Plan to Reform Mortgage Market Could Affect FHA Negatively

Okay I get it! Fannie Mae & Freddie Mac must cease “business as usual” because of the heavy criticism (some warranted) over the last five to six years as well as their share of blame for the sub-prime meltdown which fueled the mortgage crises and eventual recession; But it seems a little drastic to totally dismantle the two GSEs, both of which deserve a great deal of credit for their part in the robust real estate and growth in the mortgage market during the decade from the mid-nineties to mid-two thousands.
Getting rid of Fannie & Freddie would create much more pressure on the FHA (Federal Housing Administration that insures mortgages), which would be the only mortgage agency that would remain, (except the VA, which is restricted to veterans and their spouses) to deal with the nation’s home financing needs. That, my friends, could create another problem altogether. In the aftermath of a devastating subprime meltdown and crippling recession FHA-insured mortgages increased more than 20% from second quarter 2009 to the same quarter in 2010. Just think of how much more the agency would have to take on in the absence of the two GSEs.

If the private sector doesn’t pick up the slack from winding down the GSEs, then FHA would be the only viable source to meet that increased demand, so the planned reform has to be implemented with extreme care. Read more in this BINYAMIN APPELBAUM NY Times Article; and for a different perspective take a look at this Felix Salmon Seeking Alpha Article. Fannie Mae (1938) & Freddie Mac (1970) have been a huge part of the mortgage industry for a long time so any plan for “winding” them down is a big deal to this author.

Happy New Year! And Wishing You All the Best for Success in 2011.

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Thank you for your support. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Please provide any comments, opinions or preferences which you would like us to be aware of. Thanks and God Bless! 


For more about 203k, please visit the HUD website

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If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?

Building Blocks for the First Time Home Buyer

Building blocks for the first time home buyer outlines the entire process of home buying that a first time home buyer may benefit from in his/her preparation for home ownership. There are four blocks of preparation which can be described as Preliminary, Before, During and After the purchase.

In many home buying transactions the process will begin with the priliminary and before stages (preparing yourself to make the purchase, and finding a suitable home) as in blocks One & Two below; And during (the mortgage financing process as in block Three below.

Block four is treated a little differently because it occurs after the transaction closes, but it must have been initiated between blocks One & Two because a first time home buyer must decide on the specific mortgage type (whether it be a conventional, a FHA-type, or VA).

In the case a FHA 203k rehabilitation mortgage loan the mortgage clause in a purchase contract would have to indicate that 203k mortgage financing will be a condition of the purchase. The building blocks for a home-purchase include the following:

Block One Preparation (personal) – Things you can review in preparation for your home purchase, like;

  • Job – Length of employment, job security, and good to excellent prospects for continued employment.
  • Savings – Having put aside enough money for down payment, closing costs and at least 3 months reserves (one month reserve equaling one month PITI)
  • Credit – Reasonable to excellent payment history on all accounts, account balances at or below 50% of account limits and reduction in the number of accounts to six or below (including balance transfers if necessary).

Block Two Preparation (house) will include;

  • Searching for and selecting the best home for your money
  • Real Estate Broker – Interviewing brokers, including buyer’s agents, that you will make your purchase with (or through)
  • FSBO (For Sale By Owner) – Going it without a broker includes contacting the home seller(s), making your offer directly to him/her/them, preparing and making your initial offer, and setting up your contracting signing (things that a broker would usually do).
  • Mortgage Broker/Lender – Arranging your own mortgage financing through a lender of your choosing is a right bestowed upon you by federal law.

Block Three Preparation (mortgage financing) includes;

  • The mortgage type and lender selection is left to the buyer to decide without any undue pressure (from anyone else).
  • Mortgage Type – Generally your choices would be Conventional, PMI, FHA and VA
  • Mortgage Application – Depending on the lender you select this application could be done by mail, the internet or in person. It really depends on how much of the work you want to do.
  • Appraisal Report – Although you pay the appraiser’s fee, you do not get to select the appraiser. This is done by your lender; And while you are entitle to a copy of the appraisal report, many lenders do not release it before the closing and/or without a written request from you.

Block Four Preparation (finding a licensed and insured general contractor);

  • The contractor plays a key role in a 203k-financed home purchase.
  • Contractor’s Estimate – Required to provide the mortgage lender’s personnel with an amount to be financed into the mortgage.
  • HUD Consultant’s Work Scope – Required by HUD to inspect the home, keep the work estimate figures in line with reasonable market rates, and establish the required contingency reserve.
  • HUD Consultant’s Work Inspections – Also required by HUD to insure that work is being done without any extended stoppages (30 days or more), as well as to authorize release of funds to the contractor.

For more about FHA-insured financing, visit the HUD website

Humor or Irony:

If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages… Government-run for over 75 years! Lest we forget?