Bond, DC Bond

After much anticipation, the DC Bond, available through the DC Housing Finance Agency, is back in action, having hit the market on April 14th with a freshly funded mandate. The interest rate for borrowers is set at 5.25% with zero points and is currently only available as an FHA loan or a Veterans Administration loan, though financing without FHA or VA is being considered. The new bond requires all loans be purchased by Ginnie Mae. Funding for the program will likely run out come October, as it did last year, so any transaction would have to close prior to the fall.

As intended, the DC Bond program will largely benefit low-income borrowers. Lenders point out that FHA loans currently carry a 5.0% interest rate with no extra points (though all FHA loans, DC Bond and otherwise, come with a 2.25% up-front financing cost), noticeably lower than the 5.25% DC Bond rate. The true winners are therefore those who qualify for buyer down payment assistance, i.e. $10,000 towards a down payment or closing costs for qualified borrowers who have little to no cash upfront. To qualify, an individual must make less than $57,500; couples less than $65,700. A family of four can qualify if the household earnings are less than $82,200. DC Bond borrowers cannot finance more than $417,000.

Washington DC real estate development news

FHA's Changing Rules

The Department of Housing and Urban Development has announced its newest rules to rescue the condo market. Rules that take effect next week will drop the new-condo presale requirement down from 70% to 30%, a welcome change to any developer, but tack on rules that make some lenders jittery. Back in the days when no-doc loans were de rigueure and lenders financed 95 to 100% of home-purchase loans, FHA was but an obscure agency that few real estate agents even noticed. No more. FHA-based financing now allows 97% financing where lenders otherwise lend a more parsimonious 85 to 90%, and news from FHA is watched more closely than interest rates. The newest rules, just released, take effect December 7th. Under the old regime, developers were obligated to find buyers to write contracts on 70% of the units in a new condominium before FHA would back the mortgage. With so many buyers seeking FHA loans, a building could not begin settling loans before the 70% mark was met, a tough standard in the current market. The new rules bring that threshold to 30%, down from the initially proposed 50%. Spot approval, the process of getting an FHA-approved loan on a building that does not have overall FHA approval, now ends February 1, 2010. Buyers with a ratified contract by that date can still get case by case approval even if the settlement date is later. The quirk in the new rules lies in the two methods developers can use to qualify their project. The first entails "Designated Entity approval" with a bank's in-house licensed underwriters, a process the government intends as a quicker, cheaper approval method. The second is to submit the project to the FHA for approval. While no one is willing to guess at how long the government option will take, the bank approval process comes with a caveat that has bankers worried. Under the new guidelines, the first bank that approves a loan in a new condominium will incur liability for any flaws in all subsequent financing, even if it doesn't make subsequent loans. That can leave banks on the hook for hundreds of units for the profit of one loan, a scenario that banks seem not so keen to jump into. On the other hand, all existing condominiums need to be approved under the new system, leaving some industry watchers fearing a glut of applications on December 8th, with some predictions that rules for bank-approved loans will be relaxed to lighten the burden on the federal government. If not, builders will simply have to wait out the government's own approval process.

New Lending Rules to Slow Closings

New changes under the Truth in Lending Act (TILA), known as "Regulation Z", went into effect on Friday, and could have the effect of dragging out settlements. The rules, affecting mortgages and home equity lines of credit (HELOCS) for primary and secondary homes, require a disclosure and good faith estimate (GFE), but the changes add a seven day waiting period after disclosure before the lender can fund the loan, giving buyers time to ponder the disclosures.

GFEs were always required within 3 days of a loan application, but now if the annual percentage rate (APR) on the final loan changes by more than 0.125 percent, new disclosures and GFEs are required, and the 7-day cooling off period starts anew. Because a change in the interest rate or addition or reduction of points could change the loan APR, any change in mortgage terms could force the buyer to delay settlement by a week. The only exceptions will be for a "bona fide financial emergency;" presumably the agent's need for the settlement check will not qualify.

Reg Z rules were proposed by the Board of the Federal Reserve System, which governs TILA, as part of the implementing regulations for the Emergency Economic Stabilization Act of 2008 and Mortgage Disclosure Improvement Act of 2008, which passed Congress last October and July, respectively, during the waning days of the Bush administration as it found regulatory zeal in the economic crisis. Many financial institutions opposed the regulations as delay-of-game, while consumer groups supported the waiting period and the rule that exceptions be "tightly circumsribed."