FHA changes bring increased costsby Marcie Geffner
The Federal Housing Administration (FHA) has announced some significant changes to its loan programs and policies, making FHA loans more costly for borrowers and easing the pressure put on the agency’s Mutual Mortgage Insurance Fund as a result of the U.S. housing crisis. Changes will take effect April 1.
Here’s a summary of the changes:
- Higher mortgage insurance premiums. The annual FHA mortgage insurance premium (MIP) for most new mortgages of less than $625,500 will go up 10 basis points, or 0.10 percent. That would amount to about $15 per month for a $150,000 FHA loan. Premiums for loans larger than $625,500 will go up five basis points, or 0.05 percent. Certain streamlined refinance loans will be exempt from the increase.
- MIP for the life of the loan. Most FHA borrowers will be required to pay annual MIP as long as they keep their loan, rather than having the MIP cancelled automatically after the loan balance dropped to 78 percent of the original amount.
- Manual underwriting for low credit scores. Lenders will be required to manually underwrite a loan if the borrower’s credit score is lower than 620 or the total debt-to-income ratio is more than 43 percent. Documentation of compensating factors will be required to support the lender’s approval of loans outside those parameters.
- Reverse mortgages. The FHA will consolidate its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and their Saver Fixed-Rate HECM pricing options, effective for FHA loan case numbers assigned on or after April 1. The HECM Fixed Rate Saver will be the only option available to those seeking a fixed interest rate mortgage.
- Higher down payments. The FHA also intends to increase its down payment requirement for mortgages larger than $625,500. The down payment would go up from 3.5 to 5 percent.
U.S. Sen. Bob Corker (R-Tenn.) said in a statement that he supported the changes and hoped the government would take further steps to ensure the FHA’s financial future. Corker has been a frequent critic of the pace of changes at the FHA.
“I am pleased that the FHA is following through on the steps we discussed last year to strengthen its fund and to get itself back to solvency, but this is only a first step in fundamentally reforming our system of housing finance so that we are not completely reliant on the government – and on taxpayer losses – to support homeownership,” said Corker.
In related news, the FHA also said it will step up its enforcement with respect to aggressive marketing to borrowers who’ve experienced a previous foreclosure.
“It has come to FHA’s attention that a few lenders are inappropriately advertising and soliciting borrowers with the false pretense that they can somehow ‘automatically’ qualify for an FHA-insured mortgage three years after their foreclosure,” the FHA said in a statement. “This is simply not true and such misleading advertising will not be tolerated.”
Borrowers can obtain an FHA-insured loan three years after a foreclosure if they have re-established good credit and meet all the loan requirements.