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Wednesday, December 02, 2009

FHA to Ask Congress for Changes

by Calculated Risk on 12/02/2009 12:44:00 AM

From Diani Olick at CNBC: FHA to Toughen Mortgage Rules in Lenders Crackdown (ht Brad)

... the Federal Housing Administration is proposing new rules to crack down on lenders and asking Congress for the authority to raise certain borrower requirements ... Those steps will include raising minimum borrower FICO scores, requiring larger down payments, and reducing the maximum permissible seller concession from six percent currently to three percent.

It could also include raising up-front and/or annual insurance premiums, which would require Congressional authority. This is according to the testimony HUD Secretary Shaun Donovan is scheduled to present to the House Financial Services Committee on Wednesday afternoon, obtained by CNBC.
These proposals are similar to what Kenneth Harney outlined in the San Francisco Chronicle ten days ago: FHA looking for ways to pump up its reserves. Harney suggested the FHA was looking at four possibilities:

  • 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.