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Study shows current Obama proposal for FHA loan limits ineffective

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FHA Assessment Report

George Washington University has released the June 2011 edition of the “FHA Assessment Report: The Role and Reform of the Federal Housing Administration in a Recovering U. S. Housing Market” which finds that the White House’s current proposal to reduce the higher end of FHA’s loan limits would have little to no impact on its current market share as the current loan limits are larger than what is necessary to serve FHA’s target demographic of first time and low/moderate income borrowers. The study asserts that Obama and his team must propose larger changes as FHA is phased out of its role as lender of last resort.

The study reveals that even if the maximum FHA loan limits were reduced by nearly 50%, they could still serve 95% of its “historic” target market and to continue serving this market, they only need to serve between nine to 15 percent of all mortgage origination as opposed to the current 30% share they are originating.

“FHA’s expansion played a major role in keeping the housing market afloat during the economic collapse of 2008 and 2009. However, we now are left with large loan limits that were set when home prices at the top of the bubble. They don’t reflect current market conditions and are unlikely to assist the FHA in reaching its historical constituencies—first-time, minority and low-income homebuyers,” said Dr. Robert Van Order, report co-author.

“We find that FHA’s current market share exceeds what is needed to serve these markets,” Dr. Van Order continued. “In the wake of significant declines in home prices, we believe the FHA could reduce its loan limits by approximately 50 percent and still almost entirely satisfy its target market. That would reduce its currently large market share, which is difficult for FHA to manage.” The report revealed that the current proposal only impacts three percent of all loans endorsed in 2010.

Recommendations made in the study include:

The Obama Administration and Congress are recommended by the George Washington University study to:

  1. Decrease the maximum loan size that can qualify for FHA insurance — first by allowing the present increase in those limits to expire as scheduled on October 1, 2011, and then by reviewing whether those limits should be decreased further moving forward.
  2. To enhance solvency of the program, increase the price of FHA mortgage insurance, putting in place another 25 basis point increase in the annual mortgage insurance premium, as detailed in the President’s 2012 Budget.
  3. Coordinate reforms of Fannie Mae and Freddie Mac with changes at FHA “to help ensure the private market, not FHA, fills the opportunities created by reform.”
  4. Reduce the FHA’s minimum loan limit from the current $271,050 to $200,000 — 48 percent of the current GSE limit, which was FHA’s traditional basis for its loan minimum, or “floor.”
  5. Return the FHA loan limit “ceiling” to 87% of the GSE limit — the traditional formula for determining the ceiling levels — bringing the maximum loan amount FHA could insure from $729,750 to $363,000
  6. Returning to use of the current area median home price in calculating the local loan maximum,
    moving away from the 2008 median home price estimate.
  7. Reversing the current policy that allows FHA to guarantee loans of up to 125 percent of the median home price in high-cost markets.

Click here to download the full study.

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23 Comments

23 Comments

  1. Joe Loomer

    July 5, 2011 at 9:05 am

    Fail to see how these recommendations will entice any investors back into the secondary mortgage market.

    Navy Chief, Navy Pride

  2. Chase Thompson

    July 5, 2011 at 10:37 am

    Is there any mention of down payment changes in this report? That's what I think will have the biggest impact.

    When we heard chatter of the down-payment going from 3.5% to 5%, quite a few people were up in arms about it.

  3. Rick

    July 5, 2011 at 4:53 pm

    Not making a difference around me. People's views of home ownership are changing – it's seen as a liability.

  4. Dan

    July 25, 2011 at 9:08 pm

    I agree with @Rick; we bought our home 10 years ago when that was expected. The market has fallen and now we are wondering if we made the right decision.

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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

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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