WeeklyBasis 8/28/09: Big FHA Condo Approval Changes, Less Bad Economy Helps Rates

RATE/MARKET UPDATE
Rates on conforming loans up to $417k and super-conforming loans up to $729k are net even for the second week in a row, which is rather shocking given the volatility of the last 18 months. Rates for jumbo loans above $729k remain steady because those rates don’t trade all day every day like conforming loan rates do. The mortgage bonds that rates are tied to were about even this week. Improving housing and economic data hurt bonds (home prices measured by S&P Case Shiller declined less for fifth straight month, 2Q2009 GDP was -1% instead of -1.4% expected), and tame inflation data helped bonds (measured by the Fed’s favorite measure: Personal Consumption Expenditures Index).

A key reason bonds didn’t do worse is because the money didn’t have much of a place to go. After touching highest levels of the year last week, stocks couldn’t break much higher: the Dow closed this week at 9544 (39 points better than last week) and S&P 500 closed at 1028 (two points better than last week). There are no Treasury auctions next week so the biggest market moving news will be Wednesday’s and Friday’s jobs reports.

FHA CONDO APPROVAL CHANGES
As of October 1, the unit-specific “Spot Approvals” that are currently allowed for FHA loans will no longer be available. HUD has determined that fraud is too prevalent with this process so they will return to their traditional model of approving entire buildings.

There are currently only 18 condo buildings approved in all of San Francisco County. Direct FHA lenders (RPM included) have two choices: (1) take the risk to approve an entire building themselves, or (2) submit buildings to HUD for approval, and once HUD approves that building, any FHA direct lender can do an FHA loan on it.

With the exception of a few priority projects per lender, most institutions will go with HUD approvals to minimize risk. Already resource-strained HUD will get buried by an avalanche of condo building submissions nationwide.

The best approach for Realtors specializing in non-FHA approved condo buildings with price points up to $850k is to work with your lender to get a condo approval package submitted before the October 1 rush. Borrowers who are looking to buy in a non-FHA approved condo building can still do Spot Approval even if you get into contract up to the last day of September. For those who are also buying this year because of the tax credit which requires a purchase to close before November 30, you should consider this new timeline as well—because of this rule, your options will be significantly limited from October through end-of-year at least.

I am happy to talk to Realtors about what’s needed for a project approval.

CONFORMING RATES ($200,000 – $417,000) – 1 POINT
30 Year: 5.125% (5.275% APR)
FHA 30 Year: 5.0% (5.16% APR)
5/1 ARM: 3.875% (4.015% APR)

SUPER-CONFORMING RATES ($417,001 to $729,750 cap by county) – 1 POINT
30 Year: 5.25% (5.43% APR)
FHA 30 Year: 5.25% (5.40% APR)
5/1 ARM: 4.25% (4.37% APR)

JUMBO RATES ($625,500 – $3,500,000) – 1 POINT
30 Year: 6.125 % (6.275% APR)
10/1 ARM: 6.25% (6.39% APR)
5/1 ARM: 5.25 % (5.43% APR)