Recently the U.S. Department of Housing and Urban Development (HUD) released its final rule which defines a ‘Qualified Mortgage (QM)’ that is insured, guaranteed or administered by HUD. The final rule will be effective on January 10, 2014 and will apply to mortgages with a case number assignment on or after that date.

The Dodd–Frank Wall Street Reform and Consumer Protection Act requires HUD to propose a QM definition that is aligned with the Ability-to-Repay criteria set out in the Truth-in-Lending Act (TILA) as well as the Department’s historic mission to promote affordable mortgage financing options for underserved borrowers. HUD’s rule builds off of the existing QM rule finalized by the Consumer Financial Protection Bureau (CFPB) earlier this year.

In order to meet HUD’s QM definition, mortgage loans must:

• Require periodic payments without risky features;
• Have terms not to exceed 30 years;
• Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184,Section 184A loans and others as detailed below); and
• Be insured or guaranteed by FHA or HUD.
• Currently, HUD does not insure, guarantee or administer mortgages with risky features such as loans with excessively long terms (greater than 30 years), interest-only payments, or negative-amortization payments where the principal amount increases. Moreover, HUD’s existing underwriting standards require lenders to assess a borrower’s ability to repay their mortgage debt. The new limit on upfront points and fees for all Title II non-manufactured housing FHA-insured single family mortgages is consistent with the private sector and conventional mortgages guaranteed by Fannie Mae and Freddie Mac to attain qualified mortgage status under CFPB’s final rule.

The rule establishes two types of Qualified Mortgages that have different protective features for consumers and different legal consequences for lenders. HUD’s Qualified Mortgage classifies a loan as either Rebuttable Presumption Qualified Mortgages or Safe Harbor Qualified Mortgages depending on the relation of the loan’s Annual Percentage Rate (APR) to the Average Prime Offer Rate (APOR), the rate for the average borrower receiving a conventional mortgage. The two categories of Qualified Mortgages are:

A Rebuttable Presumption Qualified Mortgage will have an APR greater than APOR + 115 basis points (bps) + on-going Mortgage Insurance Premium (MIP) rate. Legally, lenders that offer these loans are presumed to have determined that the borrower met the Ability-to-Repay standard. Consumers can challenge that presumption, however, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses.

Safe Harbor Qualified Mortgages will be loans with APRs equal to or less than APOR + 115 bps + on-going MIP. These mortgages offer lenders the greatest legal certainty that they are complying with the Ability-to-Repay standard. Consumers can still legally challenge their lender if they believe the loan does not meet the definitions of a Safe Harbor Qualified Mortgage.

Furthermore, HUD’s rule covers Title II manufactured housing, Title I manufactured housing and property improvement loans, Section 184 Indian Home Loan Guarantee Program mortgages and Section 184A Native Hawaiian Housing Loan Guarantee Program mortgages.. The rule designates loans insured under these programs as Safe Harbor Qualified Mortgages regardless of upfront points/fees and APR to APOR ratio so as not to interfere with current lending practices until appropriate parameters can be determined.

HUD also adopts CFPB’s list of transactions that are exempt from the ability-to-repay requirements, which includes Reverse Mortgages; Bridge loans with a term of 12 months or less; Construction-to-permanent loans for 12 months or less for the construction phase; Extension of credit by a Housing Finance Agency; Extension of credit by Community Development Financial Institutions; Extension of credit made pursuant to a program authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008; Downpayment Assistance through Secondary Financing Provider made pursuant HUD’s regulations; Community Housing Development Organization (CHDO) provided that the creditor has entered into a commitment with a participating jurisdiction and is undertaking a project under the HOME program; A 501(c)(3) organization that secured no more than 200 dwellings in the prior calendar year to consumers with income that did not exceed the low- and moderate-income household limit as established pursuant to section 102 of the Housing and Community Development Act of 1974 (42 U.S.C. 5302(a)(20)) and the creditor determines, in accordance with written procedures, that the consumer has a reasonable ability to repay the extension of credit.

