Due to loan losses from loans originated between 2006 and 2008 FHA has fallen below their federally mandated 2% asset reserve requirement. FHA commissioner David Stevens is forced into making some tough changes that will not only make FHA more expensive for consumers but will also make FHA financing harder to qualify for.
FHA announced the following changes on January 20th:
- Up-front mortgage insurance premium to be increased from 1.75% to 2.250% as of April 5th. FHA is also seeking to increase the annual premium, which will increase borrower’s monthly payment and decrease the amount they can qualify for. See Mortgagee Letter: http://tinyurl.com/y8l5or8
- Increasing the minimum fico to 580 unless the borrower has a minimum 10% down payment. I see this as a mute point because I’m unaware of a single bank that has not already increased the minimum fico requirement to 620. I would not be surprised to see banks increase their minimum fico requirement to 660 by the end of 2010.
- Decreased amount of allowable seller paid closing costs from 6% to 3% of the purchase contract amount. This will negatively affect borrowers, especially those who intend on occupying the home for a long time and were smart enough to ask the seller to pay for their interest rate buy-down fees.
- Increased regulation, reporting and responsibility for lenders who are underwriting FHA loans. While this can be thought of as a good thing, if FHA goes to the extreme and blames every foreclosure on poor underwriting, then lenders will be forced to increase interest rates and fees to borrowers. In the end this very well could create a situation where lenders are not able to offer the FHA program at all due to risks of loan repurchases and FHA avoiding paying out on the mortgage insurance claim.
BOTTOM LINE; NOW IS THE TIME TO BUY!
FHA is tightening up and increasing fees, to a consumer this means it’s going to be harder to get financing and cost you more. These changes are anticipated to go into effect by the spring. Coincidentally I predict that’s when rates are going to jump and we know that’s when the Tax Credit is expiring. The opportunity of a lifetime will almost surely be over by summer 2010.
For the full HUD report go to: http://tinyurl.com/yc3mvz7