FHA Changes | California Current

The housing rescue bill finally passed by the Bush administration today has broken many headlines, but people are questioning if this will help cure the housing market. Well here in California, one of the biggest changes to take effect is the elimination of the down payment assistance, or DPA, for FHA loans. Come October 1^st, sellers will no longer be able to contribute to the buyers’ down payment through such programs like the FHA Nehemiah.

So here is my question to you, will saying “bye-bye” to DPA say goodbye to a “buy-buy” market?

With home equity sliding in the past year and values dropping considerably, FHA has become quite a hot product in today’s mortgage market as their limits strike a balance with California’s home values today. So much that even mortgage brokers in California are calling it “the best game in town …the only game in town, really”. But will saying goodbye to DPA turn the tide and negatively impact our buyers market?

Fed officials comment that the DPA associated with FHA essentially inflates the purchase price of properties and results in a greater chance of default - and I agree.

Where Do I Stand
To be fair, I’ve been asking for your opinion, so let me first give you mine. Doing away with DPA will definitely hurt a significant portion of the buyers market, but this is the type of buyer we are trying to avoid anyway. While FHA only offers traditional fixed rate mortgages with principal and interest payments, offering homes with essentially zero down can’t help but remind me of the exotic loans that we now blame for this current housing crisis. So yes, I think DPA will curb a certain amount of buyers but if we let DPA continue, we just might end up back where we are now or even worse off in the future. Remember, FHA has and will still continue to allow a cash gift from family members to contribute to the now required 3.5% down payment.

At the same time, FHA is still a bargain in the sense that conventional loans still require five to ten percent down - while FHA needs only 3.5%. We just want to make sure the FHA does not carry this much risk as they try to stimulate markets by taking the financing pressure away from banks and investors.

So, what is your take - do you think we will be better off in the future without DPA or will this ultimately hurt California’s potential buyers?

Source: SacBee

(3 votes, average: 4.33 out of 5)

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President Bush has favored stricter guidelines for the mortgage lending business and up until Wednesday he has threatened to veto a bill that would hand $3.9 billion to local governments as a bailout. As of Wednesday however, it is speculated that he will sign the “multi-use” legislation and the senate will likely pass on it as well.Treasury secretary Henry Paulson commented that it was easy to advise President Bush to sign this rescue package because he felt it necessary to “stabilize the troubled housing and credit markets.” As a result, the House voted 272-152 and it is expected to become law quite soon as heavy speculation agrees that both Senate and Bush will approve.

Key Highlights of Legislation

FHA Changes
- Mortgage limits for high cost area increased to $625,000 from $417,000
- Cash Down payment is set at 3.5%
- Seller Down Payment Assistance will be terminated on September 30
- Rescue fund for special refinance programs into FHA fixed rate products
Fannie Mae and Freddie Mac
- Temporary powers to provide liquidity and capital
- Treasury to offer unlimited line of credit to Fannie and Freddie over the next 18 months
- Treasury has authority to buy stock in companies if necessary
First time Home buyer credits
- Tax refund incentives for first time home buyer up to 10% of purchase price not to exceed $7,500
Grants for States
- Grants totaling about $3.9 billion to buy and rehabilitated foreclosed properties

How does this help you?

The bill is primarily focused on helping troubled “at-risk” homeowners as well as injecting capital and supporting the two major government sponsored enterprises - Fannie Mae and Freddie Mac. This is good news for California residents as the FHA changes will support mortgage limits which are needed for our above average median home prices. In addition, the bill itself will specifically aim to refinance “at-risk” borrowers into new fixed-rate FHA loans. First-time home buyers should speak to their local mortgage consultant to see if they will qualify for the new tax-refund incentive worth up to $7,500.

Sources: NYT,CNN Money

(12 votes, average: 4.92 out of 5)

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