Changes to FHA Loans

There are some important changes happening to FHA loans. One of my trusted lenders whom I work with has summarized these changes. Please feel free to contact him or myself with any questions you may have about the FHA changes.

I think overall; these changes are good. Borrowers with very poor credit or who need more than 3% in closing costs; need to focus on their credit repair and savings before getting into a situation where they could potentially loose their home and do more harm in the long-term

A summary of proposed FHA policy changes and timelines for implementation are:

· Increasing Mortgage Insurance Premiums

• • The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
  • If 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.
  • The initial up-front increase is included in a Mortgagee Letter to be released today, January 21st, and will go into effect in the spring.
• Update the combination of FICO scores and down payments for new borrowers.
  • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. (our investor overlays of a minimum 620 score already apply)
  • This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
• Reduce allowable seller concessions from 6% to 3%
  • This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
• Increase enforcement on FHA lenders
  • Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.
  • Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
    • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
    • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
  • Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
    • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.

For more details, please review the full press release from HUD, click this link.

Contact James Downing of the Downing Real Estate Group, LLC; if you are selling, buying or have questions!

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