FHA announces new appraisal guidelines

On Friday, the U.S. Department of Housing and Urban Development (HUD) announced new appraisal guidelines regarding appraisals. In a series of Mortgagee Letters, dated Sept. 18, 2009, HUD provided new guidelines affecting the independence, portability and validity periods of appraisals used in its Federal Housing Administration (FHA) program. These guidelines will take effect on Friday, Jan. 1, 2010.  Here are some of the more important facts of the Mortgagee Letters and the changes to the existing FHA appraisal process taken directly from the Mortgagee Letters.

Independence (ML 09-28)

This Mortgagee Letter provides clarification and reaffirms Federal Housing Administration (FHA) appraisal requirements related to appraiser independence and announces new requirements pertaining to entities that are eligible to order appraisals for FHA insured mortgages.

FHA has long advised lenders and appraisers of the importance of appraiser independence in the context of generally accepted prudent lending practices.  In this mortgagee letter, FHA reiterates the importance of appraiser independence, and advises of new requirements regarding who is eligible to request an appraisal from an FHA Roster appraiser.  The new requirements set forth in this mortgagee letter will be effective for all case numbers assigned on or after January 1, 2010.  The existing requirements will remain in effect.

New requirements
▪ Prohibition of mortgage brokers and commission based lender staff from the appraisal process
▪ Appraiser selection in FHA connection
▪ Appraisal and appraisal management company (AMC)/third-party organization fees

Reiterating existing requirements
▪ Prevention of improper influences on appraisers
▪ Appraiser independence safeguards
▪ Appraiser engagement: knowledge of market area, geographic competency

New requirements

FHA prohibits “appraiser shopping” where lenders order additional appraisals in an effort to assure the highest possible value for the property and/or the least amount of deficiencies and/or repairs are noted and required by the appraiser.   However, a second appraisal may be ordered by the second lender under the following limited circumstances:

1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.
2. The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.
3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.

In the first two scenarios, the lender must ensure that copies of both appraisals are retained in the case binder. In the third scenario, the first appraisal must be added to the case binder when received. In all cases, the lender documents why a second appraisal was ordered and retains it in the case binder.

Additional requirements
▪ Appraisal transfer and change of client name in appraisal report is required
▪ Appraiser selection in FHA connection
▪ Lender compliance: Lenders who fail to comply with the requirements are subject to administrative sanctions.

New requirement

Validity period for all appraisals on existing, proposed and under construction properties will be 120 days. This change is consistent with industry practice and revises the current validity periods of six months for an appraisal of an existing property that is complete and 12 months for proposed and under construction properties.

To get additional information on all FHA updates, please use the link listed below:

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/

HUD’s “Good Neighbor Next Door” Program (GNND)

There is a terrific program available for potential home buyers who are employed in certain professions.  This program is designed to assist these individuals purchase a home at a reduced price and as little as a $100 down payment in some instances.

HUD’s Good Neighbor Next Door program offers law enforcement officers, firefighters, emergency medical responders, and school teachers the opportunity to purchase HUD real estate-owned properties (REO) in designated revitalization areas at a 50 percent (50%) discount from the purchase price.  HUD also offers an FHA insured mortgage with a down payment of only $100.

Here are some of the eligibility requirements for the GNND program:

• Borrower can’t have owned any residential real property for one year prior to the date of submitting an offer on a home through this program
• Borrower must agree to live in the property as a primary residence for a minimum of 3 years
• Borrower must be in good standing with their current employer
• Employment Requirements are limited to:

• Law enforcement officer as defined by HUD:
  • Employed full-time by a law enforcement agency of the federal government, a state, or a unit of general local government (county or parish, city, town, township, or other political subdivision of a state).
    • Must be sworn and have power to arrest for violations.
    • Officers employed by federal, state or local agencies (such as public housing authority) or public or private colleges and universities or businesses are not eligible.
• Firefighter and Emergency Medical Responders, as defined by HUD, include
  • Full-time firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, or a unit of general local government.
• School teacher, as defined by HUD:
  • Only full-time teachers employed at state-accredited public and private schools.
    • Other persons employed by an accredited public or private school are not eligible to participate in this program.
  • Participant’s school must serve the school district/jurisdiction in which the home they are purchasing is located.

It is important to understand that this program is only available in HUD designated revitalization areas.  Revitalization areas are typically in low and moderate income neighborhoods.

The following are eligible/ineligible property types:

Eligible:

• 1 unit only
• Condominiums
• PUD’s

Ineligible:

• 2-4 units
• Triplex
• Condotels
• Recreational Condos
• Model Home Leasebacks

This program is an excellent way for potential home buyers who qualify for the GNND program to purchase a home at a drastically reduced price.  This program may not be right for everyone, but it definitely has its place in today’s constantly changing market.  Please contact me directly if you want any additional information on the GNND program.

Follow Up or Follow Through?

