California Congressman on REO-to-rental warpath


Takano pushing four federal bodies to investigate





Longtime critic of REO-to-rental U.S. Rep. Mark Takano, D-Calif., is on the warpath Thursday, firing off letters to four federal entities asking for a detailed investigation into the growth of REO operations and REO-to-rental as an investment — and what they are doing to effectively regulate the emerging asset class.

Takano sent letters Thursday morning to the Consumer Financial Protection Bureau, the U.S. Department of Housing and Urban Development, the U.S. Securities and Exchange Commission, and Treasury Office of Financial Research.

Takano is concerned that rental prices are going up, and a surplus of investors in rentals — along with new rental-backed securities deals — could have the effect of artificially raising rental prices, making housing even more costly in parts of California and elsewhere.

Takano cites a Federal Reserve report, which claims if unchecked, investor activity in local housing markets may lower the quality of neighborhoods, while pushing up prices.

Investor purchasers have been an outsized figure in recent years in housing. Normally, about 85% of home sales are individuals purchasing with a mortgage, about 10% are all-cash sales, and about 3-5% are distressed sales. In 2013, something like 40% of home sales were individuals using a mortgage, 40% were all-cash, more than about 15% were distressed sales and 5% were flips.

Takano’s office wants a number of detailed questions investigated by the federal entities, including clarification on how single-family rental bonds are structured, what their metrics are, how their performance criteria could affect operations, and what is the risk that when bonds mature, the borrower would be unable to refinance the bonds and be forced to sell properties to repay bondholders.

From the SEC, Takano wants to know details about the investors who are purchasing the bonds, how the riskier tranches are sold and whether they are being re-packaged into collateralized debt obligations and resold with higher ratings.

He wants the CFPB to provide a list of local housing markets with high concentrations of rental properties linked to rental-backed securities, and analysis of common trends within these communities, so that they can examine the impact of REO-to-rentals and rental-backed securities on mortgage credit availability, rental prices, and housing prices in highly impacted communities.

Further, he wants the CFPB to perform a comparison between the rehabilitation, ongoing maintenance, and management costs that large investors spend on REO-to-rental properties with other actors, and how that impacts local neighborhoods.

From HUD and the Federal Housing Administration, Takano is asking for detailed information about the impact of large investor purchasers on first-time homebuyers’ ability to enter the market, and an evaluation of trends in FHA-approved mortgages in impacted communities.

To date only two REO-to-rental deals have been securitized.

Blackstone Group (BX) spent the past two years building an expansive portfolio of single-family rental homes via subsidiary Invitation Homes, spending $7.5 billion to acquire 40,000 houses. Blackstone then packaged rental income from single-family homes into a pass-through security, which is functionally not unlike a mortgaged-backed security.

Goldman Sachs (GS) started coverage on American Homes 4 Rent at a neutral rating and a price target of $18, reports say. American Homes 4 Rent has spent some $3.5 billion to acquire more than 21,000 rental homes.

“If vacancy rates rise or renters are unable to pay their rent, Blackstone and others may be forced to sell off vast amounts of property to make their investors whole,” Takano explained. “Selling a large amount of properties quickly would not only deprive renters of their home, but destabilize the market for homebuyers and send housing prices into a freefall.”

Jed Kolko, chief economist with Trulia, told HousingWire that the outsized and growing number of single-family rentals’ affect on rental rates in general is negligible.

Using American Community Survey data from 2005 and 2012, Kolko looked at the change in metro housing units that were single-family rentals.

Most metros had a large increase in the share of their housing stock that was single-family rentals. Among the 100 largest metros, Kolko looked at the top 10 with the biggest increases in institutional investments (from one to ten) – Las Vegas, Nev.; Phoenix, Ariz.; Cape Coral-Fort Myers, Fla.; Memphis, Tenn.; Riverside-San Bernadino, Calif.; Tuscon, Ariz.; El Paso, Texas; Lakeland-Winter Haven, Fla.; Fresno, Calif., and Sarasota, Fla.


Gift-funded Down Payments for Mortgage

by Ted Rood

New FHA Alternative Boosts Low Down-Payment Options

Jan 3 2014, 3:54PM

As Fannie Mae and Freddie Mac eliminated their 100% and 97% purchase loans following the housing meltdown, FHA financing once again became a preferred low down payment option. FHA loans offer a minimum 3.5% down payment, which can be gifted from a close family member. Thus, buyers whose sales contracts specify seller paid closing costs and who use the gift down payment, can often purchase a home with minimal out of pocket expenses.

