Cool Tools News Spool

Month: October 2015

  • Number of homeowners set to explode

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    If you’re worried about the strength of the housing market, you may want to look at the Mortgage Bankers Association’s recently released Housing Demand report. The report predicts as many as 12.7 million new home-owning households by 2024, and it provides the statistics to back it up. That’s roughly 1.3 million a year – pretty significant.

    MBA considered two scenarios. In the first, it held homeownership rates at 2014 levels, which were the lowest in decades. Under this scenario, MBA predicts 10.3 million new owner households by 2024. In the second scenario, it assumed that homeownership rates will revert to their long term averages, which are less than the pre-crash highs but higher than today’s low. Under this scenario, MBA predicts 12.7 million new owner households.

    As you might imagine, the Millennial generation contributes positively to homeownership under both scenarios. However, it may surprise you that Baby Boomers are the main source of growth, 9.9 million households (96%) under the first scenario to 9.6 million (76%) under the second scenario.

    Based on other recent studies that show Baby Boomers preferring to age in place, I’d suggest the results may underestimate the already enormous effect of that generation on the number of new owner households.

    Regardless of which scenario plays out, it appears the next decade will witness much stronger housing demand and one of the largest expansions in the history of the US housing market.

    Click here to view the report.

  • FHA changes will disqualify some homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

    I discussed the changes in the treatment of student loans last time. This time, I’m going to detail other changes that may trip up some of your potential buyers.

    – An insufficient funds notice on a bank statement used to require a letter of explanation from the buyer. FHA wanted assurance the buyer didn’t make a habit of writing bad checks. An NSF now will force us to manually underwrite the loan. The main effect of this is a lower maximum debt ratio, meaning the buyer cannot afford as much home.

    – If your buyer was laid off in the last two years and had to take a lower-paying job, he’ll have difficulty qualifying for an FHA loan. FHA seemingly expects people’s income to rise every time they change jobs. Washington obviously didn’t experience the recession the way the rest of us did. I’m hopeful we can use letters to explain situations beyond your buyer’s control, but it remains to be seen how underwriters will apply this guideline.

    – If your buyer has income from a part-time job, we can use that income for qualifying only if the buyer has a two-year history of receiving the income.

    – This last change is going to drive parents nuts. Under the old handbook, if a parent gifted a child down payment money, we generally asked for a copy of the cancelled gift check and the child’s updated bank statement showing the available funds. Under the new handbook, we also need a bank statement from the parent showing the withdrawal of the gift funds. Now, the only one who’s going to see the parent’s bank statement is the lender, but I’ve run into many parents who were suspicious when we asked for a copy of the cancelled check.

    The new handbook offers many other changes, but I think these are the ones you’ll find cause the most heartburn.

  • FHA changes may hurt your first-time homebuyers

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The new FHA handbook is now in effect, and I think you’re going to find the new loan guidelines reduce your pool of potential homebuyers.

    That said, probably the biggest change is a mostly positive one. The old handbook allowed for a lot of underwriter discretion. With FHA suing lenders to buy back defaulted loans, many lenders had instructed their underwriters to adopt conservative interpretations of the guidelines. In contrast, in the new handbook the guidelines are more black and white. Very little is left to underwriter discretion.

    Unfortunately, some of those black and white rules are even more conservative than what underwriters were applying before the new handbook and are likely to prevent some marginal homebuyers from qualifying.

    A change likely to impact many first-time homebuyers concerns student loans. With the previous rules, FHA would allow us to ignore student loans that were deferred greater than 12 months. The new rules eliminate this exemption. All student loans must be considered in a borrower’s debt ratio.

    Student loan servicers often don’t report a monthly payment for a deferred loan, and the new rules say we must use 2% of the loan balance if the servicer won’t report a payment. Fortunately, loan servicers typically will provide a payment based on the loan’s current balance if the borrower asks, and this payment typically is closer to 1%.

    The change makes FHA more consistent with conventional loan programs. However, Fannie Mae allows us to use 1% of the loan balance if the servicer won’t report a monthly payment.

    FHA still provides one advantage over conventional loans. It allows the use of the actual payment for income-based student loan repayment plans. These plans often have payments that are less than 1% of the loan balance.

    Next week we’ll look at several other significant changes.