Commissioner David Stevens on Wednesday announced big changes at the government mortgage insurer that now backs a significant amount of the country’s home loans.
The FHA will raise the up-front Mortgage Insurance Premium paid by borrowers from 1.75% to 2.25% as well as request legislative authority to increase the maximum annual MIP that the FHA can charge. This is the second time in two years that it has raised the premium.
“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 in a written release.
In addition, in order for new borrowers to qualify for the 3.5 percent down payment program, they will now be required to have a minimum FICO score of 580. Borrowers with a lower score will be required to put down at least 10 percent.
The FHA will also reduce allowable seller concessions, from 6 percent to 3 percent. The change will give borrowers a greater financial stake in their home purchases, as well as brings the FHA into conformity with industry standards on seller concessions.
FHA, administered by HUD, which does not lend but only insures home mortgages, has been under increased scrutiny of late, as rising defaults put the agency below its required reserves. The authority went from insuring barely 3 percent of all home loans at the height of the latest housing boom to now backing an estimated 40 percent of all new loans. It has been a significant player in housing’s so far weak recovery.
Earlier in the week on Monday, FHA announced that transactions after 2/1/2010 will no longer be subject to the “flipping rule”, which required private sellers to wait 90 days after purchasing a home before they could enter into a transaction with a new buyer.
“The changes announced by the FHA represent an attempt to navigate a prudent course without negatively impacting access to credit or contributing to a further slowing of the housing market in communities of color,” said David Berenbaum, Chief Program Officer at the National Community Reinvestment Coalition in a written release.
The opposition to this move has mainly been voiced by the mortgage community, which has criticized mainly the drastic reduction in allowable seller contributions. Most transactions around the $100,000 price range have closing costs that exceed 3%. Buyers in this price range typically have fewer assets than most and come to the transaction with the bare minimum to purchase the property. The seller allowable contribution can make or break the borrower’s ability to purchase the property.
Summary of New Changes at FHA
- After 2/1/2010 will no longer be subject to the “flipping rule”, which required private sellers to wait 90 days after purchasing a home before they could enter into a transaction with a new buyer.
- Up-front Mortgage Insurance Premium, paid by borrowers, from 1.75 percent to 2.25 percent.
- In order for new borrowers to qualify for the 3.5 percent down payment program, they will now be required to have a minimum FICO score of 580. Borrowers with a lower score will be required to put down at least 10 percent.
- A reduction in allowable seller concessions, from 6 percent to 3 percent.