FHA, 1st time buyers, short sales and perceptions...

• Nearly 40% of existing homes purchased in November used an FHA-insured mortgage, according to a National Association of Realtors survey.

• As a result, the FHA is having to defend the program, saying that it is well enough capitalized to avoid any major losses in case of surging defaults. Earlier this month, Department of Housing and Urban Development secretary Shaun Donovan was before Congress defending the FHA, and ensuring the House Financial Services Committee that the single-family insurance program is “not the next subprime.”

• The increase in demand caused the capital reserve ratio at the FHA to drop below the Congressionally mandated 2% minimum, leaving HUD and the FHA scrambling to ensure the FHA program’s soundness.

• A number of proposals are being considered, including the raising of insurance premiums, raising the minimum FICO (credit score) requirements, raising the minimum required down payments and reducing the allowable seller contribution...all of which will make it more difficult for buyers to qualify for and obtain financing (and hence, not good for sellers).

• Other results from the Realtors survey showed first time homebuyers accounted for 51% of all transactions and are actively competing with investors for distressed properties...

• And, distressed properties aren’t just affecting transaction price, however. The presence of distressed properties is influencing buyers’ perceptions of other homes for sale and many buyers have pricing expectations that treat every property as if it were a distressed sale.

• Additionally, HUD issued a ruling that borrowers who were in default on their mortgage at the time of a short sale are not eligible for an FHA-insured mortgage for three years...