Tag: HUD

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FHA Comes of age

by Dan Krell

Congress recently passed H.R. 1852, The Expanding American Homeownership Act of 2007. The act is a move forward for a seventy-three year old program federal program called the Federal Housing Administration, also known as the FHA. The recent legislation was devised in the spirit of the FHA and looks to assist millions to obtain home ownership.

The FHA mortgage program (administered through the department of Housing and Urban Development since 1965) was created in 1934 when about only ten percent of Americans owned their home. At a time when home buyers needed a fifty percent down payment to obtain a three year balloon mortgage, the FHA’s progressive mortgage programs provided a spark for the nation’s stagnant housing industry (HUD.gov).

Through the years, the FHA provided progressive programs to assist those in need. The FHA took part in financing military housing in the 1940’s. During the 1950’s and 1960’s, the FHA made funds available for adult, handicapped, and low income apartments. When rising inflation and energy costs threatened many apartment buildings in the 1970’s, the FHA made emergency funds available to assist in keeping these properties operational. In the 1980’s, when lenders pulled out of oil producing states because of falling home prices, the FHA offered mortgages to those who could not otherwise buy a home.

H.R. 1852 comes at a time when the mortgage industry is in crisis and home ownership is threatened for those who need financing alternatives. The bill expands the mortgage program to offer more financing options as well as increasing FHA mortgage originators.

Reforming the FHA mortgage program will expand the program and allow home buyers who do not qualify for a conforming loan (Fannie Mae or Freddie Mac) have access to alternatives to sub-prime lending. The FHA mortgage program will be expanded by increasing loan limits, eliminating the three percent down payment requirement, and implementing a risk based pricing system.

When home buyers do not qualify for a conforming loan, they turn to a sub-prime lender. Unfortunately, many sub-prime mortgages have high interest rates and other possible unfavorable terms. By increasing FHA loan limits in high cost areas these home buyers would possibly be able to obtain more favorable mortgage rates and terms through FHA.

Additionally, many first-time home buyers do not have the funds for a down payment or closing costs. These home buyers are typically driven to the sub-prime mortgage market as well. However, eliminating the FHA three percent down payment requirement will allow many more home buyers to obtain a FHA mortgage as well.

Many credit worthy home buyers who do not qualify for conforming mortgages due to mitigating circumstances are also forced to use sub-prime lending. Implementing risk based pricing may allow many of these home buyers to obtain a more favorable mortgage through FHA.

Presently many mortgage brokers do not originate FHA mortgages because of the restrictions and rigorous qualifications. However, increasing mortgage broker participation by reducing broker requirements and eliminating mandatory auditing would increase home buyer access to the FHA program.

The expansion of FHA programs may seem counterintuitive in a time when the industry is in turmoil. However, these reforms to a venerable housing program are welcome by many as well as being reminiscent to its legacy of commitment to home ownership.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 14, 2007. Copyright © Dan Krell 2007.

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Know Your Rights as a Home Buyer and Make a Budget

by Dan Krell © 2007

Buying your first home is one of the most exciting things you can do; it also happens to be one of the most stressful things in your life as well. To help cope with this wonderful rite of passage, we try to prepare ourselves by doing research and getting advice from family and friends.

In theory, all residential real estate transactions are similar. However, the reality is that every transaction is subtly different with its own problems and issues. To help prepare you for your first purchase, here are some common tips to assist you in your purchase.

Make a budget. Making a housing budget and sticking to it is one of the most important steps in the process. Your housing budget is determined by your income, your debts, and your life style. Consulting with a lender can be helpful determine your housing budget. In creating your housing budget, don’t forget to include other housing related costs such as taxes, home owner’s insurance, utilities, and regular maintenance.

Know your rights. Knowing your home buyer rights can help you make the right choices during the process. If you follow this column, you have read how some real estate professionals are ignorant or unconcerned with real estate laws and ethics. Protect yourself by becoming aware of your rights protected by the Real Estate Settlement Procedures Act (RESPA), Fair Housing laws, and predatory lending laws. You can find more about these laws at HUD.gov.

Among your home buyer rights, you have the right to choose the Realtor, lender, insurance company, and title company you want to work with. Choosing a Realtor is subjective; after all, you are putting your trust in them to assist you in one of the largest purchases of your life. Don’t feel compelled to use a particular lender or title company because your Realtor recommends them or makes promises of discounts. Shop around, get quotes and compare services.

Do your homework. Thinking through such questions as where to live, what type of home to buy, how much to spend, what type of neighborhood amenities are important, will help you in your decisions. You should conduct some research on the communities and homes you are considering to purchase.

If you are uncertain about what is important to you in a home, viewing as many homes as possible can help you determine and narrow your preferences. As you shape your preferences, you will find that it is easier to shop for a home.

Know your expectations. Are your expectations realistic with regard to the home buying process, and how much home you can buy? When interviewing Realtors, discuss your expectations of them as well as what is expected from you in return. You should also discuss your expectations of what you can buy. It is common for first time home buyers to amend their expectations during the process. If you are relocating from outside the metro area, it is common to have sticker shock and change your expectation of the size of home you can buy.

As a home buyer, using a Realtor and lender can help you through the process. In the end, however, it is your choice and your home. Do your home work and be prepared.

This column is not intended to provide nor should it be relied upon for legal and financial advice.  © Dan Krell 2007.

