Less Up Front From Buyers, Less Up Front From Sellers, More Per Month From Buyers -- Please voice your opposition to the Seller Concession Change!!!!
An overview of some of the changes for FHA coming this fall:
Higher monthly fees. The legislation allows the FHA to hike the monthly fee to as much as an annualized 1.5% of the loan balance, up from 0.55%, though initially it will go only to 0.9%. The initial fee was upped earlier this year to 2.25% from 1.75%, though the FHA has said it will bring it down to 1% with the higher monthly fee.
Even with the decrease in the upfront fee, increasing the continuing fee is expected to generate $300 million per month, "which would replenish FHA's capital reserves much faster than is possible under the premium authority" now, according to the quarterly report.
Better credit scores. In its 76-year history, the FHA has never required a credit score from borrowers, though the lenders typically have. That would change under a proposed rule that the FHA is expected to adopt.
The FHA would require borrowers to have at least a 500 score for FHA backing. At 580 and above, borrowers would be eligible for the 3.5% down payment. But those who fall between 500 and 580 would see their down payments jump to 10%. That, however, is still well below scores of 660 to 720 that most lenders look (Freedom Mortgage - John Tuggle, Senior Loan Originator - is still accepting 620 although some LLPAs may apply) for to accept only a 10% down payment.
For the FHA, "this change is dramatic," the quarterly report said. Among borrowers with scores below 580, loans 90 days in arrears, what FHA calls "seriously delinquent," have been three times as high as those for borrowers with scores above 580, the FHA said. Of the total FHA loan portfolio, some 6% are to borrowers who had scores below 580 at the time of origination, FHA Commissioner David Stevens told a House subcommittee in March.
Cutting sellers' contributions. This is the change that will have the biggest impact on borrowers, because it could nearly double their total upfront costs from the just the required 3.5% down payment to a total 6.5%.
Sellers have been able to contribute up to 6% of the price of the home toward the buyer's purchase. That was often done by paying some of the closing costs, such as the upfront FHA fee and other fees, amounting to about 3% of the purchase price. Sellers might also agree to pay from some needed repairs, sparing the buyers that expense.
As part of its proposed rule changes, the FHA wants to slice the seller's contribution to no more than 3%, which CMPS Institute's Nicholas said ups the buyer's ante to 6.5% in some cases.
The FHA contends that this change will weed out sellers who artificially inflate the sales price to create the concession. It also will bring FHA in line with industry standards. These are just the latest in a string of new policies that the FHA has imposed in the last few years and could lead to substantially fewer buyers looking for the FHA insurance, turning instead to Fannie Mae or Freddie Mae programs.
"Many of these reforms were long overdue as FHA did not respond effectively to changes in the marketplace that happened during the housing boom and the subsequent decline," Stevens told Congress.