HUD’s mortgage insurance and loan guarantee programs play a central role in the housing market and act as a stabilizing force during times of economic distress, facilitating mortgage financing during periods of severe constriction in conventional markets. The final rule aims to ensure the continuity of access to mortgage financing to creditworthy, yet underserved borrowers while further strengthening protections for FHA borrowers and taxpayers, alike.

For more information, visit www.hud.gov.

Recently, the Federal Housing Administration (FHA) published revised guidelines for lenders when they manually underwrite mortgage loan applications of borrowers applying for FHA-insured mortgages. This change will improve a lender’s ability to objectively consider a borrower’s risk and reduce additional credit requirements or ‘overlays’ that exceed FHA’s own lending standards.

New manual underwriting requirements announced today are intended to encourage lenders to use a defined set of objective standards and ‘compensating factors’ in order to make responsible, risk-based underwriting decisions. In addition, FHA’s manual underwriting guidance addresses loan characteristics such as high debt-to-income ratios and a lack of financial reserves that can result in high rates of default and foreclosure.

“We want to provide revised guidance for our lenders so that they are confident in offering affordable mortgage loans to responsible borrowers under a reasonable set of guiding principles,” says FHA Commissioner Carol Galante. “We hope to bring more certainty to the market by helping lenders apply a set of consistent underwriting standards.”

According to the Commerce Department, housing permits jumped to a 5-year high in October. With the strongest numbers since the housing crash, many are left wondering what the surge in building permits means. Don Frommeyer, CRMS, President of NAMB (The Association of Mortgage Professionals) explains that the numbers signal a strengthening housing market for the upcoming year.

“2014 will start off strong with more than 1 million housing permits issued in October. Single-family permits rose and reversed some of the damage we saw this summer when numbers dropped. It’s a great sign for families looking to build new homes, construction companies and loan officers alike,” says Frommeyer.

In addition, the data shows permits for multifamily units rose more than 15 percent. “Although the single-family segment is typically a stronger indicator of how the housing market will be impacted, the surge in multifamily unit permits is a great signal for builder confidence and optimism,” continues Frommeyer.

Mortgage rates are nearly 1 percent higher than they were in May of 2013, but the likelihood of them jumping higher is low. “The arrival of Janet Yellen as the new Federal Reserve’s chairman should keep mortgage rates low, which will be another bonus for the forecast of the housing market.”

For more information, visit www.namb.org.

The National Association of Home Builders recently release an interesting analysis from the 2012 Survey of Construction (SOC).

The raft of data from the Census Bureau shows that on average it takes about 7 months from obtaining a building permit to completing a new single-family home. Looking at the homes completed in 2012, houses built for sale, on average, register the shortest time from permits to completion – between 5 and 6 months.

According to the data, houses built on owner’s land take longer – about 8 months if built by a contractor and more than 11 months if they are owner-built (i.e., where the owner of the land serves as a general contractor). While single-family homes built for rent take, on average, between 8 and 9 months from permits to completion.

For houses built for sale, the SOC also gathers information on sales, registered at the time when a buyer signs a sale agreement or makes a deposit on the home, not the final closing. For new single-family homes sold in 2012, the average time from completion to sale is under one month.

However, this average is highly skewed by a relatively small number of homes that are not sold prior or while under construction, according to the analysis. Looking at new single-family homes completed in 2012, more than three quarters of these properties were sold before or during the completion month, including 30 percent that were pre-sold (i.e., sold before being started).

Only 6 percent of homes completed in 2012 remain unsold as of the first quarter of 2013 the SOC indicates. So, for most new single family homes there is no additional lag from completion to sale.

The time from permits to completion varies across the nine Census divisions with New England and Middle Atlantic regions registering the longer times of between 9 and 10 months.

The Pacific and East North Central division also show above average time of 8 months to completion. Builders in the East South Central Division manage to complete a home in 7 months, on average.

