Received a note from one of my lenders the other night detailing changes in how FHA is handling those folks who are planning to rent what currently is their primary residence with the intent of moving into another home:

“Due to FHA’s concern that some homebuyers … may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages.

Consequently, beginning with case number assignments on or after the date of this letter [September 19] and until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described in this Mortgagee Letter.”

What are the exceptions?

• Relocation - the homebuyer is relocating with a new employer or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance.
• Sufficient equity- The homebuyer has a loan-to-value ratio of 75 percent or less as determined by either a current residential appraisal or by comparing the unpaid principal balance to the original balance.

On the relocation exception, the lease for the original property needs to be at least one year in length.

What does this mean in the Phoenix real estate market? In short, a lot of people who had been considering renting their house and moving into a larger home based on the current lower prices aren’t going to be able to do so if they’re upside-down on the first half. Even covering the mortgage with the rent (not always a slam dunk) isn’t sufficient.

The reasoning is simple - FHA is afraid the buyer eventually will stop paying on the first home after purchasing the second, which FHA calls a “buy and bail.”

“The exclusion of rental income from property being vacated is being instituted on a temporary basis while FHA further analyzes this situation to determine whether permanent measures may need to be taken. This will assure that a homeowner either has sufficient income to make both mortgage payments without any rental income or has anequity position not likely to result in defaulting on the mortgage on the property being vacated.”

Given how often I’ve heard this scenario floated over the past several months, reaction from FHA only was a matter of time. And unlike the fiasco that eliminated down payment assistance, this appears to be a good move.

Speaking of moves by FHA, it also appears the 3.5% down payment requirement (up from the current 3% for FHA financing) will not kick in until the first of the year.

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Forget hypothetical statements about the impact of doing away with seller down payment assistance programs such as Ameridream.

Forget the stories of all the buyers I and others have helped purchase homes through such programs, folks who legitimately qualified for FHA financing but only needed help with their down payment, folks who still are making payments and aren’t foreclosure risks.

Look instead at this question from Trulia today. These, dear readers, are the people that the folks in Congress screwed:

i have been approved for the program, but my realtor contacted me telling me there are no banks accepting the program so basically i have to start trying to save the 3.5% downpayment required now, which will take me a while considering i have a big family….so this would have been a dream come true, but unfortunately it fell through.

A dream come true. Gone. Well done, Mr. and Mrs. Congressman.

Idiots.

Let’s hope they come to their senses and pass the bill reinstating the DPA programs.

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Received an e-mail from one my lenders yesterday detailing the wind-downs several large lenders are implementing for the end of Ameridream and other seller-assisted down payment (DPA) programs.

Chase, Franklin American, Citibank, Wells Fargo, US Bank and others are following roughly similar timelines:

• No rate locks on DPA loans after August 22.
• Loans in the pipeline must go to underwriting by September 12.
• Funding must take place by September 30 (the Congress’ rule, not theirs.)

At the same time, the effort to save the DPAs continues to roll forward with H.R. 6694. And this video’s now making the rounds detailing HUD’s amazing testimony on the “Housing and Economic Recovery Act?” Gee, why regulate the system when you can eliminate a program and keep thousands of would-be buyers out of the market (even as a $7,500 loan - not credit - is offered in the same legislation.)

Next week I’ll have my third Ameridream closing in the past 10 months. Good folks, all. All able to make their payments. All simply lacking the savings to pay for their own down payment. And none would be able to purchase October 1 thanks to the unique solution of amputating an arm to cure a tumor in the leg.

Brilliance.

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Just received a note from one of the lenders that I work with on a regular basis. It appears there may be life for seller-assisted down payment programs such as Ameridream after all.

A cynical person would ask why the bill was passed with the provision killing off these programs in the first place, but that’s another story for another time.

From Ameridream …

Last night, Congress introduced bipartisan legislation, H.R. 6694 that would reauthorize and reform charitable downpayment assistance. This bill would remedy a harmful provision in the new housing law which limits homeownership opportunities for low and middle-income Americans. The legislation, sponsored by U.S. Reps. Al Green (D-TX), Gary Miller (R-CA), Maxine Waters (D-CA), and Christopher Shays (R-CT) reauthorizes and reforms charitable downpayment assistance funded in part by sellers, which has helped over one million families and individuals become homeowners since 1999. The program was eliminated by legislation signed by President Bush on July 30, 2008.

The Green-Miller-Waters-Shays plan would re-authorize and reform non-profit downpayment assistance and secure it as an allowable source for FHA borrowers. The bill seeks to ensure that providers of the downpayment assistance operate in a transparent manner to guard against conflicts of interest. The bill also includes language to ensure that FHA maintains its financial stability by permanently authorizing the Secretary to assess higher premiums to higher risk borrowers.

It is important that you contact your elected officials in Congress and tell them that you support downpayment assistance and urge them to support H. R. 6694. To reach your elected officials, please call the US Capitol Switchboard at 202.224.3121.

You also can read more at SupportHomeOwnership.com.

Let’s see if House Speaker Nancy Pelosi will leave the lights on for this bill or if Congress really is willing to leave a pool of viable homebuyers in the dark.

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President Bush signed H.R. 3221, otherwise known as the Housing Stimulus Bill, into law. NAR is rather excited about the bill … but I’m not so sure.

One of the more talked-about provisions is the $7,500 tax credit for homebuyers … except it’s not really a pure tax credit. Rather, it’s essentially a 10-year tax-free loan available only on qualifying purchases (foreclosed or “recently built” homes) and available only to qualifying buyers (like anything tax related, there are some income limits built into the process.)

I guess the mere fact that the credit is less robust than first suggested leaves me less sanguin than I was yesterday at the thought of incentives only being offered on the purchase of foreclosed homes. The last thing your average home owner needs is for there to be additional incentive for buyers to ignore their homes for sale in favor of a bank-owned “deal.” (Note to Congress, et al: REOs are selling at a much faster rate than the rest of the real estate market.)

Another provision in the bill does away with down-payment assistance programs such as Ameridream and Nehemiah. Through these programs, sellers could help buyers with their down payments in addition to closing costs by making a contribution to the non-profit (with a nominal processing fee attached.) As of October 1, those go away.

I understand the concern about the percentage of FHA purchases being made through these programs, or at least I try to. For the most part, people qualifying for FHA loans legitimately are qualified to buy. You’re not seeing the shell games played with an FHA loan that you saw with sub-prime loans.

The only thing these buyers lack is sufficient money for a down payment. Having been in that situation myself, I can empathize with their plight … they have the credit, they can afford the payment and all they need is a helping hand to get them into their home.

Now that opportunity is gone (or will be shortly) in favor of tax credits that do next to nothing when all is said and done.

NAR can celebrate the “victory.” Me? I’ll take a pass.

Others opine:

• Livingston Living Online
• Bargaineering.com - the Housing Stimulus Bill Explained
• Steve Hoffacker - Housing Stimulus Package - NOT
• Dr. Housing Bubble - Crony Capitalism for Dummies

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