Green Mortgage Northwest

USDA loans are being put on hold for awhile. Rural Development, part of the Guaranteed Rural Housing (GRH) program, sent out a letter last week stating that funds will be gone by the end of April 2010.

There isn’t even the possibility of “conditional commitments” because no one is sure when or if there will be more funding available.

For now, an FHA loan is the best option for a low-down payment loan. You can purchase a home with as little as 3.5% down and credit requirements that are more lax than conventional loan requirements.

The Federal Housing Administration (FHA) is raising the minimum down payment for borrowers with credit scores below 580. Any borrower with a score lower than 580 will be required to make at least a 10% down payment, compared with the current 3.5% requirement. The intent is to shore up the FHA’s finances.

The FHA will also increase up-front mortgage insurance premium (UFMIP) from 1.75% to 2.25%. Also being discussed is raising the monthly mortgage insurance premium from 0.55% to a higher amount. Pending approval by Congress, get ready for higher private mortgage insurance.

Update: the increased UFMIP is increasing effective April 5, 2010.

Many of you have heard that FHA condo spot approvals are now going away. While this isn’t entirely true, there are some big changes coming and they start February 1st – next Monday!

Here is an attempt to describe the changes and the impact they’re going to have:

Lenders will no longer be doing spot approvals. Instead, there are two options, both based on criteria put forth by the U.S. Department of Housing and Urban Development (HUD):

• DELRAP Approval (Direct Endorsement Lender Review and Approval Process)
• HRAP Approval (HUD Review and Approval Process) and

The big difference is this: for DELRAP, I work with the bank and their builder approval group to get an approval, which takes a couple weeks. For HRAP, it goes to HUD, this can take a month or two…if you’re lucky. And with all the new projects that will now need approval, the HRAP times will most likely increase.

Details:

DELRAP Review Eligibility and Process Requirements Process

• Brokers still have the option of working directly with HUD for an HRAP review for projects requiring a project approval (read: slow approval, harder to get)

OR

• Brokers can work with their bank’s account executive (AE) to get a DELRAP approval through the Builder Project Approval Group (BPAG). Once all required documents are received, BPAG will complete the DELRAP review or, if necessary, forward to HUD for a HRAP review and approval. BPAG will determine DELRAP eligibility based on a few additional bank overlays (underwriting rules) defined below.

Note – If an extension or recertification is requested on a project not originally processed as a DELRAP through BPAG, a full review of the project documents will be required.
BPAG DELRAP project reviews will be completed within about two weeks of a complete submission. Compared to the month-plus timeline for HRAP, which is likely to increase, that is pretty good!

DELRAP Eligibility

The following are ineligible for a DELRAP review and must be sent to HUD for an HRAP review:

1. Anything identified on the builder certification, appraisal, or other documentation obtained pertaining to environmental hazards.
2. Any unobstructed view of an oil refinery, propane distribution center, large gasoline storage tank(s), etc. Note – projects next to a gas station are eligible for DELRAP.
3. Superfunds (dumps or landfills) identified on the EPA Web site that have ongoing maintenance.
4. Project is located on wetland or national wetland and insufficient documentation approving the project’s location.
5. Historic districts and insufficient documentation approving the project’s location.
6. Budget without at least a 10% line item allocation for capital replacement unless a reserve analysis is obtained.
7. Fidelity bond coverage not in the name of the association, i.e. Management Company provided fidelity bond coverage.
8. Manufactured home projects.
9. On a case-by-case basis, any project within a potential noise issue that does not have sufficient mitigating factors.

My take on all of this: FHA condo financing is about to get tougher. If the project is not currently approved by HUD/FHA, it’s going to be difficult to get FHA financing.

Realtors – make sure you know whether a condo is FHA-approved before taking a client using FHA financing out to see it. You don’t want them to form an attachment to a property they can’t buy and set their expectations based on that.

For complete information on this, visit HUD’s press release on the topic.