The rest of the country registers times between 5 and 6 months.

Earlier this month, we talked about downsizing kitchens—this isn't a move everyone wants or needs to make. So in our next two reports, we'll give equal time to those looking at morphing their kitchen from a practical utility space for food preparation, to a center of attention and functionality.

Design experts are seeing high demand for creating "great rooms," combining kitchen, dining, family and open, high-ceiling entertaining space. According to the Better Decorating Bible (betterdecoratingbible.com), there are several basic concepts to consider when "spacing out" into a great room:

Choose wall colors carefully – Different colors can help define separate areas, so select hues in the same tone family to create a seamless flow from one space to another.

Furniture – If you have a country-style oak dining table try to choose the same style furniture in your living room. Avoid anything that is super opposite like ultra-modern minimalism in the living room and a country theme in the kitchen.  Try choosing the same wood, material, and style for each section of your open concept room.

Window treatments – Use the same theme throughout and all of your windows look identical. Different shades, blinds, and curtains can create a big, big decorating mess.

Accessorize – Tie in the accessories from your kitchen to your living room. If you have brown hued granite counter tops, pop a fuzzy throw in the same color family onto your couch. If you have a set of red hot kitchen aid appliances on your counters, use the same red pillows on your couches. You can even connect your guest bath decor with a red towel or rug, or even a bouquet of red flowers to tie the look together. Throw in some wooden photo frames with photos of the family to personalize your space!

Lighting – The correct lighting can define each space of your open concept layout and help visually separate them. Floor lamps in the living room work well while a pendant lamp in the kitchen blends in effortlessly.

Errors and omissions insurance coverage is a product that companies across an array of industries carry, as these policies can be critical to keeping firms solvent in the event of lawsuits.

For the real estate industry, which manages millions of dollars in housing and commercial real estate transactions, carrying adequate E&O insurance is pivotal. While many agencies may maintain sufficient coverage levels, there are still a large majority of firms that fail to fully understand their policies.

A recent industry report noted that brokers and agents who don't fully comprehend the fine details of E&O policies may underestimate their needs when it comes to comparing different insurance options. As a result, some may make ill-informed decisions that could lead to coverage gaps or polices that don't fully meet their unique requirements.

In fact, many of the attorneys who service brokers and agents have voiced their own concerns about the misunderstandings these industry leaders have regarding their coverage. In some instances, brokers would submit claims to insurers and later find that they were not covered for certain activities. In response, these companies were forced to carry these costs out-of-pocket, placing significant financial strain on their bottom lines and putting them in jeopardy should a lawsuit be brought against them.

However, there are several ways that brokerage companies can become more informed and knowledgeable about their policies. 

1. Work with an industry expert 
Given the critical nature of E&O insurance, it's important that companies choose firms that have specialized knowledge in the field, a great deal of experience and a positive history of administering these policies. Insurance should be considered an investment in a company's risk management program, so choosing a provider that has a demonstrated level of expertise is pivotal.

2. Know which services are covered 
While this may seem like a no-brainer, RealtyTimes noted that it's not uncommon for brokers to assume that certain services are covered, only to later find out that they were excluded from the policy. Commonly excluded areas include residential, commercial, property management, sale of business opportunities and sale by an agent of his or her own property. Typically, most insurers will cover all of these areas, but it's best to be safe before assuming that all categories are included.

3. Ask about innocent party protection 
In some cases, issues can arise that were not the fault of the broker, so inquiring about innocent party protection can protect the brokerage firm. For instance, NAR noted that if a listing salesperson purposely does not disclose important property information without the broker's knowledge, innocent party provisions would help protect the firm.

The holiday season is a perfect time to welcome friends and neighbors for a casual get-together that is warm and casual and relatively stress-free.

