FHA announces policy changes
Federal Housing Administration (FHA) Commissioner David Stevens 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. These changes that have been enacted, are guiding the FHA to manage its risk, while continuing to support the nation’s housing market recovery.
The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement.
*Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending. Ultimately, if approved by legislative authority, this shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing. This is set to go into effect in the spring.
For more information, visit http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-016
*Update the combination of FICO scores and down payments for new borrowers. New buyers 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 is set to go into effect in the early summer.
*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. This is set to go into effect in the early summer.
*Increase enforcement on FHA lenders. These changes will hold lenders more accountable and ensure that they are in compliance with FHA guidelines and standards. This is effective immediately. Currently, you can view lender performance rankings on Neighborhood Watch and the HUD websites.