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Competing mortgage lenders stand to profit when the Federal Housing Authority (FHA) chops attractive seller concessions from 6% of home sale price to 3% later this summer. Home buyers and sellers still have a few weeks, possibly as long as a month, to take advantage of more lucrative seller concessions, but the clock is ticking and the FHA is expected to enact the proposed policy change before the end of August.

One of the primary reasons that home buyers have been attracted to FHA mortgages is the profitable seller concession rule that allows property sellers to pay certain taxes and services connected to the sale that would normally be paid by the home buyer. Naturally, buyers gain when sellers pay for things like loan origination fees, appraisals, transfer fees, inspections, closing cost and escrow costs. Under current FHA seller concession rules, home sellers could sweeten the deal by offering to pay for nearly everything except the buyer's down payment, up to an amount equal to 6% of the sale price. It's proved a powerful incentive to purchase a FHA mortgage and considered something of an unfair advantage by competing mortgage lenders.

Economic issues and newfound concern about mortgage risk appear to be at the root of the FHA's decision. In announcing its pending decrease of seller concessions from a lucrative 6% to a far less attractive 3% earlier this year, the FHA said the program had led to inflated home appraisal values that created an unacceptable risk for the mortgage lender. A FHA investigation revealed that many sellers who agreed to pay buyers' costs recouped those costs by adding them to the sale price. The FHA found itself approving mortgages on homes that were actually worth somewhat less - 6% less - than their selling price. With the FHA requiring home buyer down payments of only 3.5%, the agency found itself holding an awful lot of "underwater" paper on overvalued homes.

Real estate agents and mortgage brokers assisting buyers and sellers who are relying on the more attractive 6% seller concessions to bring a sale to contract will push to close those homes as soon as possible before the FHA enacts its policy change and the golden goose is gone forever!

The final countdown has started on the June 30 deadline for the home buyer federal tax credit. New home buyers who fail to close on Wednesday stand to lose up to $8,000. For many new home buyers, particularly first-timers, loss of the federal income tax credit could spell financial disaster. Many buyers are counting on the credit to make their home purchase affordable and may be forced to back out of their contracts without it. Buyers and their real estate agents are hoping the U.S. House of Representatives follows the Senate's lead in extending the closing deadline to September 30. The deadline extension, which would also require presidential approval, is backed by the National Association of Realtors, the American Land Title Association and other realty trade groups.

In an interesting turn of events, buyers who missed the April 30 contract deadline to qualify for the income tax credit may actually come out ahead of those who filed promptly. With home buyers harder to find since the credit expired, realty efforts to goose the housing market coupled with declining interest rates may wind up benefiting procrastinators. Since the tax credit expired on April 30, three things have happened that could pay those who delayed:

• Many sellers have been forced to lower asking prices to attract buyers.
• Builders and real estate companies are offering promotions valued at more than the credit.
• Mortgage interest rates have declined from 5.125% in April to 4.75%, enough to save home buyers more than the value of the credit over the life of their loan.

Of course, whether home buyers benefit from buying in the post-credit market depends largely on market and price. As always, buyers will find better deals in stagnant housing markets. Buyers who appear to be benefiting the most in the post-credit market are those shopping for homes in the under $200,000 price range. Homes at this price point were snapped up fast this spring by first-time buyers anxious to take advantage of the tax credit. The lag in home sales since April 30 has forced many buyers to drop their asking price by as much as 30%. Coupled with the traditional June drop in housing prices as families scramble to move before the next school year starts in August, post-credit home buyers may be glad they waited.

A real estate agent's work isn't done when buyers ink their signatures on a real estate contract. The agent still has to help the buyer negotiate the financing maze. Partnering with a knowledgeable loan officer who can provide the buyer with astute financial advice can make the difference between a nice commission and a lost sale. Changes in mortgage practices that went into effect June 1 could impact a home buyer's ability to consummate a mortgage loan despite pre-approval. Savvy realtors and loan officers will make certain their clients are advised of new mortgage practices and how to protect themselves.