When working with others on business transactions, do you expect them to follow up or follow through?  Webster’s dictionary defines these two actions the following way:

Follow Up: to pursue in an effort to take further action

Follow Through: to press on in an activity or process especially to a conclusion

Through the course of my working career, I have found it necessary to clearly define the difference between the two in order to get the desired results.  For many years, I would end my business conversations by asking someone to follow up on something.  To me this meant, make sure that the job gets done and quickly.  Little did I know that it meant, make a few attempts to get the job done and be able to say you tried when asked.  After dealing with this frustration too many times, I decided that I needed to clearly define what was expected, but in a manner that was not overly bossy or controlling.  Being perceived as bossy or a control freak in certain business settings can be detrimental and potentially cost you business and referrals in the future.  That is when I began using the phrase follow through when discussing business needs instead of follow up. Here are some examples of the changes in wording that I made:

Old Request

Please follow up with the customer regarding the remaining documents that we need in order to submit the loan to underwriting.

New Request

Please follow through with the customer and insure that we have the remaining documents that we need in order to submit the loan to underwriting.

Old Request

Please follow up on the appraisal order and find out when it is expected to be returned.

New Request

Please follow through on the appraisal order and find out when we can expect it to be returned.

Old Request

Can you please follow up and see when we will have the final fully executed purchase contract.

New Request

Can you please follow through and make sure we get the final fully executed purchase contract.

Even though there is a slight change in wording, the tone and message of the statement changes the meaning drastically and calls for action to be taken immediately. You can use this type of requesting with all parties involved in a business transaction without offending anyone. Following up tends to conjure a more laid back approach to getting something done.  Following through formulates a mental image of urgency and accomplishment. I found that changing a few words allowed me to be more assertive in my requests without being blatantly obvious about it.

In today’s real estate market, we all need to have a sense of urgency.  Houses have multiple bids being made, so showing properties and making an offer quickly is important.  Underwriting guidelines, rates and turn times are changing hourly, so we need to get the file submitted, approved and to docs as quickly as possible.  I have found that making the slight change in wording has improved my business relationships and allowed me to set clearer and more concise expectations for the business transaction and ultimately experience a higher level of success and be more effective.

Remember, it is not always what you say, but how you say it!

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HUD’s new Neighborhood Stabilization Program (www.hud.gov/nsp) provides emergency assistance to state and local governments to acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities. The Neighborhood Stabilization Program (NSP) provides grants to every state and certain local communities to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes. The program is authorized under Title III of the Housing and Economic Recovery Act of 2008.

To view what city specific programs are available throughout the state of Arizona, click on the city of your choice below:

State of Arizona

Maricopa County

Pima County

City of Avondale

City of Chandler

City of Glendale

City of Mesa

City of Phoenix

City of Surprise

Pacific Funding Group, Inc is an approved lender/ broker with the Arizona Department of Housing (ADOH) to participate in the “Your Way Home AZ” home purchase assistance program.  For additional information, please contact me directly at 480-650-9274.

Buy a HUD home with as little as $100 down and finance the repairs needed!

Believe it or not, you can buy a home in this market for as little as $100 down and finance the repairs that may be needed through the loan.  The U.S. Department of Housing and Urban Development (HUD) has numerous homes to sell on a daily basis.  These homes are for sale at drastically reduced prices and are commonly referred to as “HUD Homes”.

HUD homes are homes that have been acquired by the U.S. Department of Housing and Urban Development.  The properties are usually single family residences or condos and can be in different states of disrepair.  This is why you are permitted to finance some of the repairs needed in your loan.  

HUD homes attract a variety of potential home buyers.  Investors purchase HUD homes because they can find a distressed property that can be rehabilitated and resold for a profit.  Teachers, law enforcement officers, firefighters and emergency medical responders qualify to purchase HUD homes at 50% off of the sales price (Good Neighbor Next Door Program) in designated areas.  Others chose to purchase HUD homes because they are able to buy a larger home at a lesser price typically.

If you are a First Time Buyer it is strongly recommend that you work with individuals that have experience with purchasing and financing HUD homes previously.  HUD homes are generally sold “as is”, this means that they will not warrant the condition of the property and rarely make any requested repairs.

HUD requires that all individuals making an offer be pre-approved by a FHA approved lender to purchase the HUD home or be an “all cash” buyer.  If you are paying “all cash” for the property you will need to provide HUD sufficient evidence to prove that you have the necessary funds to purchase the home. Sufficient evidence that HUD may ask for may include a bank statement, deposit slip, or a letter signed by a banker.

HUD has classified potential purchasers into two separate categories:

1) Owner-occupied buyers: An owner-occupied buyer is a person that will occupy the property as his or her primary residence within 30 days of the close of escrow

2) Investors. . An investor is essentially everybody else—people looking to buy real estate as an investment, someone looking for a second home

How does HUD get the homes to sell?

The United States Department of Housing and Urban Development (HUD), is the federal agency that oversees the resale of “HUD homes“. HUD homes are HUD foreclosure properties that have been transferred to HUD because a homeowner failed to make the payments on their FHA insured mortgage and the property was foreclosed on.

If you are interested in learning more about HUD homes and your financing options, please feel free to contact me directly.

