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VOL. 125 | NO. 61 | Tuesday, March 30, 2010


Loan Changes Could Alter Market

By Eric Smith

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The Federal Housing Administration will enact a couple of changes in its loan procedures, including one going into effect next week, but how much they bear on home sales remains to be seen.

Beginning Monday, FHA will increase its upfront mortgage insurance premium from 1.75 percent to 2.25 percent. So, for someone buying a $100,000 home, that’s an additional $500 they’ll have to finance into the loan.

Sam Goff, mortgage originator at Evolve Bank and Trust and president of the Memphis Mortgage Bankers Association, said the fee is mostly an unseen amount that shouldn’t have a drastic effect.

“It’s not that people don’t know about it; they do,” Goff said. “But it’s nothing out of pocket for them.”

Another change is coming soon as FHA plans to reduce allowable seller concessions. As of now, a seller can pay up to 6 percent of the purchase price toward a borrower’s closing costs and escrows.

That will be reduced to a maximum of 3 percent, which might not cover everything needed to close a home.

“It will mean more money out of pocket for a buyer of a home,” said Michael Wiegert, vice president and mortgage production manager for Renasant Bank. “Not just the down payment, but some closing costs also. It will impact people’s ability to get a loan.”

Anything that impacts “people’s ability to get a loan” or even slightly raises the cost of a home loan could be seen as a detriment for the industry, especially as the homebuyers tax credit expires April 30.

Under that plan, $8,000 is available for first-time homebuyers who have bought or will buy their homes between Jan. 1, 2009, and April 30. If a binding sales contract is signed by April 30, the purchase can be completed within 60 days, or by June 30, to qualify.

The repeat homebuyer tax credit of up to $6,500 applies to houses sold between Nov. 6, 2009, and April 30. Like the first-time credit, if a binding sales contract is signed by April 30, the purchase can be completed by June 30 to qualify.

With that expiration in mind, these changes are getting mixed reviews.

“Long story short, I don’t see the changes as dramatically affecting our business,” Goff said. “There might be a little fallout, but it will be minor.”

But John Courson, president and CEO of the Mortgage Bankers Association, earlier this month expressed some concerns about the reduction of seller concessions when he spoke to the Housing Financial Services Subcomittee on Housing and Community Opportunity.

He said, in part, “We are concerned that this could be another policy change that would have an adverse effect on the population that traditionally has sought FHA’s assistance to purchase a home.”

He also said the “reduction in seller concessions will primarily impact low-to-moderate, first-time and minority homebuyers.”

That clearly would affect Memphis, where the average home sales price is already low and minority homebuyers make up a large part of the market.

Though home sales increased in February, mortgage activity faltered.

With the homebuyers tax credit on the verge of expiring, anything that deters a qualified homebuyer could stunt economic recovery even more.

Shelby County saw 959 home sales last month, a 10 percent increase from sales in February 2009 and an 8 percent increase from in January, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.

Despite the improvement in homes sold, prices continued to slide. February saw an average sales price of $100,844, down 8 percent from February 2009 and down 11 percent from January.

Mortgage counts and averages followed suit. The county notched just 419 purchase mortgages in February, a 2 percent decline from February 2009 and a 6 percent decline from January. (Data for this report didn’t include refinances.)

And mortgages averaged $144,232, down 4.4 percent from February 2009 but up 0.7 percent from January.

“It’s premature to say we’re in the midst of a recovery,” Goff said. “We still have some ground to go yet.”

Chandler Reports is a division of The Daily News Publishing Co. Inc.

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