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CHANGES AT FHA

Reblogger
Real Estate Broker/Owner with Home Jane Realty BRE# 01439865

Buyers intending to us an FHA loan to purchase property in Los Angeles should familiarize themselves with the changes in FHA policy

Original content by David H. Stevens

I wanted to take a moment to make sure you are familiar with events surrounding a sweeping set of policy changes for FHA announced earlier this week. The announcement details the changes that Secretary Donovan promised to deliver by the end of January when he testified before Congress last month.

 

The new policies are designed to strengthen the FHA's capital reserves so we can continue to fulfill our mission of serving underserved communities.  In addition, we were determined that these changes should support, not disrupt, the nation's housing market recovery.  Bringing these changes to market has been the result of a lot of hard work and long hours.  And, I am proud to have worked with so many of you on this initiative.

 

What changes will be implemented?  We announced the following on January 20:

  1. Increase the up-front mortgage insurance premium (MIP) to 2.25%;
  2. Update credit score and down payment requirements for new borrowers;
  3. Reduce seller concessions to three percent, from six percent; and
  4. Implement a series of significant measures aimed at increasing lender enforcement. 

 

When combined with the risk management measures announced in September of last year, these new changes are among the most significant steps ever taken by FHA to address risk.  Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market's recovery.  Importantly, FHA will remain the largest source of home purchase financing for underserved communities.

 

Let's go into more detail:

 

Announced FHA Policy Changes:

 

1.      Increase the MIP to build up capital reserves and bring back private lending.

o    The first step will be to raise the up-front MIP by 50 basis points to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.

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

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

o    The initial up-front increase is included in Mortgagee Letter 2010-02 and will go into effect in the spring.

 

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

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

o     This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.

o    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.

 

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

o   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.

o   The 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.

 

4.      Increase FHA lender enforcement.

o    Publicly report lender performance rankings to complement currently available Neighborhood Watch data which will be accessible via www.hud.gov on February 1.

§  This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.

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

§  Implement Credit Watch termination through lender underwriting ID in addition to originating ID.

§  This change is included in Mortgagee Letter 2010-03 and is effective immediately.

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

§  Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

o    HUD is pursuing legislative authority to increase enforcement on FHA lenders.  Specific authority includes:

§  Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders.  This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.

§  Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. 

 

Note:  This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches.

 

In addition to the changes I have outlined, we are continuing to review FHA's overall response to housing market conditions, to evaluate its mortgage insurance underwriting standards, and to improve its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

 

I know this is a lot of information to absorb.  Listed below are links to some of the major stories about the announcement.  I promise to keep you aware as we implement these changes going forward.

 

Wall Street Journal (Nick Timiraos, 1/20) "FHA Sets Tighter Lending Requirements" The Federal Housing Administration is implementing more-stringent lending requirements and higher borrower fees to cushion against rising defaults and stave off the need for a taxpayer bailout of the agency. LINK

  

Washington Post (Dina ElBoghady, 1/20) "FHA plans to require borrowers to produce more cash for downpayments" The Federal Housing Administration plans to increase the amount of up-front cash paid by all new borrowers and to require higher down payments from those with the poorest credit, according to agency officials. LINK

  

Chicago Tribune (Mary Ellen Podmolick, 1/20) "FHA homeownership rules to change" The Federal Housing Administration announced changes Wednesday that will make it more expensive for homebuyers to secure agency-backed mortgages while some consumers will be priced out of the housing market. LINK

  

CNNMoney.com (Tami Luhby, 1/20) "FHA loan requirements will make it harder to get a mortgage" It's going to be harder to get a government-backed mortgage from now on. LINK

CNBC.com (Diana Olick, 1/20) "FHA Boosts Insurance Premiums to Cushion Defaults" In a move to shore up the FHA's beleaguered balance sheet, Commissioner David Stevens on Wednesday announced big changes at the government mortgage insurer that now backs about half of all home loans to the nation's minorities. LINK

 

I want to thank you for your efforts to keep this housing system on track. The role of the Real Estate Agent, Mortgage Lender, Settlement Service Provider, and all who make the dream of homeownership a reality, is critical to stabilizing this economy.  Your work is for a good cause.  We really are making a difference in people's lives.  Thanks for the partnership!

Comments (14)

Janice Roosevelt
Keller Williams Brandywine Valley - West Chester, PA
OICP ABR, ePRO,Ecobroker

Great information to bookmark, Jane. I appreciate you taking the time to post it

Jan 28, 2010 02:33 AM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Janice, thank you.

Jan 28, 2010 03:43 AM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Jane (or is it afternoon already?)

I'm book marking this article..its good to have this at our finger tips. Thanks for getting it out to us.

Jan 28, 2010 04:42 AM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Dorie,  you are welcome.  It was actually a popular reblog.

Jan 28, 2010 04:45 AM
James K Barath, CMPS
Canopy Mortgage, LLC - Crown Point, IN
FICO Pro, Certified Military Housing Specialist

I have to chuckle at the increase in minimum FICO score and the increase in down payment requirements. It seems as if every major lender moved the minimum FICO score to 620 back in the early part of summer last year. No one even does 580 FICO scores anymore as DU no longer approves those loan submissions. This intern makes that part of the update pointless.

Jan 28, 2010 06:59 AM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

James, I was wondering where they got 580 from. It seems all quite meaningless.

Jan 28, 2010 07:43 AM
The Somers Team
The Somers Team at KW Philadelphia - Philadelphia, PA
Delivering Real Estate Happiness

Jane - great reblog as this is information everybody should become familiar with !

Jan 28, 2010 10:49 AM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Chris, it most certainly is.  Thanks for dropping by.

Jan 28, 2010 11:04 AM
Esther (Essie) Cruz
Coldwell Banker Realty/Monmouth-Ocean - Manalapan, NJ
Manalapan Marlboro, NJ Real Estate

Hi Jane, Thanks for taking the time to share all this valuable info---lots to absorb, but definately good to know :o)

Jan 28, 2010 12:20 PM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Essie, you are welcome.  Now if you could explain it, I would be very happy.

Jan 28, 2010 12:30 PM
Lee & Carol Barbour, REALTORS
Murphy and Hayesville, NC; Hiawassee, Blairsville, Blue Ridge GA - Murphy, NC
Mountain Living Team in Murphy NC and North GA

Thanks for the reblog Jane. Gotta bookmark this one.

Jan 28, 2010 12:41 PM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Carol,  glad you found it.

Jan 28, 2010 12:50 PM
Debe Maxwell, CRS
Savvy + Company (704) 491-3310 - Charlotte, NC
The RIGHT CHARLOTTE REALTOR!

Hi Jane!  Thanks for the re-blog!  This is great information and I definitely need to keep it at hand for my FHA buyers--I've had more than my share of them this past year!  Lots of first-timers here!

Jan 28, 2010 01:05 PM
Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

Debe,  thanks for dropping by.

Jan 28, 2010 01:08 PM