Scotsman Guide - May 2010 Residential Edition

JUST BEFORE WE WRAPPED UP PRODUCTION OF THIS MONTH’S SCOTSMAN GUIDE,
THE FEDERAL HOUSING ADMINISTRATION (FHA) ANNOUNCED ITS LONG-RUMORED
CHANGE TO LENDER-NET-WORTH REQUIREMENTS.

As per its April 5 press release ( sctsm.in/FHAnet1) preceding the regulations themselves, FHA is increasing the net-worth requirement for its approved lenders to $1 million from $250,000, the level it had set since 1993. Lenders currently FHA-approved have one year from the date of the rule to meet the requirement; within three years, the minimum increases to $1 million plus “1 percent of total loan volume in excess of $25 million.” FHA small-business lenders’ net-worth requirement will be $500,000.

More important for mortgage brokers, the rule also shifts broker oversight from FHA to lenders. To originate FHA loans after Jan. 1, brokers must work with an FHA-approved lender. FHA approval of individual originators will be history.

As FHA Commissioner David H. Stevens told us this past January ( sctsm.in/3916), “FHA does not have the resources to monitor thousands of mortgage brokers and ensure that they’re manufacturing loans appropriately.” It’s a matter of risk management — something Stevens has publicly stated deserves FHA’s attention. After all, five years ago, FHA accounted for only 2 percent of all originations (sctsm.

With FHA’s solvency hanging in the balance, two schools of thought have emerged regarding the FHA-approval move. On one hand, placing wholesale lenders as brokers’ FHA gatekeeper inevitably will keep some folks out in the cold. Joining them will be the less-capitalized lenders unable to claim the new net worth.

On the other hand, industry headlines greeted FHA’s early April change as indication of FHA “going easy” on third-party originators. In a way, FHA did remove another barrier to entry — the expensive annual audit for independently approved originators. Whether that will have the net effect of increasing the number of FHA mortgage brokers, as FHA states, or simply making them privy to the nonstandardized whims of individual lenders — rather than the standardized whims of government — will be a concern worth noting through this time next year.

tonys@scotsmanguide.com

5 YEARS AGO

From May 2005’s
Scotsman Guide

“True happiness comes from being all that we were meant to be in our lives. That means being the best we can be both at home and work. It also means putting value in people, not possessions; charity, not success; and giving, not receiving. Give generously and live happily.”

— DALE VERMILLION, VERMILLION CONSULTING INC.

“ACHIEVE TRUE SUCCESS: LEND A HELPING HAND”

sctsm.in/0319

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www.scotsmanguide.com MAY 2005

Pending home sales jump in February
as existing-, new-home sales fall

WASHINGTON, D.C. — Pending U.S. home sales jumped 8.2 percent this past February compared to the month prior, showing signs the market would rebound in the spring, the National Association of Realtors said.

The association also said existing-home sales decreased 6 percent in the same period to a seasonally adjusted annual sales rate of 5.02 million units, while the U.S. Commerce Department said sales of new single-family homes decreased 2.2 percent in February compared to January.

The Realtors association’s Pending Home Sales Index increased in all regions except the West, where it fell 4. 8 percent to 98.

The existing-home-sales figure, down from January’s 5.05 million units, is 7 percent greater than February 2009, when the annual sales rate stood at 4.69 million units.

Meanwhile, the annual rate of 308,000 new-home sales fell short of the consensus forecast, which called for an annual rate of 315,000, according to the Commerce Department.

Next release:

Pending home sales: May 4

Existing-home sales: May 24

New-home sales: May 26

White House announces new
underwater-borrower program

The Obama administration on March 26 revealed a new program for U.S. homeowners that focuses on properties valued at less than what is owed on the mortgages.

In a statement, the U.S. Treasury Department said the program, which will tap into $50 billion of Troubled Asset Relief Program funds set aside for homeowners, would “balance the need to help responsible homeowners struggling to stay in their homes with the recognition that we cannot and should not help everyone.” The program shifts the focus from prior programs that focused on homeowners in financial trouble, The New York Times reported.

March marks most jobs added
to economy in 3 years

WASHINGTON, D.C. — The U.S. unemployment rate held at 9. 7 percent in March, with 15 million workers without jobs, the U.S. Department of Labor said. The department also said 162,000 jobs were added to the economy in the month, the most in three years.

Christina Romer, chairwoman of the White House Council of Economic Advisers, said the “encouraging labor market news,” did not negate the point that “the American labor market remains severely distressed.” An average of 54,000 jobs were added to the economy each month in the first quarter of this year. A year ago in the same period, January through March averaged a loss of 753,000 jobs per month.

‘Mixed’ results follow January’s
Case-Shiller home-price report

WASHINGTON, D.C. — The monthly S&P/Case-Shiller report on home prices showed that annual rates of decline slowed this past January in two composite indexes.