The Federal Housing Administration has unveiled a new set of policy changes designed to strengthen their insurance program, which guarantees FHA lenders against losses from defaults.
Among the new changes:
- Effective in Spring, FHA will increase the mortgage insurance premium by 50 bps from 1.75% to 2.25%.
- New down payment system – borrowers only qualify for 3.5% minimum down payment with a FICO score of at least 580. Credit scores less than 580 will require at least a 10% down payment.
- Seller concessions will drop from 6% to 3%. This change reflects the condition of the marketplace, and helps reduce the risk of price inflation.
In summary, FHA seeks to:
- increase its enforcement of standards on FHA lenders by holding them more accountable and informed of where expectations should be.
- pursue additional amendments to the National Housing Act that would apply provisions to all direct-endorsement lenders requiring them to assume liability for all loans they underwrite.
- pursue legislative authority to establish separate areas for lender review and termination under the credit watch initiative. This initiative would allow the FHA to withdraw originating and underwriting approval from a lender nationwide based on performances of regional branches.
The changes come as a result of reaching the priorities of the FHA:
- To get the capital reserve headed back to the minimum requirement (to 2% rather than .58%)
- To keep from disrupting the housing finance industry
- To support under-served communities with first time homebuyers.
Along with these changes, the FHA has waived the regulation that prohibits the use of FHA financing to purchase properties being resold within 90 days of acquisition. The waiver of the regulation takes effect for all sales contracts carried out on or after February 1, 2010. They encourage investors to renovate foreclosed and abandoned homes in order to increase the availability of affordable homes for homebuyers. They seek to stabilize real estate prices, neighborhoods and communities with high foreclosure activity. The waiver applies to all properties being resold within the 90-day period and is not limited to foreclosures.
- All transactions must be arms-length
- Additional documentation required if sale price is 20% over seller’s acquisition costs
- Is limited to forward mortgages and does not apply to HECM (Home Equity Conversion Mortgage) programs
