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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2008

FHA Moves Forward

Spurred by new rules, demand is likely to build for Federal Housing Administration loans

The Housing and Economic Recovery Act of 2008 is setting forth many changes for the housing and mortgage industries. As the federal loan program that has kept many mortgage operations in business, the Federal Housing Administration (FHA) can expect significant changes as the housing bill’s regulations are implemented.

Although there is no way to predict the new regulations’ impact, some important changes to FHA will impact consumers, mortgage brokers and lenders moving forward.

The law’s effects

The FHA’s 3-percent downpayment, government backing and lower credit-score requirements have long attracted many low-income and first-time homebuyers. At this crossroads in the housing industry, when consumers are finding it more difficult to qualify for conventional loans, the FHA is attracting more than just last-resort buyers.

At the end of May, FHA reported its mortgage-application activity was at a 2.1 million annual rate, compared with about 778,000 in the same period in 2007. Further, the U.S. Department of Housing and Urban Development (HUD) projects that 48 percent of all home loans will be FHA-financed in 2008, compared to 2 percent in 2007.

Some of the changes to take effect with the Housing and Economic Recovery Act are consumer-friendly. For one, the act implements a $7,500 tax-credit for first-time homebuyers. It also creates the H.O.P.E. for Homeowners Act of 2008 to aid the more than 400,000 homeowners at risk of losing their homes. Although it also increases the downpayment for FHA loans, the amount is still low at 3.5 percent.

The act also permanently increased FHA-loan limits. Since the loan-limit increase this past December, FHA-loan numbers have increased significantly: Issuance increased by 48 percent in the second quarter of this year. There are a few changes that are not as exciting for consumers, however, including the elimination of seller-funded downpayment assistance, effective Oct. 1. HUD has stated that allowing downpayment assistance inflates home values and triples the likelihood of default.

Need for training

With the higher demand for FHA loans, there is an increased need for well-trained mortgage professionals. Processing FHA loans can be daunting for loan officers, even those who have previous experience. New regulations and changes to guidelines will make FHA training essential.

Many FHA-training institutions across the country now are taking on the task of updating curricula to reflect the latest law changes. FHA guidelines can be difficult to comprehend even at a company’s highest levels. Understanding the guidelines is one thing; there is also the task of deciphering what is applicable and what is not.

Training institutions understand the industry’s needs and are designing courses to better serve them. Mortgage companies are only as good as their ability to consume, interpret and use the guidelines put before them.

What’s next?

The mortgage industry has an interesting year ahead as the housing act’s regulations are implemented. The industry is in a period of recovery, and the housing act is just the beginning.

Further, industry professionals are responsible for educating themselves and better understanding the industry they serve. Along with the housing act, education likely will play a major role in reversing the housing crisis. We will begin to see better-trained brokers, originators, agents and appraisers. 


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