FHA Upcoming Policy Changes

This just in from Don Bucci with Dominion Mortgage:

FHA Upcoming Policy Changes

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending

• The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge. The initial up-front increase is included in Mortgagee Letter 10-02 and will go into effect with FHA Case Assignments dated on and after April 5, 2010.
• The second step will be to shift some of the premium increase from the up-front MIP to the annual MIP; date yet to be determined. 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.

2. The combination of FICO scores and down payments for new borrowers is being updated. (Please note: The minimum credit score required by Home Savings on FHA loans is 620; there are no current plans to accept lower scores as outlined in the following section.)

• New borrowers 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 allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

3. 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 change will be posted in the Federal Register in February, and after a notice and comment period, will go into effect in the early summer.