FHA Raising Fees and Tightening Standards
January 23, 2010 – 6:41 pmIn what could be a sign of rough times ahead, the FHA is raising it’s fees and tightening lending standards. The government housing agency is seeing increasing losses due to foreclosures and now has reserves that are below levels required by Congress. FHA insured loans are the overwhelming choice for first-time homebuyers so changes to these rules could be detrimental to the housing market. Furthermore, the FHA did not set a date of when the changes would occur, instead stating they would occur in the first half of the year. I imagine the new standards would take effect after the April 3oth deadline for the First-Time Home Buyer Tax Credit. I think changing these rules before than would deflate the market pre-maturely. This housing market needs as much assistance as possible in clearing out some inventory.
The moves are supported by mortgage bankers. “The changes outlined today are obviously designed to improve FHA’s financial position and ensure its long-term ability to guarantee affordable mortgages for qualified home buyers, particularly first-time buyers,” said Robert E. Story Jr., chairman of the Mortgage Bankers Association.
The FHA changes will require homebuyers to:
- Pay an upfront insurance premium of 2.25 of the loan amount. This is an increase of 28% from the current rate of 1.75. On a $300,000 mortgage, this would amount to a $6,750 compared with $5,250. It’s unclear if the increase would impact annual premium in addition to this initial upfront fee.
- Budget a decrease in the maximum allowable seller’s concession from 6% to 3%. A seller’s concession allows the buyer to have some of the closing costs bundled with the purchase price in order to allow.
- Have a FICO score above 580 to qualify for a 3.5% down payment. Buyers that have a FICO lower than 580 would be required to have a 10% down payment.
The other changes would apply to lenders in an effort to crack-down on those who are abusing the current system. The most interesting will be a lender-performance ranking system to be available on the HUD website starting February 1st. This is great as it will hold lenders more accountable for their actions.
