHA Mortgagee Letter 2009-19 represents the implementation of legislative changes established under the Housing and Economic Recovery Act of 2008. We do plan to hold another call to discuss the market-related problems you may be experiencing in condo developments. On both this week’s call and the future call, we welcome your comments and / or recommendations for programmatic changes that you would like for FHA to consider to address these problems.

You can obtain a copy of “FHA Mortgagee Letter 2009-19, Condominium Approval Process – Single Family” in advance of the conference call by visiting: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

Friday, June 26, 2009

FHA Condo Information

FHA loans are great loans. However, if you're thinking of FHA financing for a condo, there are some important things to keep in mind. All condo projects must be approved by HUD, but don't assume that if a project has already been approved, you are good to go for an FHA loan. There is also a review process that FHA requires when someone applies for an FHA loan in an approved project. Here are some of the things that are checked:

• A single investor cannot own more than 10% of the units.
• The number of units that are in arrears (more than 30 days past due) on their HOA fees is limited to 15% of the total units.
• 50% of the units must be sold or pre-sold (a sales contract and loan approval will prove it is a valid pre-sale).
• At least 50% of the units must be owner-occupied (second homes can count as owner-occupied if they are not vacation homes and if the owners spend less than 50% of their time living there).

There are other restrictions as well, but these are the biggies.

Tuesday, June 23, 2009

No More Spot Approvals for FHA Loans

HUD has done away with their "spot approval" process for condominiums. A spot approval was a way to get just one unit in a condo project approved by HUD so the buyer could get an FHA loan.

Effective June 12, 2009, FHA loans are not available for condos unless the entire project is approved by HUD. What does this mean? If your buyers can only get FHA financing, don't waste your time showing them condos that are not already approved by HUD, unless you are willing to spend a LOT of time gathering the documentation that is necessary to get an approval for the entire project.

If you want to check whether a particular project is approved by HUD, go to this web site:


Choose the state and type in as little information as possible in the "condo name" field (we recommend just the first letter of the condo project name). Then click on SEND and you will get the results. If you need help, give us a call.

Thursday, June 18, 2009

Tip Income and 2-Unit Property Guideline Changes

Here are some more recent changes to the Fannie Mae guidelines.

-- Tip income may be used to qualify a borrower for a loan, but the borrowers must prove that they have earned tip income for the past two years and their employers must verify that tip income will continue in the future. The amount of tip income that can be used is the average income over the past two years.

-- The guidelines for 2-unit properties are getting more restrictive. The new down payment requirement is 20% (up from 5%) if one of the units will be a primary residence (the borrower lives in one unit and rents out the other unit), and 25% (up from 15%) if the borrower rents out both units. If the property is a duplex and the borrower is only buying one unit, then the regular 1-unit guidelines still apply.

-- This last guideline change is included here to make you realize that it could always be worse than it is in Colorado. Pity those poor Hawaiian real estate agents :-) "Effective immediately, Fannie Mae will only purchase or securitize mortgage loans secured by properties located on the island of Hawaii that are located within lava zones 3 through 9. Properties in lava zones 1 and 2 are not eligible due to the increased risk of property destruction from lava flows within these areas."

Monday, June 15, 2009

Recent Underwriting Changes

There have been some important changes to the Fannie Mae underwriting guidelines that are sure to have an impact on the number of people who can qualify for a loan. Here are a couple of them:

-- You can no longer count 100% of the value of stocks, bonds, and mutual funds when they are used for reserves. The new rules states that only 70% of the current value can be used.

-- Only 60% of the vested value of retirement accounts can be counted as reserves (the old guidelines allowed 70%).

-- Fannie Mae "highly recommends" (meaning "do it or else") that all lenders now include a copy of the borrowers' income tax transcripts in the loan file, even if the actual income tax returns are not required. Tax transcripts are ordered directly from the IRS.

-- All files will now require a verbal verification of employment within 10 days of the closing for hourly, salary, and commission income, and within 30 days of the closing for self-employed income. Any good mortgage broker always did this, but it is now mandatory.

Fannie Mae is very clear in stating that they are instituting these new guidelines in order to combat the rampant fraud and misrepresentation that exists in the mortgage industry, and because the economy is not getting any better, despite what many people believe.

