Illinois Mortgage Rates and News

Not so long ago it looked like the FHA Down Payment Assistance programs (DPAs) were gone for good. The DPAs were one of the last ways available for first time home buyers Loan and others who were short a down payment but otherwise qualified, to buy a home with no money out of their own pocket. This program was a way to launder a seller’s equity and use it as the basis of a grant from a charitable group like Ameridream or Nehemiah (here is a detailed look at how FHA DPAs work). But the DPAs were cut as one of the provisions of the new housing bill due to go into affect October 1^st. It now seems that rumors of their death may be greatly exaggerated. A compromise deal to save the DPAs appears to be about to be accepted, and the FHA Down Payment Assistance programs could be back in business before the end of this month. (here is a detailed look at Chicago mortgage refinance ).

The DPAs have long been controversial. FHA has linked the DPAs to a higher default rate, and they’ve been trying to shut them down for years. Ameridream and Nehemiah, the two biggest DPA Charitable organizations, contest the default figures, and claim that the defaults are more a function of fraudulent loans than problems with the down payment programs. It’s been estimated that 30% of FHA loans have been combined with a DPA, so this has been a big factor in the market. After the housing bill was released, a group of Realtors, lenders, builders and community organizations led the fight to get the DPA reinstated. But it looked like this was a done deal. FHA claimed that the problems with the DPAs were severe enough that it could bankrupt the entire FHA system.

My experience has been different. FHA loans aren’t and never have been Sub Prime loans. These loans are fully underwritten and the borrowers need to show that they have the income, job stability and credit responsibility necessary to handle their mortgage obligations. The down payment is one piece of the puzzle, but not the whole picture. I’ve worked with many borrowers who were otherwise great prospects to buy a home, but had not been able to save enough for the down payment and closing costs. FHA with a grant from Ameridream or Nehemiah was a way to get them into their first home. The problem as I see it wasn’t the lack of a down payment on its own, but the layering of risk. In other words, a first time home buyer with a good credit history, a good income and some money in the bank was likely to make their mortgage payments on time, whether they contributed a down payment or not. On the other hand, a borrower with a low credit score, an inconsistent job history and high debt ratios was already on shaky ground, and the lack of a down payment just increased the risk of default.

With the new compromise it looks like FHA is coming around to this way of thinking. According to details released by House Financial Services Committee Chairman Barney Frank, a new bill will allow the DPAs to remain, but with limits and risk based pricing. Those home buyers with credit scores of 680 or above would be automatically eligible for the program, those with credit scores between 620 and 680 would be able to take advantage of the DPAs, but their mortgage insurance premium would be higher. This compromise makes a lot of sense to me. When the real estate market is soft, taking away one of the best programs available for first time home buyers didn’t make much sense. This will take the riskiest loans off the table while still offering the program to more credit worthy borrowers. The new bill appears to have enough support to get through and is expected to be in place by the end of the month. I’ll have more details as they come available.

Illinois Mortgage Rates and News

The Housing Bill – The Housing and Economic Recovery Act of 2008 was passed by the Senate on Saturday and is expected to be signed into law sometime this week. The bill will actually take effect on October 1st. There have been a lot of rumors as to how this will shake out, but these are some highlights of what has been agreed to and will be in the new bill:

• A bailout of Fannie Mae and Freddie Mac, raising their debt ceiling and authorizing the government to purchase their stock as needed in order to keep them afloat. They are also now subject to more regulation than in the past.
• Foreclosure relief for some homeowners who bought in the last few years. The lenders have to approve it, so in a way this provides an option for a short-refinance. It will only work if the lender goes along with it and the borrower will have to split their equity with FHA if they sell their home for a profit at some point down the road.
• FHA will raise their minimum down payment from 3% total investment to 3.5%.
• FHA will eliminate the down payment assistance programs or DPAs (Nehemiah and AmeriDream) which allowed seller concessions to be used as a way for home buyers to buy with no money down.
• A 12 month moratorium on the FHA risk based pricing, which just went into effect 2 weeks ago.
• A tax refund of up to $7,500 for first time home buyers – but this will have to be paid back over the next 15 years, so it more of an interest free loan than a refund.
• A streamlined approval process for FHA condos.
• The maximum loan limits for both Conventional and FHA financing will change based on the median home price for the area, it’s still not certain what it will be here in the Chicago area.
• A nation wide licensing system for loan originators – we already have this in Illinois.

Some of this is going to be good for the market, but things like increasing the minimum FHA down payment and doing away with the down payment assistance programs will make it harder for otherwise qualified people to buy. There is talk that a separate bill will try and resurrect the DPAs, but once they are gone it will be harder to bring them back. If you are looking to buy a home here in the mortgage chicago il area and you lack the down payment, this may be your best chance to buy. A Down Payment Assistance program combined with an FHA loan is still a way to buy with no money down, but you will need to close by September 30th.

There is a lot more in the bill – it is over 700 pages long. A lot of what this means will be open to interpretation and clarification down the line. I’ll keep you informed as I hear more details.

Illinois Mortgage Rates and News