Gilbert Real Estate Blog
~ by Randy Hooker of Dreamcatcher Realty
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Are FHA Appraisals Hurting the Real Estate Market and Shunning FHA Buyers?
In an exercise of great restraint, I’m going to refrain from leaping into a major rant on current HUD rules and regs, and the often disastrous ramifications of those rules and regs in the real estate market. Oh wait – did I already commit a ‘ranting’? Great gobs of goose grease! Now let me tell you a story, and then you can tell me what you think. Fair enough?
I just yesterday submitted a very strong, clean offer on behalf of a client for a home that she fell in love with in only 30 minutes! Granted, no home buyer should allow their emotions to dominate a real estate decision, but in the real world, it happens.
This home buyer (my client) has been fully pre-approved by my preferred lender, a man of integrity with whom I’ve worked for several years. In short, my client’s financial strength is as strong as an ox.
The offer itself was as strong as any seller could possibly hope for. However, late this afternoon I received a text from the listing/seller’s agent, politely rejecting the offer. No counter offer. No apologies. No thank you’s.
Why did the seller make such an aversive decision? Because my client would be financing the purchase with an FHA loan. Plain and simple, the seller does NOT want to deal with the risks and pitfalls of a transaction involving an FHA loan.
Now it’s your turn to ask — why? Why in the world would a property seller refuse an incredibly attractive offer just because she’s using an FHA loan?
FHA has what are commonly called ‘flipping rules’, meaning if the property being purchased has been owned by the seller less than 90 days, then certain rules and requirements are automatically invoked. One of those requirements is that two (2) separate appraisals must be performed on the property. You might be thinking, “So what’s the big deal?” To which I respond, appraisals are an art, not a science. They are opinions of value provided by licensed appraisers. And as such, it’s not uncommon to have appraisals on a given property come in at drastically different values. Can you see where I’m going with this?
Cutting to the chase, the sellers rejected my client’s offer because they simply did not want the hassle and risk inherently involved with FHA financing. Are they entitled to their decision? Yes. Is such a rejection becoming more and more common in this market? Yes. Is it reasonable to assume that such decisions by sellers are hurting the market? Yes. Are the crappy appraisals (that we are often forced to accept) a travesty to the real estate market? Yes.
All of the foregoing Yes’s are nothing but my opinion. Do you agree or disagree? I would love to hear your thoughts!
Meanwhile, my client has just re-filled her Prozac prescription.
FHA Updates
The FHA Reform Act of 2010 has passed the House in an overwhelming fashion. The amendments calling for increased FHA down payment requirements have been rejected. A second potentially damaging element that called for FHA exposure to be limited to 10% of the market has been shot down. Bottom line is that FHA loan default rates are down significantly and the program is operating more effectively than it has in quite some time.Another hot FHA issue still in the “proposal” stage surrounds monthly mortgage insurance premiums (MIP). Right now, FHA’s MIP is calculated at .55% of the loan amount per year. This translates to a $91.67 MIP on a $200,000 FHA loan. The current FHA Reform Act requests a monthly mortgage insurance cap lift to 1.55% (from the current .55%). This represents a nearly 300% increase. HUD/FHA has stated that while it is requesting the “right” to go up to 1.55% they will likely only raise the factor to .90% for the time being. If so, the change would take that same $91.67 MIP payment to $150.
Stay tuned, folks. The FHA ride is likely to be a long and wild one!
