As the Industry Turns
Know what major changes come from July’s housing act and September’s GSE takeover
By Ruth Lee, vice president of sales, Titan Lenders Corp.
In response to the mortgage crisis, the Housing and Economic Recovery Act of 2008 became law this past
July. Most of the act focuses on statutory
amendments that authorize the federal
government to have a more direct regulatory role over the mortgage industry.
The changes didn’t end there. The Federal Housing Finance Authority (FHFA),
an agency created by the act to oversee
Fannie Mae and Freddie Mac, placed the
government-sponsored enterprises (GSEs)
under conservatorship five weeks after the
housing bill was signed.
Here’s what you should know about the
different parts of this new law, as well as the
takeover of Fannie Mae and Freddie Mac.
The day after the housing bill was
signed, legislation to reinstate the FHA’s
ability to insure loans with seller-funded
downpayment assistance was introduced.
Supporters argue that many viable borrowers will be excluded from homeownership
based on past abuses that aren’t relevant
to the current lending environment. As of
press time, legislation to reinstate seller-funded downpayment assistance has not
H.O.P.E. for Homeowners
Another aspect of the housing act is a program designed to help an estimated 400,000
distressed homeowners. The Home Ownership Preservation Entity (H.O.P.E.) for
Homeowners program offers FHA-insured
mortgages with as much as 90-percent loan
to value of current market value to borrowers at risk of losing their homes.
With this temporary program, lenders
must agree to reduce affected borrowers’
principal balances to 90 percent of market
value voluntarily and forgive any subordinate liens to qualify. Some lenders will
have markets where this option is significantly more attractive than taking on foreclosures and real estate owned properties.
H.O.P.E. also requires that the borrowers can repay the loan with a 31-percent
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The housing bill increased the Federal
Housing Administration (FHA) loan
limit from 95 percent to 110 percent of
“Borrowers in lower-income
areas may struggle with
new FHA downpayment
requirements, which have
increased from 3 percent
to 3. 5 percent.”
the median home price in most areas
and to 150 percent of the agency limit for
high-cost areas ($625,500). This will open
FHA-insured loans to the largest markets
in the country, many of which were hardest hit by nonprime and Alt-A loans.
On the other hand, borrowers in lower-income areas may struggle with new FHA
downpayment requirements, which have
increased from 3 percent to 3. 5 percent.
With declining incomes, higher food and
fuel prices, and reduced savings ability,
this will be harder for lower- to middle-income homebuyers.
In addition, the act eliminates seller-funded downpayment assistance. The
Department of Housing and Urban Development has long argued that seller-funded
downpayment assistance results in higher
default rates. Although nonseller-funded
gift funds from nonprofits, employers,
churches or family members are still acceptable, as of Oct. 1, the FHA no longer
insures loans using seller-funded downpayment assistance.
Ruth Lee is vice president
of sales at Colorado-based
back-office outsource provider Titan Lenders Corp.
Previously, she was owner
and operator of a successful residential mortgage
company for 10 years, including managing
more than 60 loan officers in six states. She
advises customers on business issues ranging
from sales staffing and training to investor
and vendor selection. Contact her at ruth.lee
@ titanlenderscorp.com or (720) 279-7279.