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New FHA rule could hold back willing home buyers

Starting April 1, 2012 a new qualification rule could dramatically change the volume of buyers that qualify for FHA-backed loans, especially impacting first time buyers.

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Federal Housing Administration shakeup

Beginning April 1, 2012, any borrower with ongoing disputes with creditors over any debt above $1,000 may no longer qualify for FHA-insured loans, regardless of credit scores. Prior to April, lenders could decide whether debt disputes merited denial, but now the decision is not in their hands as they must justify the approval to the FHA along with documentation.

The FHA is attempting to reduce its overall risk and increase capital as their reserve funds have fallen below what is legally mandated. For the same reasons, the agency has already announced insurance premiums it charges will increase in April as well.

Why the tightening of the belt?

Besides depleted reserves, the agency says that the new requirements are a protection measure for borrowers. Tiffany Thomas Smith, deputy press secretary for the U.S. Department of Housing and Urban Development, FHA’s parent agency told CNN, “It’s a way of protecting consumers from getting into loans they ultimately can’t afford.”

The new rule mandates that prior to closing any FHA loan, borrowers must pay off any debt adding up to over $1,000, prove they are making payments on the disputed amounts or explain the dispute, along with documentation.

The FHA notes exceptions to the rule are any case involving theft of identity or fraud, and disputed accounts over 24 months old. Again, the FHA is not just taking a borrower or lender’s word, there must be documentation like police reports of fraud.

The long term impact

FHA loans are one of the few means a borrower (particularly a first time buyer) has to secure a low down payment with the average FHA loan requiring a 3.5 percent down payment. Some suggest this new rule could slow the recovery of the real estate market.

While most of the focus has been on foreclosures and the recent $25 billion mortgage settlement aimed to curb foreclosures, and much attention has been paid to underwater homeowners, but few headlines center around willing home buyers and as the first time buyer market is shrinking, this new FHA rule could definitely present a challenge to these buyers, even those with superior credit scores.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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44 Comments

44 Comments

  1. Greg Cook

    April 2, 2012 at 2:59 pm

    Tara, I’m a lender and would like to see every applicant get a loan but a credit score less than 640 doesn’t get there by accident.
    FHA and Lenders know that the likelihood of default more than doubles when there is a low down payment and low credit score.
    If the borrower can prove the derogatory credit is due to identity theft, then the new guidelines don’t apply.
    There are thousands, maybe millions of potential home buyers with good credit, now maybe now they’ll have more opportunity to buy their first home.

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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aging housing inventory

aging housing inventory

The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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zillow move

zillow move

Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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