FHA Raises The Bar
The Federal Housing Administration announced last week that it would raise down-payment requirements, boost its mortgage-insurance premiums and tighten its loan underwriting practices in a bid to strengthen its capital reserves and remain solvent in the face of rising foreclosures and delinquencies. The FHA does not make loans itself, but provides a government guarantee against default for mortgages issued by approved lenders.
The measures announced Wednesday include the following:
- An increase in the mortgage-insurance premium. The premium will rise to 2.25% of the loan amount, up from 1.75%. The mortgage premium is split between an up-front charge paid at closing and an ongoing annual fee. The new premium rate will go into effect in the spring.
- A hike in FICO score requirements. New borrowers will now be required to have a minimum FICO credit score of 580 to qualify for FHA’s 3.5% down-payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
- A reduction in allowable seller concessions from 6% to 3%. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value, according to Stevens. This change will bring FHA into conformity with industry standards on seller concessions. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
For more details check out this post.
