New FHA Changes (So Far)


Well.. it ain’t so bad. There were three basic changes that should be in place the beginning of February. The first will be an increase in up-front MIP from the current 1.5% to 2.25%. Anyone who has been in the business for more than two years knows that this was what the UFMIP was previously so this isn’t a biggie. On a $125K loan, this will add a little over $900.00 to the loan amount resulting in a $5.00 monthly increase in payment. No sweat. The second provision is HUD is requiring a 10% downpayment for borrowers with less than a 580 credit score. Since 90% of lenders are not accepting deals with under 580 scores, this is a non-issue. The largest impact will come from the third change. HUD is cutting the allowable seller contributions from 6% down to 3%. You will find that this will impact the lower cost deals since there are numerous fixed costs that represent a larger percentage for smaller deals. It is not uncommon for deals under $100K to have fixed closing costs that exceed 3%. Lenders also would use additional sellers contributions to pay for a borrowers pre-paid expenses. Buyers now will need at least a net of their down payment and pre-paids. Their bottom line should rise by an additional $1000.00 in most cases which will have a tangible impact on our business. I haven’t heard of any other changes being implemented by HUD in the foreseeable future and these current changes aren’t as bad as they could have been. If HUD decided borrowers could no longer finance their up front MIP…Game Over.

Good Faith Estimate Changes
We are now using the three page Good Faith Estimates and three page HUD-1 Settlement forms. As they say, an elephant is a mouse designed by the government. The new GFE’s in my opinion are causing more questions rather than simplifying the process. But, here we are. The biggest cause for concern is the first section of the GFE that puts one single figure for the lenders origination fee. This fee will look huge and it seems that the lender is now charging 2% origination fee versus the customary 1%. Not true! The fee that is reflected as “origination fee” is really a combination of the 1% origination fee PLUS underwriting, processing, and admin fees.
Secondly, all lenders are pressing the attorneys for a standardized list for their fees so our GFE’s don’t get out of whack at the closing table. Traditionally, attorneys would tell you that their fee was around $400.00. But in reality, most attorneys add numerous fees (much like the lenders admin, processing, and underwriting fees to be fair) that drove the total cost to almost $1000.00. If it has the attorneys name or title company’s name next to it… it is an attorneys fee. According to most of the fee schedules we have been getting, most of our closing brethren are charging a net fee of between $675.00 to $800.00.
My major gripe with the new GFE is that it does not give the borrower a monthly payment nor does it break down the individual charges for them to compare. Sure, being able to have one number to compare lender to lender seems like a good idea. But when is more information a bad thing? Oh well. It’s a really really big government and I’m a really really small loan officer. Kinda pointless for me to whine.

Reprinted from:
Dan Aiken

Sr Loan Officer
SunTrust Mortgage, Inc.
770-683-5381
Cell 404-791-3492
dan.aiken@suntrust.com