FHA Loans To Get Costlier
By Nick Timiraos The Wall Street Journal
"It's about to get more expensive to take out-and a bit harder to qualify for-a loan insured by the Federal Housing Administration.
Faced with rising losses and falling reserves, the FHA is preparing a series of tweaks to its underwriting guidelines and increase in fees in order to stave off a taxpayer bailout of the traditionally self-funded agency, Shaun Donovan, the secretary of Housing and Urban Development, told Congress in testimony Wednesday afternoon."
http://blogs.wsj.com/developments/2009/12/02/fha-loans-to-get-costlier/
"Among the changes under consideration:
- Raising the annual insurance premiums that borrowers must pay. This is the easiest place to start, but it would raise borrowing costs for home buyers. The FHA charges an upfront insurance premium of 1.75% of the total cost of the mortgage which most borrowers can roll into their loan, and then they pay additional annual premiums of either 0.5% or 0.55%, depending on their down payment.
- Setting a credit score floor for borrowers. The agency hasn't decided what that minimum might be, but it says it is looking at requiring borrowers with minimum down payments to have higher credit scores. While the FHA doesn't currently have a cutoff, most of the nation's top lenders have instituted a minimum 620 credit score for FHA borrowers.
- Requiring buyers to bring more money to the closing table. The FHA says that it will limit the amount of money that sellers can provide for closing costs on home sales to 3% of the home price, from the current level of 6%. Agency officials say they are also considering potential increases in down payments, but such a move could face heavy opposition from the real-estate industry. The head of the National Association of Realtors says such an effort as would "disenfranchise" FHA borrowers.
- Making FHA-approved lenders more accountable for loans that they submit to the agency. The FHA doesn't make loans, but it instead insures lenders against losses on loans that conform to its standards. In recent months, the agency has moved more swiftly to expel lenders that it says are putting the agency at risk. For example, on Monday, the agency terminated its approval for Ideal Mortgage Bankers, Ltd. and affiliate Lend America to make FHA-backed loans. Lend America on Tuesday said it would cease operations but that it plans to appeal that decision."
HOME BUYERS AND THEIR AGENTS SHOULD BE ALERT FOR THESE CHANGES. SOME BORROWERS WILL HAVE THEIR PURCHASES DELAYED BY THESE NEW GUIDELINES.
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