Wednesday, November 28, 2012

Lenders Reluctant to Issue FHA Loans

Lenders Reluctant to Issue FHA Loans

REALTORS® have been aware of tight lending conditions for years.  Data on average FICO scores, debt-to-income ratios and downpayments support this conclusion.  However, a recent survey conducted by the Federal Reserve sheds more light on which factors are driving banks’ choice to restrict lending.

In the 3rd quarter Senior Loan Officer Survey, bankers were asked how likely they were to grant loans to borrowers with varying FICO scores today as compared to in 2006.  Specifically, they were asked how willing they would be to approve FHA loans with FICO scores of 660, the rate considered as prime by the Office of the Comptroller of the Currency, 620 and 580.  Nearly 80% of respondents indicated that they would be just as willing or more so to lend at the 660 FICO level, but that share fell to just 37.2% at the 620 level which roughly coincides with the minimum for a “near prime” borrower.  At the 580 level, below which the FHA requires a 10% downpayment rather than the 3.5% minimum for a higher FICO score, only 27.4% of banks were as willing or more likely to lend, while a resounding 62.7% were much less likely to lend to a person with 580 FICO than they were in 2006.

To expound on these results, respondents were asked how important a list of factors were in driving their decisions not to lend.  Solvency of the FHA’s fund was not a major concern as indicated by 60.5% of respondents, but a hefty 31.6% responded that it was somewhat important, a surprise given the Federal backing of the FHA.  Likewise, nearly 70% of respondents indicated that capacity was not an issue either.

Half of respondents indicated that the price forecast was driving their pensiveness, while nearly 40% indicated that it was not important.  By far the most important factor listed was “put-back” risk with 84.2% of respondents indicating that it was important to some degree.  In recent years, lenders have been forced to repurchase loans sold to the FHA that have defaulted and been shown not to comply with the original agreement between the FHA and the lender regarding the quality of the loan originated, known as representations and warranties.  To a lesser degree, concerns about the “compare ratio”, a metric used by the FHA to measure how well lenders vet loans relative to other originators, was a concern.  A higher compare ratio than industry standards would indicate that loans originated by a lender were defaulting at a higher rate and might result in a penalty for the lender.

These two factors are important and telling of efforts to reform the mortgage finance market.  Lenders have grown increasingly concerned about aggressive oversight.  Consequently, lenders are now originating loans well within the acceptable loan profile permitted at the FHA (e.g. 701 average FICO in September vs. > 580 with 3.5% down minimum) in an attempt to stave of penalties or potential litigation and to prevent damage to their reputation that might hurt future business.  Bank behavior in response to enhanced “reps and warrants” risk is also suggestive of how banks will act in an environment in which the qualified mortgage and Basel III rules are drawn tightly.  Banks may view the ability to repay definition of the QM as a benchmark for all lending regardless of the exemption granted to FHA and GSE loans by QM.  What’s more, under Basel III banks would be forced to hold more capital against a high LTV loan in its portfolio that loses its FHA backing thereby raising the cost to the bank.

Banks have been right to be cautious in recent years and a return to traditional, safe practices is important for the health of the housing industry.  However, banks have tightened beyond sound, traditional standards and unless the QM and Basel III rules are made more broad, they could canonize these tight conditions as the norm for future lending.

2012 Coldwell Banker Home Listing Report

Sunday, August 26, 2012

Ocean Mountain View Home Sale Rio Grande Puerto Rico Casa Vista Yunque Mar
This is a dream home in the mountains with panoramic views of the Yunque National Rain Forest, the downtown San Juan Metro area, the ocean, areas of Carolina, Rio Grande and Luquillo. One of the highest parts of Rio Grande. Home has 2 structures. A full live in home with 3 bedrooms and 2 wfull baths. Full kitchen with spectacular views. Wrap around balcony with panoramic views. The rear of the home is a 1 bedroom and 1 full bath unit for guest or office use. The property is gated on all perimeters except on the North side were the property has a cut off slope. The property does have a iron gate entry for security and the extra land of 1.46 Acres has several tropical fruit trees and Caribbean flowers. For more details and information please contact listing broker Katherine Figueroa at 787-433-0077.
Esta es una casa de ensueno en la montana con vistas panoramicas del Bosque Nacional El Yunque, San Juan, el oceano atlantico, las areas de Carolina, Rio Grande y Luquillo. Una de las partes mas altas de Río Grande. La casa tiene dos estructuras. La casa principal cuenta con 3 dormitorios y 2 banos completos,cocina con unas vistas espectaculares. Balcon alrededor de la propiedad con fresca brisa y vistas panoramicas. En la parte trasera de la casa tiene un dormitorio y un bano completo para uso de huespedes o uso de oficina. La propiedad esta cercada en todos los perimetros, excepto en el lado norte. La propiedad tiene porton de entrada para mayor privacidad y un terreno de 1.46 acres con variedad de arboles frutales y flores tropicales del Caribe. Cisterna de agua, area de almacenaje, extras. Para mas detalles e informacion, por favor pongase en contacto con corredora Katherine Figueroa al 787-433-0077.