With this changing market also comes challenge for younger buyers, however. Most lenders require much higher credit scores and larger down payments. Even FHA-insured loans are demanding higher fees. These loans are still the most feasible for most first-time buyers, as they often only require 3.5% down and have lower interest rates.

The best way to take advantage of this shift in the marketplace is to get their credit in order by paying off student loans and credit card balances. It can mean the difference between no financing options available and a great credit score within just a few months.

Do note that a down payment of less than 20% means you’ll be required to pay for private mortgage insurance. And the fees on that insurance with FHA loans went up April 18.

The upside? A great deal on a large first home. The downside? Its value won’t appreciate as quickly and as much as it would have a few years ago, so younger buyers should be prepared to stay put for a long time.

HUD’s required “temporary” reserve funding in order to receive FHA mortgage approval is roughly back to the original 10% of the total annual association budget expenditures. Current owners may view this as good news, especially if they are desperate to refinance a troubled mortgage. But it will do very little for the overall financial health of the community over time.

This situation sends up a huge red flag for prospective buyers, as purchasing a condominium in a poorly funded association that also happens to be in a declining real estate market is truly a risk. Even if you find an amazing deal, you may be subject to thousands of dollars in assessment because the association has never funded its reserve. Once that became public knowledge, you do not want to find yourself stuck in a home you can’t sell in this type of community.

So what do you do?

Before buying, according to Carson Horton, principal with Capital Reserve Consultants, LLC, find out if the association has been approved for FHA mortgage insurance prior to December 7, 2009. If so, and the approval was granted within the last eighteen months, the association is probably among the better bets as a prospective investment.

Where do you think the reserve funding standards for associations should be?

Another mortgage related issue the administration is tackling right now has to do with foreclosures.  A settlement over mortgage-servicing breakdowns is currently being pushed by the Obama administration, which would include mortgage services committing to reduce the loan balances owed for troubled borrowers who are upside down on their home’s worth.

Many economists warn that foreclosures must run their course for the housing market to reach a true recovery.  Forming such an agreement would alter that course but no one really knows how many borrowers would be affected if an agreement were reached.

A settlement such as this would have to win the approval of several authorities including attorney generals, regulators, and the largest mortgage services.  A budding issue in foreclosures is the frequency of homes being improperly foreclosed on.  It is reported that banks have been signing off on foreclosures without properly reviewing case specifics.  This will no doubt be addressed in any sort of agreement.

This mandate means that HUD will have to cut programs that under normal circumstances wouldn’t be cut.  With a cut in budget comes the need for a new focus on how to utilize the reduced funds.  HUD claims that it will try and focus on programs that will help lead the nation out of this economic crisis towards recovery.  This includes homeowner protection to help families that are in danger of losing their homes and homeowner counseling.  Affordable rental housing will also be a priority in the future.

The proposed budget allocates $2.3 billion toward programs designed to end homelessness, which will include $145 million in new housing vouchers for more than 19,000 homeless individuals.

Sustainable communities will also be a focus for HUD.  The administration has proposed that $150 million in incentives for communities that develop plans which will increase jobs, shorten commutes, and promote overall economic growth.

This new proposed budget is the administration’s way of playing a long-term role in an economic recovery while also targeting the distressed Americans and areas that need help the most.

Unfortunately, the outline was not exactly definitive.  Three different proposals were presented, all of which involved a combination of both the private and public sectors.  Also, the government’s role would be smaller, underwriting standards would be tighter, and borrowers would have to hold larger amounts of equity in homes.

The goal is to attract private capital back into the market, which will come at the cost to borrowers and buyers.  This would include increasing the fees mortgage companies charge lenders and reduction in maximum loan sizes Freddie and Fannie can purchase.  Both of which would raise borrowing costs for buyers causing more stress on the already housing market.

A market where Freddie and Fannie no longer play the largest role will take years to realize due to the fragile nature of the current market.

There were of course critics of the three-option plan.  Some economists believe a presentation of multiple plans signals that there is a lack of consensus among the government.  Others believe that the outline was a positive step towards tomorrow’s recovery.  Even though the plan was not absolutely concise, officials are encouraged because opposing parties are clearly on the same page.

