DEAN GRAZIOSI: DEAN GRAZIOSI REVIEW – REAL ESTATE FEED BY DEAN GRAZIOSI

Effective February 1 2010,the FHA will implement its new condominium qualifying requirements for condominium associations.  In addition to complying with providing access to association books, the association must comply with collection policies and have no owner who owns more than 10% of the units.  There are other management responsibilities.

For new condominium associations to qualify for FHA or Fannie Mae financing:

·                     50% of the new units must be pre-sold before FHA financing can be approved

·                     50% of the units must be owner occupied

·                     Individual owners must purchase HO-6 insurance policies if the association policy does not cover interiors

·                     Re-certification is required every two years

These changes are designed to protect the investor, the lender and the FHA, who has suffered losses on the unregulated condominium market.

As no owner can own more than 10% of the units, no single owner can control the fate of the association.  The FHA’s 3.5% down payment requirement for approved FHA developments will generate new demand and should assure value stabilization for approved condominiums.

Combined with the extension and expansion of the homebuyer tax credit program, new and existing purchasers can apply the credit toward the down payment and closing costs.  Condominium associations that achieve FHA compliance can expect the stagnant condo market to turn very quickly.

From an investment standpoint, purchasers and sellers will do well to participate in their association’s compliance initiatives.  The reality is that real estate agents will be leaning toward handling approved condo developments compared to associations that do not comply.

Meanwhile commercial lenders will be requiring FHA approval commitments from their developers. These developers will want to approach lenders with their FHA approval in hand.  With the favorable down payment, demand is bound to increase.  Investors will do well to research a condo development’s status prior to investing.      

Bookmark With

The mortgage industry has undergone regulatory reform.  The recession took a heavy toll on the creative lending practices.  Subprime lending and exotic subprime mortgage products are a thing of the past.  Here are some of the reforms that have been implemented by the Mortgage Reform Act of 2009 and subsequent legislation.

·                     More documentation – The low documentation loans and no documentation loans that characterized the subprime lending practices are no longer permissible.  Today’s mortgage applications require more paperwork than ever before.  Lenders must substantiate and verify all income and debt.  Borrowers should expect to provide lenders with pay stubs, bank statements, retirement account information, income tax returns and brokerage accounts and debt statements.

·                     Refinancing delays – The banking industry, like many recession industries, has undergone massive layoffs.  Requests for refinancing can now take up to 60 days to process.

·                     New appraisal practices – The new Home Valuation Code of Conduct has overhauled the appraisal profession.  The new code discourages contact between real estate sales people and appraisers.  Only lenders can work directly with appraisers and even that practice is diminishing.  Most appraisers are retained through the use of an independent third party.  These changes have led to some confusion but Realtors have asked Congress to suspend the new rules.

·                     Credit evaluation – In the past a Fair Isaac Company (FICO) score of 740 would entitle the borrower to lower interest rates.  The new favored credit standard is 760.  If your credit score is 760, you may want to consider refinancing.

·                     More Truth in Lending – As of July 2009, lenders must disclose earlier in the application process how much a loan will actually cost.  The purpose of this early disclosure is to allow the prospective borrower more time to consider the mortgage offer.  After the borrower receives the new disclosure, the borrower has even days to confirm the selection.

·                     Longer Closing Dates – It now takes more time to close mortgages.  Part of delay is caused by the extended decision time and part of the delay is caused by the simple fact that foreclosure departments are busier than lending departments.

The most aggressive mortgage lender is now the FHA.  More than 60% of mortgages issued by the FHA in 2009 have been issued to first time homebuyers.  The Federal Housing Administration has lowered their down payment requirement to 3.5% and has increased the acceptable debt to income ratios.

Bookmark With