“Flipping” and FHA Loans

 Property “flipping” has become a very popular trend in the real estate market due to our current state of affairs.  In most cases property “flipping” occurs when a property is resold for a considerable profit at an artificially inflated price shortly after being acquired by the seller.  The subject of property “flipping” is extremely popular in the real estate community amongst realtors, investors and lenders.  More and more properties are falling into the category of “flipping” and it is important that everyone understands exactly what it is and how it can negatively impact the financing of the property.  FHA has implemented regulations to specifically address this issue.  Below is a brief overview of the regulation and how it applies to any individual looking for FHA financing on one of these properties.

The Department of Housing and Urban Development (HUD) has a federal regulation designed to protect consumers from the predatory real estate lending practice called “flipping” on mortgages insured by the Federal Housing Administration (FHA).

How the regulation works

The regulation, “FR-4615 Prohibition of Property Flipping in HUD’s Single Family Mortgage Insurance Programs,” makes recently flipped properties ineligible for FHA mortgage insurance. It also allows FHA to better manage its insurance risk by requiring additional support for a property’s value when a significant increase between sales occurs.  This means that you must prove through receipts any money that was invested in the property for the purpose of improving it and increasing the value from when the property was originally purchased.

Sale by Owner of Record

Only the owner of record is eligible to sell a home to an individual who will obtain FHA mortgage insurance for the loan; it may not involve any sale or assignment of the sales contract, a procedure often observed when the homebuyer is determined to have been a victim of predatory practices.

Time Restrictions on Re-sales:

• Re-sales occurring 90 days or less following acquisition will not be eligible for a mortgage to be insured by FHA. FHA’s analysis disclosed that among the most blatant examples of predatory lending was on “flips” that occurred within a very brief time span, often within days. Thus, the “quick flips” will be eliminated.
• Re-sales occurring between 91 and 180 days will be eligible provided that the lender obtains an additional appraisal from an independent appraiser based on a re-sale percentage threshold established by FHA; this threshold would be relatively high so as to not adversely affect legitimate rehabilitation efforts but still deter unscrupulous sellers, lenders, and appraisers from attempting to flip properties and defraud homebuyers. Lenders may also prove that the increased value is the result of rehabilitation of the property.
• Re-sales occurring between 90 days and one year will be subject to a requirement that the lender is required to possibly obtain additional documentation to support the value to address circumstances or locations where HUD identifies property flipping as a problem. This authority would supersede the higher expected threshold established for the above-mentioned 90 to 180 day period and will be invoked when FHA determines that substantial abuse may be occurring in a particular locality.

When you are considering purchasing a new home, please make sure that you and your realtor due your due diligence.  Any deviation from the above mentioned requirements will typically result in your loan being denied.  It should be noted that these requirements only pertain to properties not owned by banks and is intended to deter investors from engaging in predatory practices and to protect the consumer.

Quotes that Motivate

 My intent of this blog is not to brag or give the perception that I am better than others, but I just want to share some information that may help others.  I was recently asked by a new business associate, “what motivates you to work so hard in these difficult times and keep a positive attitude?’.  My initial response was, “I don’t think we really have any other choice”.    I was initially very flattered by what I viewed as the highest compliment that I can be paid by a business associate.  While I stand behind my initial response, I decided to take a step back to self evaluate and figure out why I am working hard in these difficult times and what motivates me.  A little background on me, I am a former college football player that has achieved varying degrees of success in the business world.  I have been in the mortgage industry for approximately 11 years and do not plan on leaving the business.  Aside from the obvious motivators in my life like: children, wife, house payment, bills and etc. (no particular order of importance), I have a strong desire to compete and succeed.  That seemed to explain to me the “who”, “what”, “when”, “where” and “why” of the question I was asked.  The part that I was still searching for was the “how” as it pertained to the positive attitude.  Being a former athlete, I realized that I still use some basic forms of motivation daily that impact my attitude like:  music, motivational stories, speeches, movie scenes and quotes.  I have compiled a few of my motivating quotes that I refer to frequently, I hope you enjoy them as much as I do:

• Blake: We’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize?
  [Holds up prize]
  Blake: Second prize is a set of steak knives. Third prize is you’re fired.

 – Glengarry Glen Ross 

• Life is not a matter of having good cards, but of playing a poor hand well.
  -Robert Louis Stevenson

• Don’t let the fear of the time it will take to accomplish something stand in the way of your doing it. The time will pass anyway; we might just as well put that passing time to the best possible use. 

- Earl Nightingale

• You must take personal responsibility. You cannot change the circumstances, the seasons, or the wind, but you can change yourself. That is something you have charge of. You don’t have charge of the constellations, but you do have charge of whether you read, develop new skills, and take new classes.

-Jim Rohn

• The future is literally in our hands to mold as we like. But we cannot wait until tomorrow. Tomorrow is now. 

-Eleanor Roosevelt

While I am sure that some will find this silly and useless, I hope that others will see it for what it is.  It is just merely another tool to assist all of us in making our days that much more productive and successful.  I use some quotes to help motivate me to make a tough sale and others to help motivate me to push hard through tough times and stay positive.  Whatever works for you, go with it!  We all have the same goals, we just go about accomplishing them in different ways.