FHA Makes Significant Changes to Credit Policy-How will this impact the market!

FHA is changing their credit policy that will affect up to 65% of FHA borrowers.  If a person has a collection or disputed account with more than $1000 cumulatively and are within the last 2 years, the borrower will have to pay that collection off before qualifying for a loan.  The account will need to be paid in full or a payment arrangement will need to be made.  Paying off the debt before closing could affect the borrower’s credit as well.  This was supposed to go into effect on April 1st but it just got extended to July.  Apparently there was a big uproar and now their giving mortgage lenders, realtors, investors the opportunity to voice their concern.

 

How will this impact the market?

Positive

I see a positive and negative side to this.  The positive is that there will be more inventory again because most of our FHA buyers are not qualifying for loans.  So now the market values are going to drop and maybe there won’t be a feeding frenzy between owner occupant buyers and investors.  This means more properties for the investors to buy.   This is great for landlord investors who want more rentals in their inventory.  These houses will produce lots of cashflow.  So we should buy up as many as we can for the cashflow.  I’m doing this right now with my refi’s. I’m buying up short sales with a fix and flip loan and then refinancing to a 30 year fixed loan.  I’m definitely seeing lots of potential here.

Negative

The negative side is how are we going to sell our houses?  Even though I am buying up a bunch of rentals right now, I still need to do fix and flip for immediate income.   Realtors are going to have houses for sale that won’t sell and investors who remodel their houses won’t have buyers anymore.  Most of the houses that investor’s rehab are sold to first time home buyers because of the price point we are selling our houses in is lower.  Will investors have to start renting their houses out rather than sell?  If we can’t sell our houses, we can’t hold onto them forever.  We will eventually have to get rid of it or rent it.  Do investors need to start buying houses in higher price points where the non FHA buyers are?  If this is the case then the hard money costs will increase because the purchase price has increased.

 Ultimately I see more negative than positive for investors, homebuyers, realtors and mortgage brokers.  We are all going to have to adapt to the changes to the market.  Since I’ve started investing in 2007, I think every 6 months I have to change something I’m doing to adapt to market changes.  We may see more and more investors, realtors, and mortgage brokers go out of business.  The strong ones will stay in the game as long as they make the necessary changes to adapt to the current market conditions.  Our market is very dynamic and nothing remains the same.  In order to be successful in what you do, you have to be willing to adapt to change.

Please post your comments, I’m interested in hearing how you think this will affect the market.