FHA allows borrowers with credit scores as low as 580 to put just 3.5% down (those with lower scores face increased down payment requirements), and routinely approves higher debt loads than Fannie Mae or Freddie Mac. The combination of marginal credit scores and low (or no) buyer financial investment contributed to FHA’s default rates as the housing market crashed. As a result, FHA has raised MI significantly and has long since eliminated seller-paid down payment assistance programs.

Fannie Mae also allows down payment funds to be gifts from close family members for single family principal residences, with down payments as low as 5% for qualified borrowers. Until recently, however, private mortgage insurance (required for loans exceeding 80% of sales price) vendors required buyers to contribute at least 2% of their own funds in a transaction in addition to any gift funds. PMI provider United Guaranty recently altered their guidelines and now allow down payments to be exclusively gifts, a move likely soon adopted by competitors. The announcement gives eligible buyers a distinct advantage over FHA’s considerable MIP costs.

FHA’s upfront MIP fees are now 1.75% of the loan size added to the loan balance ($1750 on a $100,000 loan, 3.5% down), with an additional monthly charge of $108.33, which applies for the life of the loan. Conventional PMI costs vary slightly, but have NO upfront fee. United Guaranty’s pricing engine returned a price quote of $64.17/mn for a 720 score, 5% down borrower, a substantial savings of $4,399 over just the loan’s first 5 years compared with FHA’s fees.

The more conservative underwriting guidelines for Fannie Mae gift-funded down payments aim to ensure only qualified applicants receive these loans. Credit scores of 720 or higher (versus minimum scores of 620 for loans without gifts) are required. Debt ratios are limited to a 41% of applicants’ gross income, an even stricter restriction than non-gifted loans. The home must be a primary residence for all those on the loan, and no second mortgages, balloon notes, or temporary interest rate buy downs are allowed. The credit score, debt ratio, and other limitations set Fannie’s 5% down program apart from FHA’s less stringent standards and should result in far fewer defaults.

It is important to note, however, that many lenders have restrictions on gift funds, despite Fannie Mae’s acceptance. Shopping for this program may be challenging. Here’s a few steps to start the process: if you have a preferred lender, call and ask whether they offer this program; if you need a lender, contact a loan officer in your area. You might have to shop around to find a lender offering the program with no overlays.

About the Author

Ted Rood

Senior Mortgage Planner NMLS 543290, Wintrust Mortgage


FHA Report to Congress 12/13/2013

December 13, 2013


From the Desk of Carol Galante – Acting assistant for FHA Commissioner


Report to Congress

On December 13th, HUD released its Fiscal Year (FY) 2013 Annual Report to Congress on the Financial Status of the Mutual Mortgage Insurance Fund, which reports the results of an independent actuarial evaluation of the of the Fund.


According to the independent actuary, the Fund’s value has improved by $15 billion since last year, and is currently valued at negative $1.3 billion. This change represents a 92 percent improvement in the capital reserve ratio rising from negative 1.44 percent to negative 0.11 percent. The independent actuary now estimates that the Fund will reach the required two percent reserve ratio in 2015, two years faster than predicted in last year’s report.


This Administration has worked hard to implement the policies and practices that have led to this turn-around. Since 2008, FHA has taken a number of steps to restore capital, including adjusting premiums, tightening credit policies, and expanding its use of alternative disposition strategies for defaulted assets. As a result, recovery rates have substantially improved and the credit quality of our most recent books of business remains at historically high levels – keeping FHA on the right track for the future.


While these policy changes were necessary and prudent, we are aware of the impact they have on our lending partners. In the years since the crisis began, the housing industry has been asked to adjust to an unprecedented amount of change. No doubt it has been challenging to keep up with all of the new policies and initiatives introduced by FHA and other regulatory agencies.


The initiatives that led to the Fund’s improvement are part of a wider effort to transform the way FHA operates. We are committed to becoming more efficient and making it easier for our partners to do business with us. Toward those ends, we have been focused on improving the consistency and transparency of our quality assurance practices and communication with lenders. We realize that a strong, consistent and transparent QA framework creates the best environment to ensure compliance with FHA’s origination and servicing guidelines and provides lenders the confidence needed to reduce overlays and enable broader access to credit.


