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View Full Version : FHA Loans and PMI



kjrice
02-18-2013, 08:20 PM
Big changes coming in June...less than 10% down and your have to pay PMI for life of the loan. There are other increases and term changes too. Folks better get educated on them.

Gerry Clinchy
02-18-2013, 11:47 PM
This will not help the housing market. 10% down will be the highest down $ for FHA in a l-o-n-g time. I'm not saying that is all a bad thing, even though I am a Realtor®.

When conventional lending pulled in its horns, almost all loans under the FHA cap (in my area) began going as FHA loans, with 3.5% down. So, changing to 10% will make a BIG difference around here. However, it will stabilize the housing market.

The question will be whether the politicians will catch the devil from their consituents on this, as the cost of living makes it harder and harder to save up that 10%.

luvmylabs23139
02-19-2013, 10:55 AM
I'd be happy if we went back to 20% down and got the gov't out of it all.

sick lids
02-19-2013, 11:22 AM
I'd be happy if we went back to 20% down and got the gov't out of it all.

Work hard and save, NOW THAT WOULD BE UNAMERICAN

Gerry Clinchy
02-19-2013, 12:12 PM
I think that the problem is that back in time, wages were lower, but so was the price of necessities like food and gas. Now, the wages are higher (but lower than they were 3 or 4 years ago in "real" dollars), and the cost of necessities are higher. Thus, it will be just as hard to save that 10% as it used to be save the 20%.

While it may have been dumb to let people buy houses on 2.5% and 3.5% down, it grew the housing industry, which made for more jobs; and some of those jobs had decent pay. This higher down payment will slow down sales of both new construction and re-sales.

I do not have a problem with financial responsibility being returned to the market, but if the housing industry takes a "hit" with such a dramatic increase in down payment (conventional lenders have already gotten more strict), then it should follow that there will be higher unemployment (from more lost jobs in housing). Unemployment will also be impacted in the support industries of the suppliers; everything from furnaces, heat pumps, lumber, roofing supplies, plumbing supplies, etc. Those workers will also get some effect on employment. With those people out of work, and loss of those workers' disposable income will affect many more sectors of the economy as well.

I am NOT saying that we should artificially support the housing industry, but we should be prepared for the fallout from this move.

It will also mean that if these changes take place in June ... right after the "spring market" in real estate sales ... the bottom will fall out by fall. 4th quarter 2013 housing figures should then reflect the change. Unless there is some back-pedaling on this, there could be a lot of hurt going around as we head into the 2014 mid-term elections.

The winners? The banks have a lot of foreclosures that they have not "released" into the marketplace. If they start releasing them, investors should be able to pick up some good deals; and, eventually, make some bucks when they re-sell them. Probably a good example of "the rich get richer". But this is not the "fault" of the "rich", it is the fault of govt meddling in housing to allow people to buy homes they could not afford.

In the interim, the investors can use the properties they purchase as rental properties. With many people unable to buy, the demand for rentals should remain strong. The rental market has remained strong through the rest of the housing debacle. Landlords, however, were taking greater risks since the tenants' credit reports looked pretty bad when they reflected foreclosures and/or short sales on their home.

achiro
02-19-2013, 12:32 PM
Low down payments weren't the issue.

Gerry Clinchy
02-19-2013, 12:45 PM
Low down payments weren't the issue.
I might disagree with this ... Here in PA, there are also closing costs that include 2% transfer tax. Customarily this is split 50/50 between buyer and seller. There are also tax escrows, title insurance, and some other lesser fees. These closing costs, over and above the down payment, usually amounted to around 5-6% of the cost of the home. FHA allowed the seller to pick up as much as 6% of these additional costs. So, one could purchase a $100,000 home for an outlay of $2500. Perhaps another $500 for pre-purchase inspections. FHA did not require any "reserves" for owner-occupants, i.e. money still in the bank to cushion an "emergency".

While down payments, alone, were not the issue, they certainly did play a role in the overall stupidity of home purchasing during the housing bubble.

Outside of the FHA program, part of the housing debacle was the 100% and 103% mortgage loans. With the 103% loans, the seller could also pay the remaining 3% of the closing costs. Very easy to let a home go to foreclosure when one has no skin in the game.

Realtors® were not immune from the virus. Not long ago I noticed a short sale for a $600K home that was owned by a local agent who had paid around $800K for the home during the height of the bubble locally.

achiro
02-19-2013, 01:09 PM
I might disagree with this ... Here in PA, there are also closing costs that include 2% transfer tax. Customarily this is split 50/50 between buyer and seller. There are also tax escrows, title insurance, and some other lesser fees. These closing costs, over and above the down payment, usually amounted to around 5-6% of the cost of the home. FHA allowed the seller to pick up as much as 6% of these additional costs. So, one could purchase a $100,000 home for an outlay of $2500. Perhaps another $500 for pre-purchase inspections. FHA did not require any "reserves" for owner-occupants, i.e. money still in the bank to cushion an "emergency".

While down payments, alone, were not the issue, they certainly did play a role in the overall stupidity of home purchasing during the housing bubble.

