FHA Fund In Deep Doodoo

FHA's Finances

You're probably laughing at the title but it's true folks...FHA is in DEEP doodoo (my spelling I don't care) and has been for a long time.

Rueters released an article recently stating that unless FHA does something soon it will be drawing money from the Treasury...

So what's new in Washington? More taxes, more bailouts, more losses being covered up and now FHA will increase fees yet again to try to shore up the balance sheet and avoid a so called bailout.  However what's the difference right? All of us as consumers are bailing them out by paying higher fees for the mortgages.

The fund is a total disaster and the program is so outdated it's had little changes since it's inception in the 30's.  They know it needs restructured but choose to kick the can down the road. (just like everthing else, ha)

FHA now insures 1.2M mortgages and their share of the market has increased to 15% from 5% in 2006. The article went on to say that it missed needing to draw from the Treasury due to $1B in settlements from servicers...hmmm.. could that be why Wells was the next target?

Estimation is the fund will not be back to it's 2% capital ratio requirement until sometime in 2017...this just strengthens my prediction we're not going to see rates go anywhere upward - they just can't - anytime soon; they're relying too much on new activity and higher fees to keep the ponzi going.

Plus with the lawsuits they're hoping to generate some more revenue for the fund.

We're playing a dangerous game of Russian roulette here.    Just see this quote from Maxine Waters below

"At a time when the private market constricted, the FHA stepped up, providing crucial liquidity and access to the mortgage market," said Representative Maxine Waters, a senior Democrat on the House Financial Services Committee.


She warned against taking any actions that would "precipitously" choke off loan availability.

Oh yea...they know what's up.  If we choke off credit - crash and burn baby...

So What Mindset Should You Have About All of This?

So what does this mean for those in the industry? Consumers? Well folks you can't change it; it's happening and you're not personally going to do anything about it so if you're shopping for a loan and all you qualify for is FHA, you're just going to have to take it from behind...and you'll be forced to like it.

If you're in the business like I am I know what's going on and I understand it.  For the consumer I know it's hard as you don't go through it every day like we do.

The good news, because I try to focus on the good because you'll cause nothing but anxiety and stress if you don't, is that there is a real opportunity to utilize a program FHA offers and to take advantage of it.

What is it? It's the 203k renovation program.  I've said in earlier posts that this will be the new real estate trend, and it already is beginning to be, for some time to come.  Without going into full detail as my blog post will explain, you can buy a fixer upper and finance the cost of the improvements into the loan...
and your maximum financing is based on after improved value of the property...This is an awesome program but it does suck that it will be more expensive now...

However - if you find a property that is priced well below market value and put the right improvements into it, you CAN create instant equity.  Go here for details and read my blog post on it. 

Again folks, please keep in mind it's not your loan officer or realtor who caused all this mess...(see below)


Yeah Buddy!



It's these guys...they know, knew it, and let it happen because there buddy lobbyists were filling their pockets full of cashish. 

Stayed tuned and lets see what happens now that the election is over and we'll get to hear some nice juicy stories like we've been like the General Petraeus's little affair and whatever else they want to release now that Obama is back in for 4 more years.

Hold your hats...







The New Real Estate Trend

What is the next real estate trend? You can ask many and you'll get many answers.  As a professional in the business I can tell you that I see renovation as the next trend for the coming years.  Why?

• Aged inventory - many houses are old, have not been updated which includes kitchens, bathrooms, plumbing, HVAC, and could really use a face lift.
• Foreclosures galore! The market is saturated with foreclosed REO properties that need repairs.
• Older homes with outdated floor plans or are too small compared to other homes in the area (by the way part of the renovation process can include adding square footage to the property through an addition to home)
• Can add a personal touch to make it yours - turn a home you just like into one you love
• Many homes with health or safety violations or hazards which can be remedied through renovation
• Many many more reasons.

So what can be done about it? Well you can call it a secret (not really) but a program that has been around since the 80's - the 203k (no this isn't like your 401k) - allows the for the purchase of the property plus the cost for repairs to be rolled into one loan, one payment, and your maximum mortgage is based on the post-renovation value.  This is a little known loan through FHA and 203k is simply just the section of the act (the National Housing Act) for the program just like the 203B is the "regular" or "normal" FHA loan we've all grown to know very well.

Especially since the housing debacle and Conventional financing has tightened up; more people are getting FHA insured loans.

So you can literally turn this

and even this

into this

and even this

Now you're probably thinking..."yea right, that looks nothing like the other houses." But yes you can do this (turn ugly into stunning). 

You can do anything from light to moderate repairs (kitchen and bathroom updates) to more major renovations like foundation work, and even tearing the house down and rebuilding on the same foundation. 

With the 203k you just can't do anything consdered "luxury" repairs in nature like a gazebo, hot tub, or install a swimming pool. The key to this is after-improved value - which is the home will be comparable in it's renovated state to other properties in the area.

This doesn't mean build a 6 bedroom home in a 3-4 bedroom market, however if you wanted to change the design and floor plan of the property and make a major renovation you can. 

There are so many things you can do with this type of financing.  By the way FHA isn't the only one that has this program available.  Very close versions of this are available in the Conventional world through Fannie Mae and Freddie Mac but most lenders do not offer this type of financing. 

I think you'll see that change as this piece of the market explodes over the next few years.

One word of advice that I caution people looking to obtain this financing:

MAKE SURE you are working with a specialist.  The reason is they work with these loans daily and a specialist only originates these loans.  You'll have many originators that "dabble" with these loans and only do a few a year vs a specialist who originates these on a daily basis so they are knowledgeable of the intricacies of the program and have a system in place to take you from application to closing with very few, if any, hiccups.

Don't be a guinea pig and search out a specialist.  This should be your first question to the loan officer.  If they are not a specialist ask if their company has one and if not - move on and don't waste anymore time. 

Not all lenders have the same guidelines; some will have what is called credit overlays, meaning they have tighter guidelines than the published FHA guidelines on the program.

I will do a series of blog posts on this, since it will, and already is becoming, a hot topic.  There is much to talk about, so you can be prepared and armed with information when approaching your lender for a renovation loan request.

God Bless

P.S. if you like this blog check out my other blog http://www.livingwithnolimits.net