Restrictions on Federal Real Estate Financing Eased

Several programs have been updated lately that offer help to homeowners or those who want to be homeowners. Anything that removes restrictions on obtaining financing is a positive step in improving the housing market.

New FHA limits

Last month, Congress voted to lower Federal Housing Administration (FHA) loan limits to $625,000. The reset last month impacted 669 counties in 42 states and territories, with an average loan limit reduction of more than $68,000. This could have greatly affected the sale of 72 homes in Sammamish, 36 in Issaquah and 139 in Bellevue listed above $700,000. 

In a compromise vote, House and Senate voted to restore the higher limits for FHA but retain Fannie Mae and Freddie Mac at 115 percent of local area median home prices, up to $625,500. Frannie and Freddie are still under scrutiny for questionable business practices. But, the FHA mortgage insurance program has been self-sustaining since 1934.

The provision reinstates the FHA loan limits through 2013 at 125 percent of local area median home prices, up to a maximum of $729,750 in the highest cost markets.

In this market, it is always refreshing to get positive statistics. FHA is reporting that their delinquent rate has declined to 1.90 percent, the lowest level in over 5 years, 

This rise in loan limits does not only affect high income earners. According to statistics, FHA was used by 56 percent of all first-time homebuyers in 2010. In addition, 85 percent of borrowers obtaining homes at the higher loan limits had incomes below $150,000, and nearly 65 percent had incomes less than $100,000.

 “As the nation’s leading advocate for homeownership, we applaud members of Congress for restoring FHA’s previous loan limits, which will help reduce consumer cost burdens, stabilize local housing markets and allow qualified, creditworthy borrowers to access affordable mortgage financing,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “The reinstated loan limits will help provide much needed liquidity and stability to communities nationwide.”

Extension of National Flood Insurance Program

The unavailability of flood insurance has delayed or prevented closings.  Congress has been extending the National Flood Insurance Program in small increments for the last several years. Included in the bill to increase loan limits is another short extension of access to flood insurance for millions of home and business owners, but only to Dec. 16th.  The National Association of Realtors® is encouraging Congress to add certainty to the program by extending the program for an additional 5 years.

HARP cap eliminated

On Nov. 15, HARP (Home Affordability Refinance Program) made some significant changes which should help many more distressed homeowners take advantage of the lower interest rates and refinance their mortgages. The first caveat is that their current loan must be serviced by Fannie Mae or Freddie Mac. The biggest change to the program is that they have eliminated the cap that prevents "underwater" borrowers from refinancing. Previously, they would only refinance up to 125 percent of the value of the property. There will not be any limit on value. Also, certain risk-based fees have been eliminated for borrowers refinancing into shorter mortgages and fees have been lowered. 
 
According to data from CoreLogic, millions of homeowners who owe more on their home than the present value will be able to reduce their payments and prevent their homes from going into foreclosure. Statistics indicate that 27.5 percent of nationwide residential properties with mortgages had negative equity. Washington was on the low end with 17.2 percent of homes with negative equity while Arizona jumped to over 60 percent.

There are several restrictions. The existing loan must have closed before May 31, 2009. Only first mortgages will qualify and interest-only or stated-income loans will not qualify. But, second homes and investment properties will qualify. To be eligible, borrowers must be current on their mortgage payments with no late payment in the past six months and no more than one late payment in the past 12 months.

This loan will be available only until the end of 2013. 

David Stevens, president and CEO of the Mortgage Bankers Association, stated in the Dec issue of the Northwest Reporter, while the changes "are not going to be a silver bullet to solve all the issues facing our housing market they will offer lenders another tool to help borrowers and hopefully help bring some stability to housing markets, particularly those most impacted by home-value declines.”

Homeowners can determine if they have a Fannie Mae or Freddie Mac loan by going to: http://www.FannieMae.com/loanlookup/ or calling 800-7FANNIE, or clicking https://ww3.FreddieMac.com/corporate/ or calling 800-FREDDIE.

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Joan Probala is the managing broker for Issaquah Windermere and has 30 years of experience in real estate, construction and sales. She is also president-elect of the Seattle King County Association of Realtors.