Seattle/ Tacoma homebuyers and sellers FHA may change the rules

FHA has been there providing Seattle home buyers with their home mortgages.

An increasing number of Seattle short sales or foreclosures may be the result of any changes in the FHA guidelines.

I remember back in 1977 I was buying homes with FHA mortgages.  FHA appraisers were in the nasty habit of calling out all kinds of deficiencies in homes which forced us to bring Seattle homes up to a standard which caused improvements in neighborhoods.  It was a good thing.

As time went by, so did FHA financing.  It virtually disappeared.  The FHA saw its share of the mortgage market fall to 2% in 2006.  When the housing market was booming, sub-prime lenders drew away many of the borrowers who traditionally used FHA-backed loans by offering even more favorable terms. Unlike the FHA, sub-prime lenders didn’t require borrowers to document their incomes.

With the collapse of the sub-prime market FHA took on a role as lender of last resort.  Suddenly, the FHA had an enormous chunk of the market.  Average credit scores of FHA borrowers dropped sharply at first. In last year’s third quarter, the FHA insured 25% of mortgages.

FHA-insured mortgages made in 2007 and 2008 are largely responsible for the agency’s precarious position, with default rates approaching 24%.

At a conference in November, Robert Toll, chief executive of luxury-home builder Toll Brothers Inc., referred to the FHA as “the new sub-prime” and “a definite train wreck” that will soon need a bailout, according to a transcript of his remarks.

Changes may well be in the offing.

So, what does this mean for Seattle area home buyers and sellers?

Short answer, sales will be detrimentally affected.  With fewer buyers qualifying for any loans, let alone an FHA loan with it’s 3.5% down payment, home prices will be held down and maybe even driven down.  Buyers will have to save more money for a down payment, home sellers will have to wait longer for a buyer and lower their prices if they want to sell sooner than later.  All we need now is for interest rates to increase, thus decreasing the amount of mortgage the first time home buyer (FHA’s target market) can afford.

Does this mean that home owners will be further under water?  Will this increase the number of home owners seeking relief from their over encumbered homes?  Do you think that there will be an increase in short sales?

Contact Us to discuss your situation.  There is no cost and you will walk away with insights into what you need to do.