| Since late 2009, the FHA has been discussing | | | | help increase the FHA's dwindling reserves. |
| implementing new changes to their FHA home loan | | | | FHA Reduces Risk |
| programs, and on January 20, 2010, these changes | | | | In addition to increasing the up front mortgage |
| were approved. The FHA decided to make changes | | | | insurance premium, the FHA is reducing the maximum |
| to their program after a 2009 internal audit showed | | | | seller concessions from 6% to 3% of the loan amount. |
| that their reserves had dropped to a level that was | | | | They have also added credit score requirements to |
| about a quarter of the amount required by Congress. | | | | their approval guidelines. They now require least a 580 |
| FHA Under Scrutiny | | | | in order to be eligible for the 3.5% down payment. If |
| Before the internal audit became public, many people | | | | the applicant's credit score is below a 580, they will |
| were already questioning whether the FHA was too | | | | have to contribute at least 10% down. |
| lenient with their approval guidelines. There was no | | | | FHA Increases Accountability |
| minimum credit score set for applicants, though most | | | | In order to make certain that lenders do not issue loans |
| lenders required a 620 score, and they required a | | | | to people who cannot afford them, the FHA is going to |
| down payment of only 3.5% on purchases. Some said | | | | publicly report performance rankings of each lender. |
| that the FHA home loan program was too similar to | | | | The purpose of this endeavor is to hold lenders |
| the subprime loans of the past in that it allowed credit | | | | accountable for their own lending practices. |
| to be extended to non-creditworthy borrowers. | | | | The FHA also intends to make lenders meet a more |
| Although some components of the FHA program are | | | | stringent set of criteria in order to continue issuing FHA |
| similar to subprime loans, this is not a legitimate | | | | loans. This is an effort to help ensure that they are |
| comparison to make. Subprime loans were issued to | | | | consistently acting in the best interests of both the |
| people who could not afford the loans. FHA loans | | | | FHA and the client. |
| require full documentation of income, employment, and | | | | These regulations will begin going into effect on loans |
| assets in order to ensure that, even if the applicant has | | | | that have case numbers assigned on or after April 5, |
| less than perfect credit, they can still afford the loan | | | | 2010. A case number is assigned the first time an |
| payments. | | | | applicant receives a quote for an FHA loan. If these |
| Goal is to Increase Reserves | | | | efforts serve their purpose, they will take the scrutiny |
| Announced by David Stevens yesterday, the largest | | | | off of the FHA loan program and allow them to |
| change implemented for FHA home loans is a.5% | | | | continue contributing to a healthy housing market in the |
| increase in the up front mortgage insurance premium. | | | | US. Hopefully, these new regulations will also |
| Previously, this premium was 1.75% of the loan amount; | | | | significantly increase the FHA's reserves and give |
| this change increases it to 2.25%. The increase will | | | | homeowners opportunities to continue taking |
| affect premiums on all FHA loans, except for the | | | | advantage of the FHA home loan program in the |
| Home Equity Conversion Mortgage (HECM), and will | | | | future. |