One of President Trump’s first official actions affects housing

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presidential-seal

The Federal Housing Administration (FHA) announced on January 9 that it planned to reduce mortgage insurance premiums effective January 27. Mortgage insurance protects lenders from borrower defaults and is common where the down payment is less than 20%.

The Democratic view of this issue is that sufficient reserves and four years of economic growth allowed the FHA to pass along some modest savings to consumers. Additionally, the move was viewed as an attempt to help first-time and lower income home buyers to access the market at a time when mortgage rates were rising.

The Republican view is that such reductions put taxpayers at risk by decreasing the funds the FHA has to deal with mortgage defaults. In other words, taxpayers might be at a greater risk for footing the bill for another bailout if FHA’s reserves were reduced.

President Trump’s advisors criticized the Obama administration for adopting new policies as it prepared to leave office. During Dr. Ben Carson’s confirmation hearing for Secretary of the Department of Housing and Urban Development (HUD), FHA’s parent agency, he expressed disappointment that the cut was announced so late in President Obama’s term.

On January 20, shortly after he was sworn in, as one of his first substantive actions, President Trump undid this new policy before it took effect by signing an executive order.

HUD then issued a letter stating that more analysis is needed before changes are made, and the rates will remain the same for the time being.

It appears industry groups may have differing opinions on whether President Trump’s executive order will affect home buying. Will this action reduce opportunities for first-time buyers? Or will it eventually allow FHA’s reserves to be increased to a point where it can offer more services to borrowers? Industry groups will continue to weigh in, and this blog will continue to keep South Carolina dirt lawyers posted on developments.

Good News for Condo Financing (and King Tut)

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Obtaining loans for SC’s coastal condominiums will become easier

The Housing Opportunity through Modernization Act (H.R. 3700) was signed into law by President Obama on July 29. This law will act to ease restrictions on mortgage financing for condominiums. The law reforms the process used by the Federal Housing Administration (FHA) to determine if condominium unit owners will be in a position to qualify for FHA insurance.

In 2009, FHA changed the rules for qualifying for insurance, leaving most condominium home buyers without the opportunity for FHA insured mortgages. The new law will result in some improvements for home buyers who view condominiums as an affordable housing option.

Under the new law, the FHA must issue guidance regarding the percentage of units that must be occupied by owners in order for the condominium project to be eligible for FHA mortgage insurance. The current requirement is 50 percent owner occupancy. In the event the FHA fails to issue guidance within ninety days of the effective date of the legislation, the required percentage for owner occupancy automatically becomes 35 percent.

Steve Martin King Tut
“Got a condo made of stone-a”

 

The new law amends the National Housing Act to modify certification requirements for condominium mortgage insurance to make recertifications of condominium projects substantially less burdensome than original certifications. The FHA is required to consider lengthening the time between certifications for approved properties and allowing information to be updated rather than resubmitted.

It will be interesting to see how the FHA implements the new law. Changes to FHA regulations and existing agency guidelines should be expected soon.

The National Association of Realtors has been a proponent of the new law and praised its passage in a press release as a victory for real estate agents and home buyers.

This law affects housing in other ways. It modifies HUD’s rental assistance programs, including Section 8 low-income (voucher) and public housing programs. In addition, it modifies the Department of Agriculture’s single family housing guaranteed loan program.

The expectation is that the new law will make home ownership for first-time buyers (and old King Tut in his “condo made of stone-a”) a little easier in the current economic environment.

FHA Settlement Certification Will Require Tweaking After October 3

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FHA answers a FAQ; it doesn’t officially change the certification

The Federal Housing Administration (FHA) released a new settlement certification this summer in anticipation of the implementation of the TRID rules on October 3. The new certification is intended to replace FHA’s current addendum to the HUD-1 Settlement Statement and will be used for the new Closing Disclosures once the TRID rules become effective.

The new certification reads:

“To the best of my knowledge, the Closing Disclosure which I have prepared is a true and accurate account of the funds which were (i) received, or (ii) paid outside closing, and the funds received have been or will be disbursed by the undersigned as part of the settlement of this transaction. I further certify that I have obtained the above certifications which were executed by the borrower(s) and seller(s) as indicated.”

Please note that the new certification contains the language “which I have prepared”.  As we have all heard by now, many of the large lenders have indicated that settlement agents will not prepare the Closing Disclosures to be delivered to borrowers. Because of the perceived liability, several of the larger lenders have announced that they will prepare the deliver borrowers’ Closing Disclosures.

frustrated man paperworkSettlement agents (closing attorneys in South Carolina) will prepare and deliver sellers’ Closing Disclosures in all cases and will prepare the borrowers’ forms for the smaller lenders who are not taking the responsibility internally.

American Land Title Association reached out to FHA, the Mortgage Bankers Association and individual lenders to inform them that the new certification would be inaccurate in the cases where the lender prepares the Closing Disclosure.  FHA did not revise its certification, but, in connection with issuing an additional 120 new FAQs to its Single-Family Handbook Frequently Asked Questions, it answered the following question this month:

FAQ 347:

Q: “The Model Settlement Certification requires the Settlement Agent certifying that he or she has prepared the Closing Disclosure but the CFPB’s requirements for issuing the new TRID Closing Disclosure will make this unlikely to be the case. Should the Settlement Agent sign the form anyway?”

A: “FHA does not wish for anyone to make a false certification. Because this is a model component, FHA will accept the tailoring of this phrase to the actual circumstances. This if the Settlement Agent does not prepare the closing disclosure, he or she should remove or strike through the statement ‘which I have prepared’ before executing the Settlement Certification.

FHA is only providing this guidance through the FAQ. It is neither revising the certification nor clarifying the instructions on the certification itself.  As a result, closing attorneys will be required to educate their staff members about the necessity to revise the certification for FHA closings after the new rules take effect.