That is why FHA is focused on improving the utility of all of its guidance. As a first step, FHA has worked to consolidate more than 900 Mortgagee Letters into an updated Single Family Handbook – a definitive guide on originating and servicing a single family FHA-insured loan. And our transformation efforts do not end there. We have begun issuing the quarterly Lender Insight publication, are developing an automated lender approval and re-certification process, and are working to streamline the way we develop and announce new policies.  When these initiatives are complete, it should be easier for everyone to stay informed and appropriately utilize existing and new FHA guidance.


We are doing everything possible within our existing capabilities to improve our policies, operations and business practices, but with additional tools we could make even more progress. So, we continue to ask Congress to pass legislation that will enhance our overall ability to manage risk. Specifically, FHA needs the ability to require indemnification from all classes of FHA-approved lenders, the authority to terminate lender approval on a more refined geographic basis, and the flexibility to engage specialty servicers. Legislation to revise the calculation of the compare ratio and reduce barriers to more effective risk management would also be beneficial to the Fund.


Fiscal Year 2013 Highlights

FHA had an important impact on the market in 2013.   This past year, FHA:


  • Insured nearly 1.1 million single-family forward mortgage loans during the year, with a total dollar value of approximately $240 billion and $13.6 billion in reverse mortgages (HECM). This brings the active single family portfolio to nearly $1.2 trillion.
  • Insured more than 675,000 new purchase loans, 79 percent of which were for first-time homebuyers.
  • Provided refinancing for more than 610,000 homeowners who were enabled to take advantage of historically low interest rates.


These numbers illustrate the continued importance of FHA to the housing finance market. Moving forward, FHA will continue to focus on using aggressive strategies to reduce losses, increase recoveries, and maintain access to credit for qualified borrowers. We believe that managing risk to the Fund is a critical element of ensuring that FHA is here to help future generations buy that first home, refinance into a more sustainable mortgage, or age in place as they get older.


Thank you for your continued support of FHA and our mission. HUD’s Annual Report to Congress on the Financial Status of the MMI Fund and the accompanying actuarial reviews are available at







FHA Homeownership Listserv Archive Page: FHA   recently began posting prior messages from this Homeownership Listserv on a   Departmental web site.  Currently the archives include messages from   calendar year 2013 and a portion of calendar year 2012.  To view   messages sent by and   previously by,   please visit the following site:  FHA   INFO Listserv Archive
Have FHA Questions? For FHA   technical support, please search the FHA Frequently Asked   Questions site or contact the FHA Resource Center by email at: or by   telephone toll-free between 8:00 AM & 8:00 PM ET at: (800) CALLFHA or   (800) 225-5342.
Subscribe/Unsubscribe Instructions:


To   subscribe to the FHA Single Family Housing News mailing list you can use this   link:  SFH   News or send a request by email to:
Bulk subscriptions:  To sign up your entire office or a large group,   send the list of email addresses (in the format below) to:
ccc@xyz.comTo   Unsubscribe follow the unsubscribe instructions on that page.
Resource Links: Archived   FHA Webinars Foreclosure   Assistance
Career Opportunities Grant   Opportunities
Contracting   Opportunities HUD Home Property Listings
Events   and Training Calendar Making Home   Affordable
FHA Forms Presidentially Declared Disaster   Areas
FHA   Homeownership Centers Visit   our homepage
FHA   Mortgagee Letters

HUD   press releases


WASHINGTON – Today the Department of Housing and Urban Development (HUD) announced that it will implement new FHA single-family loan limits on January 1, 2014, as specified by the Housing and Economic Recovery Act of 2008 (HERA). Read FHA’s mortgagee letter detailing the agency’s new loan limits.“As the housing market continues its recovery, it is important for FHA to evaluate the role we need to play,” said FHA Commissioner Carol Galante. “Implementing lower loan limits is an important and appropriate step as private capital returns to portions of the market and enables FHA to concentrate on those borrowers that are still under-served.”

The current standard loan limit for areas where housing costs are relatively low will remain unchanged at $271,050. The new national-ceiling loan limit for the very highest cost areas will be reduced from $729,750 to $625,500. Areas are eligible for FHA loan limits above the national standard limit, and up to the national ceiling level, based on median area home prices. Additional information and loan limit adjustments for two-, three-, and four-unit properties, and in Special Exception Areas, are noted in FHA’s mortgagee letter. An attachment to the Mortgagee Letter provides information on which counties are eligible for loan limits above the national standard. Borrowers with existing FHA insured mortgages may continue to utilize FHA’s Streamline refinance program regardless of their loan balance. The changes announced today are effective for case number assignments between January 1, 2014, and December 31, 2014.

Full mortgagee letter HERE.