Agencies Target New Homes
by Lew Sichelman
Two key federal housing agencies are planning new initiatives this year that they believe will allow them to dig deeper into the new-home market. The Federal Housing Administration hopes to offer hybrid adjustable-rate mortgages with more liberal annual and lifetime caps. Currently, FHA hybrids limit annual changes in the loan rate of 1 percent after the initial fixed-rate period expires. And over the life of the loan, the rate can never go up by more than 5 points. But the FHA would like to raise the lids to 2 and 6 points, respectively, similar to most conventional hybrids. "We have a regulatory proposal under review and expect to be out with it in the near future," Federal Housing Commissioner John Weicher said at the National Association of Home Builders annual convention in Orlando yesterday. Within the next three to six months, meanwhile, the Department of Veterans Affairs hopes to change its fee structure so that sellers would no longer have to pick up a big share of a veteran's buying costs. Under the DVA's plan, borrowers would be permitted to pay "all legitimate" closing costs, Keith Pedigo, director of the department's Loan Guaranty Service, said at the convention. Currently, borrowers who used GI financing are prohibited from paying more than a 1 percent loan origination fee plus a select few settlement charges. Sellers, including builders, must pick up the rest. But because of the extra cost that entails, many refuse to sell to veterans who want to use their government housing benefits. New houses have become an increasingly important part of the FHA market, according to Weicher, who also is an assistant secretary at the Department of Housing and Urban Development. In fiscal year 2004, which ended Sept. 30, the FHA insured mortgages on 116,000 new houses, a 54 percent increase from 76,000 in fiscal '01. Thanks to two recent changes in the FHA's rules -- the agency no longer requires planned unit developments to be pre-approved before it will insure houses in the project, nor does it require builders to provide a 10-year new-home warranty -- 19 percent of the loans it backed in fiscal '04 were on new units. And with adjustable mortgages becoming more important in the wake of slowly rising mortgage costs, Weicher thinks that giving lenders a little more leeway in ratcheting up rates on hybrids will allow the FHA to make even further inroads into the builder business. The FHA also is hoping Congress will give it the okay this year to insure zero-downpayment loans. A bill by Rep. Patrick Tiberi, R-Ohio, cleared the House Financial Services Committee last year but went no further. Some lawmakers are worried that FHA borrowers, who already pose a risk to the FHA insurance fund because they don't measure up to standard underwriting guidelines, would be more prone to default if they don't have any skin in the game. The FHA admits that claims rates would probably double under the program. But Weicher reiterated at the NAHB convention that the higher fees it plans to charge -- 2.25 percent up-front compared to the standard 1.5 percent fee on loans with 3 percent down, and a 0.75 percent annual premium vs. 0.5 percent -- will cover its losses. The FHA also plans to run would-be borrowers through its new underwriting scorecard to better evaluate their creditworthiness, and to require them to attend pre-purchase counseling classes. The FHA has projected that 140,000-150,000 families would take advantage of nothing-down financing if it were offered, and a fair number of those would be buying new houses. The NAHB supports this measure as well as new one by Rep. Gary Miller, R-Calif., that would raise the FHA ceiling in high-cost areas to the conforming loan limit. Currently, the FHA maximum is $312,895, whereas the conforming limit is $359,650. Last year, Rep. Miller offered a bill that would have raised the FHA ceiling in high-cost places to 100 percent of the area median with no limit. That would have allowed the government to insure loans of more than $500,000 in San Francisco, an amount even the FHA said was too much. The new bill, which would leave the FHA floor at 48 percent of the conforming limit -- now $172,632 -- is "something both the FHA and we can support," said NAHB staffer William Renner. The pending change at the DVA is one of more than 100 recommended last year by consultants hired by the agency in an effort to make it "more user friendly," Pedigo said at the convention. The department also is in the process of increasing the size of its appraiser roster by 40 percent, from 4,800 to more than 6,700. The process, which is scheduled to be completed in October, should go a long way toward speeding up VA appraisals, which is another frequent builder complaint about the program. | 
