Coming FHA Changes

For borrowers, Federal Housing Administration changes are on the horizon. Some of the new policies are effective next month, and are all part of a plan to bolster FHA’s reserves.

Last year, FHA insured one-third of all approved mortgages. The capital-reserve ratio is no longer at the Congress-mandated 2 percent threshold. FHA Commissioner David Stevens even voiced his intention to hire a chief risk officer, a position the administration has never had since its 1934 inception.

“To be clear, the fund’s reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new Congressional action,” Stevens said in a September press release.

In efforts to avoid a bailout, the FHA will make a series of policy changes:

• The up-front mortgage insurance premium (MIP) will increase to 2.25 percent from 1.75 percent. This change is effective starting April 5.
• To qualify for the FHA’s 3.5 percent down payment program, borrowers must have a credit score of at least 580. Those with a sub-580 score have to put down at least 10 percent.
• Seller concessions will be reduced to 3 percent from 6 percent, meaning buyers will not be able to inflate a home’s appraised value in efforts to pay off their closing costs.
• The FHA will implement an array of enforcements on FHA lenders, such as publicly reporting lender rankings and seeking legislative action that would make mortgagees for loans they give and underwrite.

“When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history,” Stevens said in a January press release.

In addition to upping the MIP, the FHA is requesting legislative action to increase the maximum annual MIP. Should such legislation pass, the FHA plans to shift some of the up-front MIP to annual MIP, allowing borrowers to pay off the increase in monthly payments.

With less than a month before the MIP jump is effective, the other policy changes have no definite start date, but the FHA plans to implement all changes by this summer.