FHA has a problem. There is a Congressionally mandated reserve amount for covering bad loans that is fast approaching. 17% of FHA loans are in foreclosure, compared with 13% of the entire market. Thus, FHA’s cash reserves as a percentage of their loan portfolios has declined below acceptable levels. As a result, change is coming:

1. FHA will hire first Chief Risk Officer in almost 75 years.
2. FHA will increase audited financial net worth requirement of approved FHA lenders by 4x – from $250,000 up to $1 million.
3. FHA will increase minimum credit score standards.
4. FHA will enact New requirements for ordering appraisals. Not quite HVCC-strict, but closer.
5. FHA will now require income verification on Streamline FHA refinances.

What does this mean? Those buyers on the brink of qualifying might lose their ability to buy a house due to credit restrictions. I would also expect to see tightened loan guidelines beyond just credit – big losses usually points to stricter standards.

The good news: Premier Mortgage isn’t going anywhere and can still do FHA loans. Our FHA appraisals still only take a few days…AND I can still qualify buyers who are close to debt-to-income limits using the PDC’s Mortgage Credit Certificate program. If someone can’t quite afford a home, let me know and I’ll see what we can do.

If you are interested, check out the full HUD press release.

Note: These changes won’t take place until January 1, 2010, so there is some breathing room still. Then again, that’s only 3 short months away.

Green mortgages are coming – Energy Efficient Mortgages (EEMs) might finally have their day!

Beyond standard incentives for energy measures like better insulation, efficient furnaces and the like, the Department of Housing and Urban Development (HUD) is beginning a huge push for efficiency in homes.

A new generation of energy-efficient mortgages is being rolled out, starting with FHA loans that offer 5 percent larger mortgage amounts to people who plan to undertake energy-efficiency improvements.

For example, if you qualify for a $300,000 FHA mortgage to purchase a standard house, under recent guidance to lenders FHA might now be able to offer you $15,000 more up front (for a $315,000 total loan amount) if the extra money is used to substantially lower the property’s annual energy
consumption.

HUD Secretary Shaun Donovan wants the FHA to offer additional incentives. One of the possibilities: Give applicants credit on their qualifying incomes for a home loan in exchange for documentable savings in annual energy expenditures. This is HUGE!

A new bill also contains an entire subsection devoted to creating incentives for consumers and federal agencies to build and finance more energy-efficient dwellings. Among the key housing-related provisions in the bill:

• The FHA must insure at least 50,000 new energy-efficient mortgages in the next three years, where energy-efficient = 20% drop in energy consumption.
• Fannie Mae and Freddie Mac must develop mortgage products and more flexible underwriting guidelines to reward energy-conscious borrowers and builders. This is big because Fannie and Freddie drive the secondary market and without them, a huge number of prospective mortgages will not be made.
• Additional concessions on loan applicants’ incomes would be extended for properties located in areas close to employment centers or mass transit lines. No concessions would be made on homes in distant suburbs requiring long commutes and large carbon footprints. Buy close-in and ride that bike!
• Real estate appraisers would be required to take energy improvements and the money they save into account as they value houses. Upgrades that will save you money on monthly bills need to be factored into the property’s value. States would require licensed appraisers to undergo additional professional training to equip them for their new energy-efficiency valuation responsibilities.
• Federal financial regulators will support the establishment of privately run “green banking centers” inside banks and credit unions across the country. The centers would help consumers understand how best to obtain financing for energy-conserving home improvements, second and primary mortgages and energy audits and ratings.
• State governments would be required to ensure that homeowners whose energy technologies allowed them to get “off the grid” are not denied property hazard coverage by insurance companies.

None of this is official law yet, but just the fact that such a bill is on the docket is AMAZING. People like to save money, and living in a healthy, comfortable, well-lit home close to where you work and play is something that people will definitely pay for. Earth Advantage’s new study certainly supports it, at least in the Portland and Seattle markets.

Come on Congress – make it happen!

I am always on top of coming trends in green lending, so feel free to contact me with any questions you might have.