Brian Montgomery was a busy man last week. Barely four months into his job as Assistant Housing Secretary at the Department of Housing and Urban Development and Federal Housing Administration Commissioner, Montgomery went coast-to-coast to speak to two industry groups.
First he hit the Mortgage Bankers Association's annual convention in Orlando, where he pinch hit for his worn-out boss, Sec. Alphonso Jackson. Then he was off to the National Association of Realtors confab in San Francisco.
The two groups don't always see eye-to-eye, but they agreed with what Montgomery had to say: That the FHA needs to be upgraded or it will soon become irrelevant. "We can't continue to be unique," he told the MBA. "We can't protect anyone if no one is using our product."
The FHA backs home buyers that prime lenders -- and private mortgage insurers -- don't want. It does that by promising to make lenders whole if the borrower fails to make his mortgage payments. Without the government's help, borrowers would be forced either into the nether world of subprime lending, where interest rates are soften several percentage points higher, or to the sidelines altogether.
Uncle Sam's qualifying rules tend to be more liberal than those of primary lenders and private insurers. But the paperwork is often a killer, so many lenders tend to shy away from the program.
Last week, though, Montgomery made good on Sec. Jackson's pledge to restore the agency to its former place of importance in the pecking order of home loans -- it pioneered the 30-year fixed rate mortgage -- by announcing several key changes. Or, at least one change and another one that is in the works.
At the NAR meet, he said the FHA is boosting the amount that can be borrowed under the "new" streamlined 203(k) renovation loan program.
When the "limited repair" version of the regular program was announced in June, the ceiling on the amount that can be rolled into the loan's principal without the need for an extra appraisal or other documentation was $15,000. Now, it will be $35,000.
That will make it far easier for people to buy houses that need a new roof, new furnace, new windows or other "straightforward" repairs. Without the 203(k) program, they would either have to take a pass on such properties or take out a second, more expensive loan to pay for the work. Now, though, they can add the cost of these and other fixes into a single FHA-insured mortgage.
The streamlined option doesn't replace the standard 203(k) program, which allows borrowers to include the cost of major repairs into their loans. But it is intended to speed the sale of "as is" properties which needs just a little work -- and $35,000 is one heck of a lot of little work.
The change is important because the FHA, in the name of consumer protection, often requires a laundry list of repairs be made prior to closing. Typically, though, the list is unclear and, while minor in the eyes of the seller, the fixes are sometimes expensive and time-consuming. Thus, realty agents and their clients tended to go elsewhere for financing.
At the MBA meeting, meanwhile, Montgomery also said the FHA intends to soon raise the amount of funds home owners can receive in a cash-out refinancing. The plan is to hike the loan-to-value ratio on cash-out refis to 95 percent. Currently, FHA borrowers must maintain at least an 85 percent LTV in a refinancing transaction.
Cash-out refinancings at the higher LTV will be for "those homeowners who have demonstrated an ability to manage their obligations," Montgomery said.
