monavateme.com: January 2010

What Do the FHA Changes Really Mean?

Thanks David & Mike~!

Yesterday, FHA announced changes to the criteria in which they insure loans. According to the Florida Association of Realtors, here is a break down of the 4 key points.

1. The mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

· The first step is to raise the upfront MIP by 50 bps to 2.25 percent and request legislative authority to increase the maximum annual MIP that FHA can charge.

· If this authority is granted, the second step is to shift some of the premium increase from the up-front MIP to the annual MIP.

· This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing.

· The initial upfront increase is included in a Mortgagee Letter to be released today, Jan. 21, and will go into effect in the spring.


2. Update the combination of FICO scores and down payments for new borrowers.

· New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5 percent down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10 percent.

· This change will be posted in the Federal Register in February and, after a notice and comment period, go into effect in the early summer.


3. Reduce allowable seller concessions from 6 percent to 3 percent

· FHA says the current level exposes the FHA to excess risk by creating incentives to inflate appraised value.

· This change will be posted in the Federal Register in February, and after a notice and comment period, go into effect in the early summer.


4. Increase enforcement on FHA lenders

· Publicly report lender performance rankings to complement currently available Neighborhood Watch data will be on HUD's website on Feb. 1. This is an operational change to make information user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

· Enhance monitoring of lender performance and compliance with FHA guidelines and standards.

· Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process.

· HUD is pursuing legislative authority to increase enforcement on FHA lenders.

As it stands, with the exception of the MIP increase, it appears that FHA is merely trying to set a standard for the first time on what they will insure. The banking institutions set their own standards of loaning money backed by FHA with higher standards than those announced yesterday. My purpose of giving this information is to make clear to everyone that the surge in activity we've all seen due to FHA and the government tax credit will be minimally affected. As for the Seller's concessions, Sellers were only allowed to contribute 3% on a minimal down payment prior to the announcement. Since most people opting for an FHA loan place the minimal amount down payment, there is really no substantial change.

Comment balloon 3 commentsMona Montanino • January 25 2010 11:27PM
What Do the FHA Changes Really Mean?
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