FHA announces policy change addressing risk and strengthen finances. The Federal Housing Administration (FHA) today outlined future changes to the FHA home loan program. The changes first were proposed last month by Secretary of Housing and Urban Development (HUD) Shaun Donovan. Rising defaults on FHA loans have led to the FHA’s cash reserves falling below federally mandated levels. FHA officials hope that policy changes will ensure borrowers have a stronger equity position and are less likely to default.
Changes include:
Raising the up-front mortgage insurance premium: The premium for Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending, its currently at 1.75 percent and will rise to 2.25 percent. HUD is expected to release a Mortgagee Letter on Jan. 21 making the premium increase effective in the spring. The first step will be to request legislative authority to increase the maximum anual MIP that FHA can charge.
Update the combination of FICO scores and down payments for new borrowers: New borrowers will be required to have a minimum FICO score of 580 to qualify for the 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. FHA expects this to take effect in early summer after it goes through the normal regulatory process.
Reduce allowable seller concessions from 6% to 3%: The agency is lowering the maximum permissible level to 3 percent from its current 6 percent limit. FHA expects this to take effect in early summer after it goes through the normal regulatory process.
Increase enforcement on FHA lenders: Publicly report lender performance rankings to complement currently available Neighborhood Watch data. This will be available on the HUD website on February 1. of this year. This change will make information more user-friendly and hold lenders more accountable.
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