Outside of the FHA program, part of the housing debacle was the 100% and 103% mortgage loans. With the 103% loans, the seller could also pay the remaining 3% of the closing costs. Very easy to let a home go to foreclosure when one has no skin in the game.

Realtors® were not immune from the virus. Not long ago I noticed a short sale for a $600K home that was owned by a local agent who had paid around $800K for the home during the height of the bubble locally.
But ultimately it was about the monthly payment being higher than the buyer could afford, especially on ARM loans. Sure, putting more down does lower the payments some but if people had a house payment they could afford the down wouldn't matter and foreclosure rates would be very low.

Gerry Clinchy
02-19-2013, 01:24 PM
But ultimately it was about the monthly payment being higher than the buyer could afford, especially on ARM loans. Sure, putting more down does lower the payments some but if people had a house payment they could afford the down wouldn't matter and foreclosure rates would be very low.
However ... if higher down payments were required, it would have been more difficult for these buyers to get into these mortgages.

We can certainly also fault the types of mortgages that were used.

Responsible Realtors® and loan officers had a hard time of it. People were in a buying frenzy, and all they wanted was someone who told them that they could buy the house they wanted to buy.

We should not forget that banks were compelled to make these loans due to govt mandates.

mjh345
02-19-2013, 01:34 PM
Low down payments weren't the issue.
They were a BIG part of the issue. Having 20% of a large purchase price sort of pre-qualifies one as being a more responsible fiscally sound person. Additionally it requires them to have a lot of skin in the game; which will make them more likely to not overextend themselves or walk away with no loss

Loran Marmes (JR)
02-19-2013, 07:11 PM
i just a bought a house in wisconsin, im 26 years old and work very hard. i have been on my own since i was 18 and with that it made it very hard for me to save to to some low paying jobs. if it wasnt for getting an usda loan id still be in my apartment. i think a big problem is majority of kids my age still live at parents i believe the stats i read once was 2/3 of young adults live with their parent till 28 and come with a college degree for a field they cant get a job in and have no money of their own.

Loran Marmes (JR)
02-19-2013, 07:15 PM
i do not think you can judge "how responsilble" a person is by how big of down payment they put down.

Marvin S
02-19-2013, 07:20 PM
i do not think you can judge "how responsilble" a person is by how big of down payment they put down.

But there is the possibility that you could judge how irresponsible they were by their inability to put anything down :confused:.

achiro
02-19-2013, 08:09 PM
They were a BIG part of the issue. Having 20% of a large purchase price sort of pre-qualifies one as being a more responsible fiscally sound person. Additionally it requires them to have a lot of skin in the game; which will make them more likely to not overextend themselves or walk away with no loss
I get what you are saying but I'm not using the down as a screening tool, what I'm saying is that the monthly payment going up is what killed most people. The problem is that people are pretty much stupid and the ones that should have known (the ones giving the loans) didnt tell the stupid people everything they should have. Don't get me wrong, I don't hold the homeowners blameless but when people are getting the loans without any proof of income the banks have to take the brunt of the blame. I honestly think that people thought that the banks wouldn't have given them the loan if they couldn't afford it. Anyway,I think we agree on this stuff enough not to argue about it. We're just not talking about the same things.

achiro
02-19-2013, 08:24 PM
I guess the real issue for me is the gubment telling a bank what they can and can't do. Housing loans are kind of weird in that someone paying $950 a month for rent for the last ten years wants could buy a nice place and lower their payment. Say they wanted a $100,000 house which would make their monthly payment go down but because they can't come up with $10,000+ for the down they couldn't buy. Many bankers might look at that and say, this person has a great work history, has paid $950 per month for housing for the last ten years, and be willing to give that loan. Person 2 may have been living with someone else, barely be able to make the monthly but inherit enough from a dead aunt to pay the down. They fit the guidelines but could be a really bad investment.

kjrice
02-19-2013, 08:54 PM
I just think it is not good to PMI for life of loan if they can't put down more than 10%. That adds to the cost and not towards equity or tax credit. At least my VA is worth something again.

Raymond Little
02-19-2013, 09:11 PM
Guess I am a succa for putting 40% down instead of buying a new Jag?

LabNut
02-19-2013, 09:29 PM
I'd be happy if we went back to 20% down and got the gov't out of it all.

Agreed!!!!

Gerry Clinchy
02-19-2013, 10:31 PM
There is truth in every statement that has been made. Both down payment and credit record (the fellow who rented for 10 yrs) are important to judge the quality of the loan. Common sense, and the way banks used to operate.


I honestly think that people thought that the banks wouldn't have given them the loan if they couldn't afford it.
That is also correct. First-time buyers need the guidance of the mortgage officer and real estate agent. The sad part is that when the housing market booms, both areas end up with a lot of people joining those ranks who think it's a way to make some quick money. They are not experienced enough to be interested in building a long-term client base. And this was very much the case during this last bubble. Not to mention there were also a lot of downright crooks involved ... where mortgage applications were actually falsified.

Gerry Clinchy
02-19-2013, 10:38 PM
Absolutely agree that PMI should NOT stay with the loan forever. It is another case of the responsible people paying for those who are irresponsible.