Beginning June 1, 2010, mortgage lenders started ordering a second credit check on home buyers immediately before scheduled closing dates. To protect their credit rating, home buyers have routinely been advised not to apply for new credit prior to purchasing a home. However, the moratorium on new credit was presumed to end once the buyer's mortgage loan was approved. Many buyers felt free to open new credit accounts and increase credit card purchases at home furnishing stores, appliance stores, flooring outlets and other retailers in anticipation of moving into their new home. Since June 1, however, new credit applications of any type, including new credit cards, expanded credit balances and home-equity credit lines, could potentially endanger a buyer's mortgage loan.

Mortgage approvals are based on viable debt-to-income ratios determined by lenders. To ensure that home buyers do not increase their debt-to-income ratio after mortgage approval, borrowers are now subject to a second full examination of their finances and recalculation of their loan risk. A substantial change in a buyer's debt-to-income ratio can raise warning flags and cause a lender to withdraw a loan offer.

Implemented by mortgage giant Fannie Mae, the new double credit check policy is an attempt to rectify the slipshod underwriting practices and borrower fraud that led to the mortgage meltdown. Fannie Mae's "loan quality initiative" requires mortgage lenders to obtain two credit reports on mortgage borrowers and verify numerous aspects of the home purchase, including borrower identification and occupancy plans. A second report pulled close to the closing date may not leave enough time to verify and rectify any new issues, halting the sale. Real estate agents and loan officers should advise home buyers to wait until after the sale is finalized before making credit changes.

There has been a lot of talk about how we may see an extension of the homebuyer tax credit. Because a lot of people waited until the tax credit was nearly over to buy, many of these loans are caught in a backlog. Those who managed to sign contracts by the last day of April will have to the last day of June to see to it that they close in order to receive the tax credit. However, as you well know, making sure the deals close in time does not depend only on the buyer.

As you are probably aware, a number of these sales that were made just as the deadline was looming were short sales. These kinds of sales are more complicated and require more time to complete.

Lenders have been working very hard to process documents for those who signed on before the tax credit deadline. As a realtor, you can encourage your clients to hand in any requested documentation as soon as possible in order to avoid any delays in processing. However, there is discussion of moving the deadline up to the send of September, allowing three more months for transaction to be finalized.

Some in the industry are concerned, however, that extending the tax credit will serve as an added incentive to the dishonest, since there have already been reports of people attempting to backdate documents to make it appear as if they had closed by April 30.

For those who think that the government is too big or too slow to notice, Uncle Sam
should not be underestimated. The IRS could easily ask for supporting documents and records that will be hard to fake.

Plus, since extending the tax credit to all who should receive it legitimately will not come cheap, you can be certain that the government it not going to look kindly on fraud in connection to the tax credit.

Homebuyers and mortgage applicants should breathe easier next month when President Obama signs the financial reform bill. The real estate industry as a whole and mortgage lenders in particular have taken the rap for the questionable lending practices of a few. It has left consumers a little leery but still willing to embrace the American dream of home ownership. Astute real estate agents and mortgage loan officers who proactively embrace the coming financial industry changes will create positive partnerships with prospective homebuyers and position themselves to capitalize on slow but steady growth in the real estate market.

Real estate brokers and loan officers can begin earning the trust and respect of potential homebuyers now by publicizing the new laws on their websites, explaining coming changes in loan practices in blogs and offering information and loan tips in newsletters and buyer packets. Creating an aura of partnership between homebuyers, realtors and loan officers helps to alleviate buyer concerns, promote your knowledge as an industry expert and resource, and establish open communication between all parties that promotes customer trust and goodwill. Demonstrating that you are in the homebuyer's corner and looking out for his best interests will attract buyers and make them feel confident about selecting you to represent them in the purchase of their new home.

Start preparing real estate materials and sales techniques now. Some of the mortgage loan reforms expected to be included the financial reform bill when it goes to President Obama for signature include:

• A new consumer protection agency will be created to protect consumers from poisonous mortgage products, predatory lending practices and scams.
• Uniform minimum standards will be established for mortgages and underwriting practices. Home buyers should expect loan officers to require full documentation of their income and a down payment substantial enough to ensure that borrowers take a demonstrable financial stake in their purchase of a home.
• Prepayment penalties are expected to be prohibited on non-traditional loans that don't carry a fixed rate or standard amortization schedule to prevent the hefty balloon payments and refinance penalties that trapped many borrowers in the recent mortgage meltdown/
• Mandatory arbitration clauses will be restricted.
• Changes in appraisal practices are expected to guarantee appraiser independence.