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HUD is Kicking Back

When you bought your home recently did your Realtor or lender tell you that you had to use a specific lender or title company? Did the seller require you to use the mortgage and title companies of their choosing? If so, you may have been denied your right to choose the lender and title company to conduct the settlement for your home purchase just for a kickback.

To help home buyers become educated consumers about settlement services a law was passed in 1974 called the Real Estate Settlement Procedures Act also known as RESPA. RESPA has many caveats associated with it however there are several common provisions associated with a home buyer’s choice of settlement companies and lenders.

First, RESPA requires that home buyers receive disclosures that disclose costs related to settlement, as well as outlining lender servicing and escrow account procedures, and disclosing relationships between settlement professionals and other real estate professionals. This protects the home buyer by allowing them to know what they are to expect with regard to fees, affiliated business relationships, etc.

Second, RESPA is widely known for prohibiting giving or receiving anything of value, including money, for settlement service referrals, also known as kickbacks. RESPA also prohibits fee splitting and receiving compensation for services that were not provided. This is done because kick backs typically increase fees charged to the home buyer, sometimes excessively, so as to “take care” of the referring party.

Third, RESPA prohibits a home seller from requiring a home buyer to use a specific title company or lender.

Penalties for violating RESPA are stiff. Violations of RESPA include civil and criminal penalties. The penalties vary depending on the infraction. For example, if someone is found guilty in criminal court of giving or receiving a kickback, they may be subject to a $10,000 fine and a year in jail. The civil penalty for kickbacks is the repayment of three times the fee in question.

Although kickbacks are not as common today as they were in years past, they still exist. In response, the U. S. Department of Housing and Development (HUD) has taken a firm stance on kickbacks in the last several years. There have been many out of court settlements in the last few years, and there may be some serious criminal charges pending as investigations continue.

It is not uncommon for home buyers, especially first time home buyers, to ask their Realtor for lender and title company recommendations. After all, most people do not buy homes very often. As a practice, many Realtors provide a list of several names of lenders or title companies for the home buyer to interview. The list is usually comprised of professionals with whom the Realtor has worked with in the past and (hopefully) had a good experience. As a home buyer, you can always start with whomever you bank with. It makes sense that since you have already developed a banking relationship with your bank, why not start there?

If you find yourself in the situation where you are “forced” to use a specific lender or title company, or you think this may have occurred in the past, you can contact HUD (HUD.gov) or contact the state attorney general’s office of consumer protection for additional information.

By Dan Krell
Copyright © 2006

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There are options if you are in Foreclosure

Popular culture has a way of taking an item or an event and making it over simplified for the lay folk so as the item or event becomes a trite expression of a generation or decade. You can spot this happening when certain new buzzwords fly about the air. The event or item becomes trendy and ingrained in the psyche, then eventually becomes passe. This has become the case of trying to buy a pre-foreclosure. A pre-foreclosure is when the distressed homeowner still owns the property, most likely is still living in the home and is facing a sure loss of their hard earned money and home.

As a Realtor, it used to be pretty common for a buyer to say, “Oh, and I am interested in buying a foreclosure,” at the end of the first meeting. Lately, it has become trendy for buyers to assert that they are looking for a pre-foreclosure because it is believed that the home is still in good condition. The main reason for these assertions is that buyers believe they are getting a great bargain. Unfortunately, it is far from the truth. Most people, who buy a foreclosed home, pay a premium because the market is very strong. Even when the home is distressed, the buyer will pay top dollar for a home is a particular neighborhood, knowing that they will have spend another $50,000 to $100,000 to fix the home. Certainly a pre-foreclosure will sell for market value.

The unfortunate player in this scenario is the distressed homeowner who faced a hardship or two and fell behind on their mortgage payments. Many people facing late payments or foreclosure usually lack information of where to get help. The U. S. Department of Housing and Urban Development (HUD) recommends that the first thing the homeowner should do is to call their lender if they are falling behind on their mortgage payments, or they know they will have problems making the mortgage payment. By calling the lender and explaining the situation, the lender will usually provide options to help the homeowner through the hardship. HUD also highly recommends that the homeowner call a HUD-approved housing counseling agency to assist. Information on the housing counseling agencies is available on the HUD website www.hud.gov.

According to BankRate.com, lenders want to help the borrower as much as possible. The last thing the lender wants is to spend thousands on legal fees to foreclose on a property then have to sell it. Some of the options that lenders extend to delinquent homeowners include a forbearance and mortgage modification. These provisions are usually more prevalent with FHA and VA backed mortgages, however, they are also offered for conventional mortgages as well. A forbearance is a special repayment plan where the lender arranges payments such that it will allow the homeowner to make mortgage payments after the financial crisis. Usually this is a fix for a short-term financial crisis.

If the homeowner is seriously behind on your mortgage, the lender can modify the mortgage. A modification is when mortgage payments that have not been paid are added to the principal of the existing mortgage. This allows the homeowner to essentially catch up and get back on track.

Recently, it has become common to see many pre-foreclosure sales. This when the owner has fallen behind in their mortgage payments or is even in the foreclosure process and sells the home on their own or through a Realtor. In most cases, this may be the last resort for the homeowner because they cannot pay the mortgage even with the modifications. Although the homeowner cannot keep the home, this is usually a good arrangement because the homeowner can pay off the mortgage and get the equity out of the home to apply it towards the purchase of a smaller and more affordable home.
If you or someone you know has the misfortune of falling behind on the mortgage, talk to the lender, they want to help.

Copyright Dan Krell 2005.

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