FHA makes friendly changes

WASHINGTON — June 19, 2006 — When Jeff and Lynette Fletcher bought their first house recently, they turned to one of the nation’s oldest lending programs.

 

They got the money to buy a century home in Ravenna from the Federal Housing Administration, or FHA.

 

The federal agency, which issues federally backed loans to people who don’t qualify for regular or conventional mortgages, had fallen out of favor with buyers and sellers because of its rigorous appraisal regulations.

 

Starting Jan. 1, appraisers no longer have to flag a home for a cracked window pane, leaky faucets, a missing handrail or the lack of an all-weather driveway surface.

 

The time and expense of such minor repairs had been driving customers into the arms of subprime lenders who could underwrite a loan more quickly and easily – albeit often at a higher interest rate.

 

In 1997, FHA accounted for 11 percent of all home loans, but that share had dwindled to a mere 3 percent by 2005.

 

FHA is changing its ways in an effort to win customers like the Fletchers.

 

Jeff Fletcher, a 38-year-old plumber, and his wife moved to Northeast Ohio from Sonoma County, Calif., last summer to find a more affordable place to live and raise their children.

 

They’d heard about FHA’s faults.

 

“I’ve heard lots of stories about how their inspectors were really strict” and “wouldn’t pass certain things,” recalled Lynette Fletcher, a 37-year-old stay-at-home mother. “Everything was drawn out.”

 

They’d also heard about FHA’s changes. When they got serious about buying, they talked to their broker and decided to enroll in an FHA program that requires little or no down payment.

 

“It was really a piece of cake,” Lynette Fletcher said.

 

The couple moved into their new home on South Walnut Street two weeks ago. They paid about $120,000.

 

“This home has been gutted and totally remodeled in the last 10 years,” but it still has character, Lynette Fletcher said. “I have gingerbread on the front porch.”

 

The couple got a favorable interest rate and relatively low closing costs through FHA.

 

Appraisals simplified

 

Appraiser Bob Hamilton also is pleased with the new procedures.

 

Gone are the five pages of the VC, or value condition, sheet filled with items that he had to check off.

 

“FHA now is really only concerned with the big items,” said Hamilton, who has been in the appraisal business since 1985. His company, Hamilton Appraisal Services, is located in Cuyahoga Falls.

 

The big items that still require repairs include inadequate access to interior rooms, leaky roofs, standing water around a foundation and structural problems such as a buckled basement wall. In homes built before 1978, any lead paint has to be scraped and removed.

 

The new approach is “in line with conventional lenders” who “didn’t have to worry about a missing handrail,” Hamilton said.

 

FHA’s old regulations slowed the process of selling a home, Hamilton said. The appraisal would often take four to five hours — and longer if the property was located in a rural area far from comparable properties. If repairs were needed, he was required to return to the property to see if they were properly done.

 

Although FHA’s appraisals are simpler, they’re still not the equivalent of a home inspection, Hamilton said. Borrowers are required to sign a form acknowledging the appraisal doesn’t guarantee any parts of the home.

 

An aging roof with no active leak will pass the appraisal process, even though it may need to be replaced.

 

“Everybody should have every house inspected,” Hamilton advised.

 

Financing changes

 

In addition to appraisal changes, FHA also is modifying its financing practices.

 

Until recently, buyers were restricted on how much closing costs they could pay. Lenders would often charge some of those costs to sellers, which made some sellers reluctant to accept purchase offers with FHA financing.

 

FHA now says buyers can be charged for any closing costs that are customary to the area, said Patti McClister at National City Mortgage Co. in Akron.

 

The financing end was where FHA traditionally beat out the competition.

 

People with credit problems or those who have spent a short time on the job who couldn’t qualify for conventional loans often turned to FHA, which also gave them more leeway on how much debt they could carry.

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