HUD Seeks to improve FHA Mortgage Loans

Posted on December 11, 2009 by admin 
Filed under FHA Mortgagee Letters, FHA news, Mortgage News, Published Articles · Tagged:

FHA has not been immune to mortgage loan defaults, late payments and foreclosures.  FHA loan programs have supported a majority of home financing portfolios for purchase and refinancing. The FHA is also in need of additional capital after an actuarial report found the agency’s secondary reserves have fallen below the required 2%, to 0.53%, as losses from borrower defaults rose.  The housing agency insures nearly 30% of all purchase mortgages and 20 % of refinanced loans, according to HUD Secretary Shaun Donovan.

The proposed FHA lending changes or new FHA guidelines include:

*  HUD will increase “up front” cash required on a home purchase loans, giving the buyer more “skin-in-the-game.” FHA said it can tap several options, and analysts say it will mean some increase to the current minimum down payment of 3.5%. About 31% of purchase loans done in the first eight months of 2009 had the maximum 96.5% loan-to-value. Another 55% had 95% to 96.5% LTVs for FHA mortgage options.

*  The FHA will raise the minimum credit score for new borrowers. The FHA has yet to determine the minimum “FICO” and may factor in the down payment.

*  HUD will increase compliance and hold FHA lenders accountable for losses associated with loans that do not meet FHA standards. As of Dec. 8, the FHA this year has suspended eight lenders and withdrawn approvals for 270 others.

*  HUD might increase the 1.75% up-front premium and/or annual mortgage premiums. It is asking Congress to raise annual premiums since that would raise capital with the lowest borrower impact, Donovan said.

*  HUD cut allowable seller concessions to 3 % from 6 % in a move to limit incentives to inflate appraised values. The move reduces the money the seller can contribute to a buyer’s closing costs, discount points and other concessions without impacting the buyer’s mortgage.

*  It will boost enforcement and hold FHA lenders accountable for losses associated with loans that do not meet FHA requirements. As of December 8th, the FHA this year has suspended eight lenders and withdrawn approvals for 270 others.

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