Sunday, November 22, 2009

Possible Changes to FHA Insured Mortgages

by Calculated Risk on 11/22/2009 04:10:00 PM

Kenneth Harney at the SF Chronicle lists a few possible changes: FHA looking for ways to pump up its reserves. Harney lists four possible changes:

  • Higher down payments. The current downpayment requirement is 3.5%, and Harney mentions proposals for an increase to 5% or more. This will probably not be changed.

  • Higher mortgage insurance premiums.
    Currently, FHA charges an "up-front" mortgage insurance premium of 1.75 percent of the loan amount. Most borrowers roll that into their loan and finance it. FHA also charges an annual premium, paid in monthly installments, of either 0.5 percent or 0.55 percent, depending on the down payment. To rebuild reserves, FHA could ... raise the up-front premium to 2 percent or as high as the current statutory maximum of 2.25 percent. It could also raise the annual fee...
  • Cutting home-seller "concessions" to borrowers' loan costs. Currently the FHA will allow the seller to pay many of the buyers closing costs (up to 6% of the purchase price). Many people think this is excessive - especially with a 3.5% downpayment.

  • Toughening credit standards. Harney writes:
    FHA is by far the most lenient and flexible player when it comes to evaluating applicants' creditworthiness.
    I think the most likely changes are higher insurance premiums, lower seller concessions, and tougher standards.