Party planners at Countryliving.com suggest eight easy steps to a successful soiree for hosts and guests alike:

Plan early – Send out invitations 3-4 weeks in advance, making it clear whether children are invited. If you plan a buffet, with guests coming and going during designated hours, check your stock of baskets, trays, and other serving supplies. Decide whether you will use real china, glassware, etc. or holiday paper or plastic – and purchase what you need early.

Plan the menu – Keep it simple, with a selection of appetizers, sandwich fixings, salads, and desserts that can be prepared days ahead of time and frozen or refrigerated until party time. Using recipes you have tried before is a good way to please your guests and stay calm and confident.

Make desserts special – Everyone loves cookies, so bake up dozens far in advance of the party. Consider pudding or mousse in pre-filled, refrigerated glasses. Add fresh fruit, and a favorite pie or two, and you’re done.

Foster the flow – People tend to follow the food, so set up stations throughout the living area. Place beverages on one table, main dishes together, and desserts on their own table. Stack plates and napkins, put utensils in a basket, and have waste baskets readily available.

U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan recently announced that nine communities across the U.S. will receive Choice Neighborhoods Planning Grants. The $4.37 million awarded today provides these communities the resources they need to craft comprehensive, community-driven plans to revitalize and transform public or other HUD-assisted housing and distressed neighborhoods.

“Through this investment, HUD is providing the resources for local leaders to transform neighborhoods into thriving communities where families will choose to live,” said Donovan. “The Choice Neighborhoods Initiative represents the next generation in a movement toward revitalizing entire neighborhoods by providing critically needed funding to support locally-driven economic development solutions in these areas. I look forward to working with these cities and communities as they work to build stronger neighborhoods for all.”

HUD’s Choice Neighborhoods Initiative promotes a comprehensive approach to transforming distressed areas of concentrated poverty into viable and sustainable mixed-income neighborhoods. Building on the successes of HUD’s HOPE VI Program, Choice Neighborhoods links housing improvements with necessary services for the people who live there – including schools, public transit and employment opportunities.

The worst housing crisis in generations and the slow rebound back to normalcy has not changed the view of homeownership for two-thirds (67 percent) of Americans, according to a new poll on housing from NeighborWorks America, a community development nonprofit organization.

Meanwhile, renters have not been swayed to purchase a home despite near-record low mortgage rates and a general decline in home prices. According to the poll, 55 percent are not considering homeownership, while 42 percent of renters are considering it.

But confidence in knowing when it is the best time to buy a home runs high. Nearly 70 percent of Americans said that they were confident (46 percent very confident) in their ability to know when it is the right time to purchase a home, suggesting that there is a broad set of information available to help buyers make a good decision for what is usually the largest financial choice most will make in their lifetime.

In fact, the NeighborWorks America survey found that 88 percent of consumers ranked owning a home as an important part of the American Dream with 61 percent who said it is either the most important part or a very important part.  

But while the overall view of homeownership has not been changed by the housing crisis, the poll found dramatic differences between current homeowners and renters. The poll found that 63 percent of renters are more likely to rent their next home because of the housing crisis, while only 25 percent of homeowners would choose renting their next home.

Freddie Mac recently released its U.S. Economic and Housing Market Outlook for November showing that the major shift for the coming year will be a transition from a refinance-dominated mortgage market to the first purchase-dominated market the industry has seen since 2000.

Expect economic growth in the 2.5 to 3.0 percent range, more than 0.5 percentage points better than is projected for 2013 with the unemployment rate falling below 7 percent, perhaps by mid-2014.

Interest rates are expected to rise gradually throughout 2014 with the 30-year fixed-rate mortgage ending the year near 5 percent with affordability still strong in most markets. However, rising rates will hinder affordability in high-priced markets.

Projecting housing starts to rise to a 1.15 million pace in 2014, which should help to create around 700,000 new jobs and quicken the pace of economic growth.

Gains in home sales will be limited by continuing tight inventory in many markets, but anticipate sales to rise about 5 to 6 percent in 2014 from 2013 levels.