Upcoming FHA Changes Announced

The Federal Housing Administration (FHA) has announced details of changes intended to strengthen its capital reserves which were reported to be headed into dangerously low territory late last year. The changes are designed to increase FHA’s income from borrowers while reducing its portfolio’s risk. The increased popularity of FHA in the absence of alternative products has resulted in FHA funding 30% of real estate transactions today.

Policy changes go into effect for case numbers assigned as of April 5th, 2010:

Upfront Mortgage Premium to be raised from 1.75% to 2.25%.

On a $300,000 loan, the .5% increase is equivalent to an extra $1,500 financed into the loan amount which will increase the borrower’s payment by roughly $8 month.

Allowable Seller Concessions reduced from 6% to 3%.

The current level exposes FHA to excess risk of inflated values.

Increased Enforcement of FHA Lenders.

Enhanced monitoring of lender performance and compliance with FHA guidelines and standards. HUD is pursuing increased legislative authority for enforcement.

Consumers with FICO scores below 580 must put 10% down.

Nothing lost here as most lenders already require a 660 minimum credit score for all borrowers. FHA is continuing to review its overall response to housing market conditions and evaluating lending standards.

If you have specific questions about the upcoming changes, please contact LoanCentral.

~ Courtesy of Wendy Charles, LoanCentral LLC, 425.468.9321, WendyC@LoanCentral.com