There are two camps in the real estate and mortgage industries right now. One maintains that if we could only start being positive about things and ignore the constant barrage of bad news, everything will turn around and the glory days of the past will return. The other camp maintains that accepting the current situation is the key element in an individual's success.

We are firmly in the "acceptance" camp. The economic situation is not the greatest, but it also presents an unprecedented opportunity to those who realize things have changed. Hoping for change kills businesses. Accepting change grows businesses. We are now in the busiest part of the year in the real estate industry. If your business is still down, maybe you're in the wrong camp.

We talk to a lot of realtors and a lot of loan officers. Most are not making anywhere near as much as they have in the past, but some are doing very well. The common theme we have noticed among the people who are doing well (both real estate agents and lenders) is that they accepted the new reality of our economy a long time ago. They realized that sub-prime loans and stated income are gone, and higher credit scores and larger down payments are going to be with us for a long time. They realized that nothing is more important at the moment than knowing more about your job than your competition does. How you go about learning more than your competition is totally up to the individual. It could be reading, it could be classes, it could be finding a mentor, etc. The important thing is to learn as if your job depended on it because your job does depend on it.

Here's an example of what we do to stay ahead of our competition. The first hour of every day is spent reading the Fannie Mae, Freddie Mac, FHA, VA, and mortgage insurance underwriting changes. Every single tip we send people is in one of the documents we read. Look at the tips at the top of this email. These are available to anyone at all on the Fannie Mae web site, but very few people bother to read them. Instead, they send in loans to underwriting and wonder why the deals fall apart. We get deal after deal after deal because we spend one hour a day reading. Today alone, we received three calls from real estate agents who just had deals fall apart because of underwriting changes. That's three deals we now have because we read for an hour every morning and our competition doesn't.

My father used to be a high school English teacher in NY. He taught the seniors who were considered un-teachable. Losers, idiots, hopeless cases. One year, he taught them two things. One was how to fill out a job application. Day after day, they all filled out a job application. Over the course of the year they slowly learned to read and write correctly. When they graduated (most were awarded a diploma just to get them out of the school), every one of them had a decent job by the end of June. 30 losers, 30 jobs. The second thing he taught them was that America is truly the land of opportunity - but only for the educated.

Thursday, June 11, 2009

Can the $8000 Tax Credit be Used for the Down Payment?

HUD has recently announced that the $8,000 income tax credit for first-time home buyers can be used to make an additional down payment (in addition to the mandatory 3.5% down payment) on FHA loans. However, NO lenders have instituted the program yet. Most probably won't. It makes very little sense from a business perspective to put processes in place for a program that expires in a few months.

The Colorado Housing and Finance Authority (CHFA) allows $6,000 of the $8,000 tax credit to be used as collateral for one of their programs (it's called CHFA JumpStart), but the CHFA rates are much higher than regular rates. Here is the link to see CHFA daily rates (CHFA rates are the same for every lender - there is no negotiation regarding rates):


Our recommendation is to ignore the HUD announcement about getting an advance on the $8,000 credit, simply because even though HUD allows it, it doesn't exist anywhere.

Thursday, June 4, 2009

New Guidelines for Non-Traditional Credit

Fannie Mae is changing its requirements for non-traditional credit. Non-traditional credit is used when a borrower does not have a credit score. The underwriting guidelines allow a lender to develop a credit history for the borrower based on four alternative credit lines, which are credit accounts that do not appear on a credit report. Some examples are rent, utilities, cell phone payments, car insurance payments, etc. This has always been allowed. The change is that now, rent payments MUST be one of the alternative credit lines. To prove rent has been paid on time, the borrower needs to provide the previous 12 months of rent checks. If the rent is paid to a management company, a written verification of rent from the management company is acceptable in lieu of the rent checks.

FHA guidelines are slightly different than Fannie Mae guidelines. FHA only requires three alternative credit lines (not four, like Fannie Mae), and there is no requirement that rent payments be one of the alternative credit lines. However, individual lenders are allowed to add their own requirements on top of FHA's guidelines, and some lenders do require that rent be included as one of the alternative credit lines.