However, for homes purchased during a housing bubble, a re-appraisal should be necessary. If the home is worth less than the outstanding loan, the PMI should remain until the principal is 80% of the current market value. That would be fair to both borrower and lender.

The whole point of PMI is to assure that the bank will get back its money if the homeowner stops making payments. In a "normal" market purchase, 80% would be reasonable. In the abnormal bubble situation, many homes are now "under water". Thus, if you purchased a $300K home and now your mortgage is $240K, but the market value is only $220K, PMI should remain until the outstanding balance is in line with the home's actual market value.

luvmylabs23139
02-21-2013, 10:09 PM
I just think it is not good to PMI for life of loan if they can't put down more than 10%. That adds to the cost and not towards equity or tax credit. At least my VA is worth something again.

Ya know that these days PMI is a write off but it wasn;t back in the day.

luvmylabs23139
02-21-2013, 10:18 PM
I guess the real issue for me is the gubment telling a bank what they can and can't do. Housing loans are kind of weird in that someone paying $950 a month for rent for the last ten years wants could buy a nice place and lower their payment. Say they wanted a $100,000 house which would make their monthly payment go down but because they can't come up with $10,000+ for the down they couldn't buy. Many bankers might look at that and say, this person has a great work history, has paid $950 per month for housing for the last ten years, and be willing to give that loan. Person 2 may have been living with someone else, barely be able to make the monthly but inherit enough from a dead aunt to pay the down. They fit the guidelines but could be a really bad investment.

Lets look at the flip side of the gov't being in housing. We thought we bought our condo back in 94 near the bottom after the condo market crashed in CT. We could not sell for what we paid for because the govt took our hard eraned money (taxes) and gave it to section 8 (a property value destroying prgram). The complex lost the FHA owner occ ratio so no more FHA loans so guess what more investors and more section 8 and more slime. SLime across and below us and we were forced for them to live there and make our lives a living helll while they sucked the life blood out of us. YOUR GOV"T AT WORK!
Eliminate all section 8 and put them back in the prijects or better yet cages. I worked for my home and the gov;t made me pay for someone to live next to me and destroy it!

kjrice
02-26-2013, 11:44 AM
Ya know that these days PMI is a write off but it wasn;t back in the day.
It is always subject to change.

luvmylabs23139
02-26-2013, 11:57 AM
It is always subject to change.

Yeah, that would be a good "loophole" to eliminate!!!

Socks
02-26-2013, 12:51 PM
Lets look at the flip side of the gov't being in housing. We thought we bought our condo back in 94 near the bottom after the condo market crashed in CT. We could not sell for what we paid for because the govt took our hard eraned money (taxes) and gave it to section 8 (a property value destroying prgram). The complex lost the FHA owner occ ratio so no more FHA loans so guess what more investors and more section 8 and more slime. SLime across and below us and we were forced for them to live there and make our lives a living helll while they sucked the life blood out of us. YOUR GOV"T AT WORK!
Eliminate all section 8 and put them back in the prijects or better yet cages. I worked for my home and the gov;t made me pay for someone to live next to me and destroy it!

Although I don't agree with the way you said it, I will say that I would fight Section 8 housing anywhere near me. It litterally does nothing, but destroy the housing market where it shows up. My argument to the bleeding hearts that want it is that if they want it so bad they have it next to their house. Then lets see how fast they back peddle.

luvmylabs23139
02-26-2013, 01:17 PM
Although I don't agree with the way you said it, I will say that I would fight Section 8 housing anywhere near me. It litterally does nothing, but destroy the housing market where it shows up. My argument to the bleeding hearts that want it is that if they want it so bad they have it next to their house. Then lets see how fast they back peddle.

I said it the way anyone who has lived thru the nightmare would say it! A few examples of things that happened. THE welfare section 8 directly below us ( no she did not work if you eliminate the drug dealing) had a brand new car while my paid for car was 8 years old and hubby's was 4 years old. She would come home late at night and if no close parking spaces rather then go to the overflow lot she would block my car in so I would have to pound on her door and hope to awake her to move tthe illegally parked car so I could go to work.
There was a fire zone by the entrance to the door to 6 units with a parking space on either side. Well, she would park in the fire zone if no open space near the door! SO those of us the normally got the spaces on either side had to rather than parking to leave the fire zone, walk way as wide as possible especially in the winter started parking on the lines so she could not fi her car in there. Went to take my dog out one snowstorm morning and was met at the common doorway by a drug dealer and a pit bull visiting her I guess overnight who told me to move or his dog would tear us up. Mickey told his his dog off and pitbull put his tail between his legs but they again had a car parked blocking everyone in.
NO laundry or towels to be hung over balcony railings but she would dry her jeans out there again againt the bylaws almonst everyday in the summer. HAad enough one day as my window box flowers needed watering. Finally watered the dying flowers, splashing lots of mud (yup a maxed out the splsh factor at that point) doen onto the ILLEGAL laundry. The bitch came upstairs and tried to attack me and tryed to claim my dog waspeeing on the deck. Bad scene. I could go on and on. How about the one directly across from me Tracy with her 5 year old whos daddy was in jail.