A look at economic recovery in the coming year Tuscaloosa News

03.01.10

The woes of 2009 did not vanish at the stroke of midnight.

They remain.

So what does 2010 hold for West Alabama's economy and business community?

There will be some changes and some improvements, experts say. But not all the news will be good, and the improvements might be more modest than major.

Perhaps the biggest changes we will see here will be driven by forces far from here and beyond our control.

James Cashman, a management professor at the University of Alabama's business school, said West Alabama has shown an ability to be resilient during the recession.

Even so, it was unable to avoid the rising unemployment that has gripped the nation, he said.

Alabama typically enters recessions later than other parts of the country, and it gets out of recessions later.

One of the last things to recover as recessions end is unemployment, which Cashman said will remain high this year in Alabama.

For 2010, “there is no massive reason to be optimistic,” he said.

Source:

FHA refinance guideline changes

Many FHA loan program changes were included with the Housing and Economic Recovery Act that was passed in July. The big announcement was dropping the seller funded downpayment assistance, which has impacted the home sales market significantly and adversely.

Another change was in the calculation of FHA loan to value for purchases and refinances. The maximum LTV was increased to 100%, to include the FHA upfront mortgage insurance premium. The tiered mortgage insurance premiums were changed to a set premium of 1.75%.

The mortgagee letter announcing the details of this change was poorly written, and left much needing clarification. The clarification has now been provided with a new mortgagee letter.

The new 100% LTV maximum had no impact on purchases, because the minimum down payment had been separately increased to 3.5% from the time tested minimum buyer investment of 3%. The impact of the purchase increase is more significant than a mere .5% increase because prior to January 2009 FHA had allowed some of the required investment to be applied toward buyer closing costs. This meant that for buyers paying at least a portion of their own closing costs their down payment could be as low as 2.25%.

The new guidelines require a full 3.5% down payment, plus closing costs.

The imaginary new 100% maximum LTV therefore did not at all apply to purchase loans. With the 3.5% down payment now required, the maximum LTV is 98.25%, including the 1.75% up front mortgage insurance premium.

The new 100% LTV guidelines however did appear to provide for increased loan amounts for refinance loans. I had even hoped that cashout refinances might be included with these new guidelines. At 100% LTV, less 1.75% up front mortgage insurance, a refinance loan would allow an LTV of 98.25%. This LTV would be an increase, and a significant increase for cashout refinances which had been limited to 95%.

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