FHA is trying to balance 3 fundamental objectives:
- Financial soundness of the FHA insurance fund-ensuring that its capital ratio returns above 2%
- Fufilling its mission of serving borrowers not adequately served by the private sector
- Facilitating the recovery of the housing industry and the over-all economy
By all accounts the new changes are a victory for home buyers. FHA has carefully balanced the need to make financial reforms with the need to keep FHA available to a large segment of consumers. This is evident by retaining the 3.5% minimum down payment requirement and allowing the upfront mortgage insurance premium to be financed.
Changes in the following areas:
- The upfront mortgage insurance premium (UFMIP) will increase to 2.25% up from 1.75%. Contrary to reports, FHA will continue to allow the financing of the UFMIP
- Borrowers with a credit score below 580 will be required to have at least a 10% down payment. The minimum down payment for all other borrowers remains 3.5%
- FHA will seek legislative authority to increase the annual premium (currently capped at .55%) Over time, increasing the annual premium may allow FHA to reduce the upfront premium
- Seller concessions will be reduced to 3% from 6%
FHA will be making the following lender enforcement changes:
- FHA will implement credit watch terminations at lender underwritings
- Public reporting of lender performance through scorecard system will be implemented
- FHA will implement, through notice and comment, indemnification against lenders. Indemnification will be expanded beyond fraud and misrepresentation.
- FHA will seek legislative authority to enforce indemnifications against direct endorsed (DE) lenders
- FHA will seek legistlative authority to sanction lenders nationwide based on performance of local branch
FHA is an integral part to the continued recovery of the real estate industry and the overall economy. NAR is committed to assisting FHA as they balance risk management with creating home-ownership opportunities across the country.
source:National Association of Realtors