FHA Announces New Policy Changes

FHA Announces New Policy Changes.  Federal Housing Administration (FHA) Commissioner David Stevens today announced a set of policy changes to strengthen the FHA's capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation's housing market recovery.  Here is a summary of the new policy changes to come from FHA.

FHA Announces New Policy Changes:

1.  Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending.  The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

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% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

3.  Reduce allowable seller concessions from 6% to 3%.   The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.

4.  Increase enforcement on FHA lenders.  Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.