Friday, January 9, 2015

2015--The Year of Housing Change

The new year is off to an amazing start.  Only 9 days in, we are confronting yet another year of massive change.  Many of those changes are coming to the housing sector, and they will affect you whether you want to buy, sell, or merely refinance your home.

1. After months of speculation, yesterday Obama announced a .5% drop to FHA MIP.  This is an executive action order which does not have to go through Congress.  Of course, the stated purpose of increasing the premiums in the first place was to help FHA attain solvency, which the Administration says it has now achieved.  Regardless, this drop will make FHA a more desirable option for borrowers, and with new increased loan limits in many counties and dropping interest rates we can expect to see more borrowers and lenders choosing FHA over tougher to qualify for conventional loans.

2.  And speaking of tougher to qualify for...Fannie Mae and Freddie Mac are implementing their new collateral underwriting system for appraisals on January 26th.  This new system will turn warnings into hard errors for appraisals submitted to Fannie Mae.  It is also going to make underwriters responsible for finding and verifying additional comps, which may result in a lot of delays getting appraisals approved and loans to the closing table.  

Although the powers that be seem to believe that an increasingly automated system for identifying comparables makes property valuation more secure, the truth is that only a qualified human can often really judge whether two properties are really comparable.  A custom built home with fixtures imported from Italy may be the same square footage as the high end track home that is one step above builder grade, but the properties are not actually comparable.  A trained appraiser knows that; a computer program does not.

It is going to be really interesting to see how this works out as the system is implemented on January 26th.  Will we see the normal pattern for real estate over the past six years--extreme paralyzing over-caution in the beginning followed by a loosening of standards later as underwriters get used to the new rules? Fannie Mae and Freddie Mac are supposed to interpret the new rules very differently from each other, creating yet another series of obstacles for lenders.  If FHA does not adopt similar rules, the new guidelines may  encourage more buyers to turn to FHA.  Time will tell.

3.  This is the HUGE one.  In August the CFPB is finally to going to combine the two most important forms in the mortgage world into one new monstrous form.  It seems impossible that it has already been five years since the 1 page, easy to understand Good Faith Estimate was morphed into a 3 page, difficult to understand Good Faith Estimate and the Truth in Lending became a contractual document which had to be  re-disclosed if the APR went up more than .125%.  In 2015 these two long, confusing forms will become one new long confusing form.  The HUD settlement statement is going away too; it will be replaced by a five page form which must be delivered to the buyer three days before closing.  Oh--and there won't be any more real estate closings after August 2015--after that date there are only "consummations."

To paraphrase Betty Davis in one of her most famous roles, "hang on to your hats; it's going to be a bumpy ride."

Alexandra Swann is the author of No Regrets: How Homeschooling Earned me a Master's Degree at Age Sixteen and several other books. Her novel, The Planner about an out of control, environmentally-driven federal government, is available on Kindle and in paperback. For more information, visit her website at

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