… and he plans to use it to take out the US Housing Market!
I know, very dramatic. Maybe even a little uncalled for. On the other hand, there is really no other way to describe how potentially dangerous the policy changes that HUD Secretary Donovan is proposing this week. What are those changes?
Before I tell you what he is proposing, a little backgorund on my thought process is in order. I work with dozens of home buyers every year. Most homebuyers, like most Americans in this economy right now, don’t have tens of thousands of dollars sitting in a savings account. If we did, that would be great! Think of it, if Americans were swimming in cash there would be no healthcare worries, everyone would have excellent credit, all those worthwhile causes could be funded, jobs would be plentiful, all you would ever see are happy, upbeat stories on the evening news!
But that’s not the case. We are either at or near the bottom of a recession. Unemployment is rising. Americans are spending less. Costs are going up for utilities, gas, food, clothing, etc. Americans do not have thousands of dollars in the bank. Look at your bank statement and tell me I’m wrong.
Coming up with the cash needed to buy a home is the number one reason most people do not buy. It isn’t that they can’t afford it, many mortgage payments are lower than rent payments on an similar home would be (at least here in Lancaster County PA). It isn’t poor credit, according to Experian the National Average Credit Score is 692. With a score like that, you can usually get an interest between 5.25% and 6% today! The average closing costs on a $150,000 home are between $8,000 and $12,000 before you factor in down payments needed. It’s the money, plain and simple.
The government knows this. Want proof? How about a Tax Credit to incentivize people to buy? How about a government program that advances buyers the Tax Credit to use AS CLOSING COST $$? So why is Secretary Donovan trying to kill the progress these programs are making in supporting the housing market recovery?
Here are a few of the changes to FHA lending that he is proposing:
- Reduce the amount of seller assistance buyers are allowed to from 6% to 3%
- Increase down payment requirements from 3.5% to 5%
- Mortgage insurance premiuims will rise by about 0.75%
So, what we have are proposed changes that, if passed, will require FHA buyers to bring and additional 5.25% to the settlement table. On a $150,000 home, that is an additional $7,875!!!! To put this in the right perspective, in the year 2009 80% of first time buyers used FHA financing. First time buyers accounted for 47% of all homes sold from June 2008 to June 2009. During that same time period, this meant that 39% of all mortgage loans were FHA loans!
How many of those people would not be able to buy if these changes are passed? I agree that loans cannot be made to people that cannot pay them back. But how can the government on one hand enable a program like the Tax Credit and then allow it to be combined with a program like the PHFA Tax Credit Advance program, allowing buyers to buy with ZERO money out of pocket, and then turn around and say what Donovan said, which is that in his opinion buyers need to have more of their own money invested in a purchase to ensure that they don’t default on their loans?
Sorry Mr. Donovan, but your proposed changes will do far more harm than good. 99% of the bad loans that got us into this mess are no longer available. Lenders have already changed policies to avoid people over extending themselves. These proposed changes will not do anything positive in the current housing market. Thankfully, nothing is final yet, but action is needed to stop this. Some of these changes require Congressional approval. If you agree, write your Congressman and tell them to vote against allowing FHA to make the changes. Write to Mr. Donovan at HUD and tell him that these changes are bad for the housing market.
I’d like you to be part of the conversation, so if you like what you read here please comment, forward The Lancaster Connection.com to your friends, subscribe and as always, if you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-490-8999!
Your Friend in Real Estate,
Weichert, Realtors – Engle & Hambright
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