Low reserves inspire the Commissioner
In an effort to “strengthen the FHA’s capital reserves,” the Federal Housing Administration Commissioner David Stevens announced today big changes.
The FHA will raise the up-front Mortgage Insurance Premium from 1.75% to 2.25%, the second time in two years they have increased the rate, betting on this spike keeping FHA’s coffers stable.
“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens.
Other changes agents must know about FHA
Now, if borrowers want to qualify for the 3.5% down program, the new minimum FICO score is 580, and for those under 580, they’ll be required to put down at least 10 percent. The FHA will also reduce allowable seller concessions from 6% to 3%, forcing borrowers to have skin in the game.
As the FHA went from insuring 3% of loans to now 40%, they’ve been looked at more closely with raised eyebrows as defaults continue to skyrocketed and they are now below their required reserves.
Yesterday, the HUD and the Treasury vowed to do their part in stabilizing the real estate market, and today, the FHA makes their announcement, with all three experiencing 20/20 hindsight which some analysts say is too little too late. Either way, agents should know about these changes as they navigate the waters of the real estate market.
The changes for credit-challenged borrowers are interesting. I mean, are there banks actually lending to people with 580 scores? Not around here. Even the brokers in my area are requiring a 620 minimum.
I cant imagine what a rate buy down would cost on a 580 right now, I was saying to Lani when writing this 620 is pretty much the true bottom. But knowing what FHA can actually do is wise especially if you’re working with first home buyers, at least then you can go to bat for a client, but they may not want that rate!
I thought it was also interesting that loan originators and underwriters where going to be held liable for their actions on the loans they originate and underwrite. Can you say a higher level of accountability?
Larger down payment is good. I really feel that the down payment is a measure of how capable the buyer is as far as keeping the mortgage in good standing and the house afloat. I really feel that the low or no down payment programs just end up hurting everyone.
-Tyler
I was working with a buyer who had a 615 credit score and he was told to get lost! I’m inclined to go with Stephanie on the credit score issue…heck my lender is telling me 640 minimum!
Sounds like FHA is trying to get into the ‘Conventional’ arena.