Moving forward, the government will need to be delicate with the market.  The need for private lenders is apparent but making mortgages difficult to obtain could be devastating.

The new risk fees will go into effect for Freddie Mac in March and for Fannie Mae in April.  The upfront change is what the institutions are calling an “adverse market delivery charge”.  This is an initial charge of .25% of the total home purchase.

Maybe the biggest surprise comes with the new rules in regards to risk fees for borrowers.  In the past, applicants with credit scores above 720 were mostly exempt from any sort of risk fee.  The new rules say that buyers with 720 or better must now put down at least 25% of the cost of the house to avoid these fees.  So, this means a buyer with a high credit score planning to put down 20% must now also pay a 5% risk fee.

The lending institutions have made changes to all required down payment brackets in relation to credit scores.  Overall, obtaining a mortgage from the two is about to become more difficult.

There are conflicting opinions of whether or not this is good for the market.  These two lending giants account for two-thirds of all mortgages.  Some experts say that incorporating risk fees will protect the American taxpayer but others think that the new rules are eliminating buyers and buyers are what the market needs.  It will be interesting to see the reaction from buyers.

The Dodd-Frank Bill is expected to include reforms to reduce the federal government’s large roll in the mortgage insurance industry.  As of now, the government backs 90% of all new mortgages in the United States.  Such a large share of the market poses risks for United State taxpayers in the event of another crash or mass defaults on all of those government-backed mortgages.

Knowing this, it is hard to argue that the government’s role in mortgage backing needs to be diminished and that’s what most experts expect from the Dodd-Frank Bill, which is what everyone is waiting for.  Regardless of political party affiliation and economic opinion, most experts believe that the government’s role in mortgage backing has grown too large.  The debate comes down to the size of the role it should play.  Experts are predicting a five-year plan that will cut the government’s share from 90% to just 50%.  What everyone can agree on is that whatever plans are put in place, reducing the government’s share too quickly or drastically could cause a catastrophic turn for the country’s housing market.

It is reported that the Treasury is expected to release on the future of housing financing.  Some predictions include a reduced maximum loan limit along with an increased focus on rental housing.

The news that the rule has been suspended for another year shouldn’t necessarily be a surprise to anyone.  Back in February of 2010, HUD lifted the rule in hopes of accelerating the investor sales of foreclosed properties.  This is an encouragement for investors to continue to buy foreclosed homes.  It will allow them to purchase, renovate, and then sell to buyers with FHA qualification.  Having access to buyers with an FHA insured loan is crucial as 65% of current homebuyers are utilizing them.

Opposing experts will argue that this isn’t the buyer’s fault at all but it lies with bankers and their buddies on Wall Street.  They question if this is really the time to tighten the clamps on FHA loans for buyers.  Many think that the time to tighten things up was when home values were at all time high.  Instead banks kept lending and helped create this monster.

Home values will not increase until demand increases and making FHA loans harder to obtain is only going to hurt demand.  If there are no available loans then there are no homebuyers.  There may be people who want to buy a home and can afford it but it wont matter if they cant qualify for a loan.

Some of the current purposed regulations are simply too late.  We needed these regulations before the housing crash.  Implementing them now would only slow the healing process.  The housing market needs buyers and eliminating qualified homebuyers from the process out of fear is not the answer.

It is also reported that 23,000 condo buildings are in jeopardy of losing FHA certification in the spring.  All of this steaming from gradual enforcement of the FHA’s new standards of lending.

While the FHA continues to hold up the market, its criteria for an approved home are changing, especially for condos.  Buildings in Florida and Arizona are having an especially hard time gaining re-certification due to the size and saturation of the market.

The biggest problem that most condos are having has to do with their HOAs.  Many are failing to meet the minimum reserve requirement.  The new FHA rule requires that 10 percent of the association’s budget must be set aside for maintenance and reserves.  For new condo buildings, 70 percent of the units must now be sold before Fannie approves their backed financing.

Why so many new and tough rules?  The answer is that the FHA has taken on the burden of today’s mortgage insurance.  Condos are highly volatile at the moment and they want to be sure that their insured loans are safe.  The bottom line is that these rules will help balance its books in response to the major surge of loan defaults in the condo market.