Expect to see increases in mortgage insurance for FHA mortgage loans typically have a low down payment requirement of only 3.5%, so borrowers must pay for mortgage insurance to offset that risk. Unlike private mortgage insurance, FHA borrowers are able to finance the mortgage insurance, thereby spreading its cost over the loan term.

The first change that will immediately impact borrowers is the FHA’s increase of the required up-front mortgage insurance premium to 2.25% of the base loan amount. This would add an additional $1,447 to a $300,000 mortgage. New Borrowers will see a minimum FICO credit score and 10 % down payment requirements. New borrowers will now be required to have a minimum FICO credit score of 580 to qualify for FHA’s 3.5% down payment program. Borrowers with a credit score below 580, while still able to qualify for a FHA loan, must now put down at least 10% of the purchase price–an amount that may be prohibitive for many borrowers with poor credit.

The FHA is making an effort to lower its overall risk and improve the financial soundness of its insured loans, which in turn allows for the continued support of home buying in the United States. In doing so the FHA must find a way to keep their insurance fund’s capital ratio returns above the Congressionally mandated 2%, while continuing on their overall mission of aiding borrowers in underserved communities and facilitating the recovery of the housing market. These changes, along with the other FHA reforms will have varying effects on borrowers interested in a FHA home loan. For borrowers with low credit scores, some of these changes, such as the higher down payment percentage, will significantly affect their ability to buy a home. In the short term, the changes may motivate borrowers to lock into the old FHA guidelines before the new changes become effective.

FHA continues to alter their FHA mortgage guidelines in an effort to improve its depleted cash reserves.  A few days ago, the Federal Housing Administration unveiled tighter FHA guidelines with changes to the FHA requirements for underwriting new home loans and refinancing.  For the first time, FHA credit requirements will penalize applicants with challenged credit.  One of the FHA requirements changes will mandate larger down-payments for borrowers with bad credit or low FICO scores. In addition FHA will increase in the upfront mortgage insurance premium to 225 basis points.  We also anticipate FHA, to expand their criteria for mortgage refinance guidelines in 2010.

FHA commissioner David Stevens declined to provide any guidance on how much money the changes will raise for the reserve fund. Most of the new FHA guidelines outlined Wednesday will go into effect in the next few months. The 10% down-payment is required for borrowers with FICOs of less than 580. The MIP will be increased in a few months from the current charge of 1.75 basis points.

FHA mortgage refinancing has risen as a preferred FHA lending option for borrowers with good and bad credit.  In the last few years, FHA refinance loans have become a popular option because the FHA rates are low and the credit guidelines are more forgiving than conforming  lending guidelines. 

Talk to a licensed FHA professional about your qualifications and see if FHA is a good fit for refinancing your mortgage.  Read the entire FHA refinance article online. In the last 3 years, FHA refinance loans have increased their market-share for home loans nationwide.

Enactment of ML 2009-28, Appraiser Independence, will be delayed until February 15, 2010. ML09-28 This bill was originally planned for a January 1, 2010 implementation and has two parts:  a) prohibition of mortgage brokers and commission-based lender staff from the appraisal process, and b) appraiser selection in FHA Connection.  The effective date for both sections of this guidance will now take effect for all case numbers assigned on or after February 15, 2010.  This extension will provide FHA mortgage lenders additional time to adjust systems to accommodate the changes.  FHA mortgage loans have become very popular in the last few years.

Detailed instructions on changes to FHA Connection will be issued in a new mortgagee letter. However, lenders should be aware that the requirement for inputting the appraiser ID and the appraisal assignment date in the FHA Connection case number assignment screen will be removed.  Instead, home loan lenders will be required to enter all appraisal data, including the appraiser ID, in the Appraisal Update Screen once the completed appraisal is received by the lender and prior to closing the FHA loan.

House and Senate appropriators are increasing the FHA funding for the Department of Housing and Urban Development.  The government approved the increase of funding to prevent mortgage fraud, update its technology while increasing FHA mortgage lending capacity to $400 billion!  Read more at http://twitter.com/FHAhomeloanco.