Mortgage Update-FHA Changes
From Washington: The Federal Housing Administration (FHA) Commissioner David Stevens has announced a set of policy changes to strengthen the FHA's capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. There seems to be some mortgage personnel that have worked with the government for many years to help get the low to moderate income population to achieve homeownership, who are a little upset about these changes. Since FHA was a way to help the low to moderate income population to achieve homeownership; not to mention some other attributes like neighborhood stabilization and the CRA (Community Reinvestment Act); I can understand what seems to be double standard (the description has been used a lot lately in the news) as well as I have been a FHA DE (Direct Endorsement) Underwriter myself and I can see where this is going. (It appears). This may not help the low to moderate borrower as in the past. It will give stricter standards and guidelines and help FHA to be more like the Industry standardâ€¦..
1. Mortgage Insurance Premium: A higher mortgage insurance premium, or MIP and per FHA to build up capital reserves and bring back private lending. They also state that is this authority is granted; then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP. (This will make the payment a little higher but the MIP premium on a 30 yr mortgage can be canceled when the loan to value reaches 78%). The rate will increase from 1.75 percent to 2.25 percent. It is calculated like this: for a loan amount of $200,000 MIP = $4500; this added to you base loan amount is $204500 because your MIP is added in your loan. It is .50 percent difference and will not make of lot of difference somewhere around $6 month for this loan amount.
2. FHA will update requirement for FICO scores and down payments : they will continue to offer the 3.5 percent down payment (this is still one of the good things) for people with a credit score above 580, but those with poorer scores would be required to put down 10 percent (this does not help the low to moderate income individuals and someone with a credit score below the above does not necessarily mean their credit is extra awful, it may be they do not have sufficient verifiable debts on the credit report and therefore need non-traditional credit). With this said, if the credit is bad and has significant late payments, the loan should not be made anyway. Not only this, but most low to moderate borrowers will not have a 10 percent down payment. I am not being negative; these are facts from working in the Industry.
3. Reduce allowable seller concessions from 6% to 3%: This one is a biggieâ€¦.Per FHA the current level exposes FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions. *please note that this previous statements could never be any truer and this is what happened in the Subprime Loan market that has caused America so many problems. This is supposed to take effect in the early summer.
4. Increase enforcement on FHA lenders: This one is effective immediately. FHA states they will publicly report lender performance rankings to complement currently available Neighborhood Watch date. This will enhance monitoring of lender performance and compliance with FHA guidelines and standards.
FHA has already started taking actions with increasing the lender responsibility for complying with FHA standards and guidelines. They have withdrawn three lenders and put another one on suspension.
The questions that are being asked are: is this going to benefit the underserved communities. From other FHA DE Underwriters and concerned individuals; it appears that it will not help those who do not have the down payment and the lower credit scores.
The bottom line is this: This is going to make it tougher for the low to moderate income people. Yes they have broadened their guidelines and upped their mortgage maximum limits so that they can get better quality loans and who can blame them. Also, the conventional borrower's who do not have the five percent down payment and weak credit or not credit; have come over to FHA to get their financing. Nothing wrong with this other than the question remains:
What is going to happen to the low to moderate income communities?
It is important to keep up with mortgage information as it is changing now constantly. You might be a good idea if you are considering getting a refinance or buying to make sure you are up to date on Mortgage RESPA Changes and Mortgage Equity Loans.