FHA made it clear that borrower with low credit scores will be required to have more equity to refinance with FHA. New home buyers who have less than stellar credit scores will have to come up with more money for the down-payments.  For example if first time home buyer had a credit score of 580 the underwriter may require a 10% down-payment rather than the 3.5% that most home loans insured by FHA have. Ryan continued, “Higher FHA down-payments will not guarantee timely mortgage payments from the borrower, but we should see less foreclosures and delinquencies because homeowners seem to take their monthly mortgage payments more seriously when they invest more money into their home.” FHA made their goals known at the recent hearing that focused on mortgage risk retention.  “This definition has the potential to create false- positive situations,” Ryan told lawmakers.

Groups Petition FHA for More Aggressive Home Loan Guidelines

FHA was given a waiver for the new home loan rules outlined in the Dodd-Frank home finance bill.  This mortgage exemption could take the pressure of lenders who are originating FHA mortgages.  However, many real estate companies and consumer watch-dog groups contend the new mortgage rules are not fair as it could restrict credit while making homeownership more difficult for many prospective borrowers. In an effort to stimulate the housing market, this group wants finance regulators to reduce the amount of the down payment rather than raise it. Clearly this coalition is at odd with FHA as guidelines continue to tighten for new home buyers.  With FHA rates still below 5% on 15 and 30 year loans, the motivation for home buying is strengthened even more. Today the current 30-year FHA mortgage rate is available to qualified borrowers with no points at 4.75%.

FHA Mortgage Rates Fell Below 4% on 30-Year Fixed Rates

Government experts from the Federal Bureau of Investigation, Financial Crimes Enforcement Network, Internal Revenue Service and Financial Fraud Enforcement Task Force were on hand to discuss policies and trends. FHA lenders like Shawn Downs, believe that “HUD is doing the best thing for long term security in regards to keeping the FHA loan programs a viable option.” Downs continued, “FHA loans in Colorado are a great option for first time homebuyers, but if too many borrowers default then the program won’t be around for the next generation.”

FHA lenders indicated that in 2010 FHA fraud is “the area that they are focusing in on,” McKenna said.  While there is strong underwriting, it doesn’t stop the fraud from happening. FHA is “still very attractive” to the fraudsters and fraud rings because they like to recruit straw borrowers.  “FHA guidelines, in terms of who qualifies and how much they have to put down, are a lot more lenient than the typical type of conforming programs. They can recruit young college graduates who don’t have a lot of credit history or people who don’t have great credit history and they only have to put 3% down.”

Today, an FHA mortgage remains the only low down-payment lending product, requiring just 3.5% from borrowers. Just five years ago, FHA loans had a market share of only 5%.  In 2010, FHA lending accounts for about 30% of all home loan originations nationally. This surge of mortgage loan volumes has increased the pressure on the FHA Mortgage Insurance Fund. FHA is required to maintain this emergency fund of reserves above 2% based on all of its insured mortgages.  This year we saw the reserves fall well below the 2% minimum and HUD has been forced to take drastic steps, like tighten the FHA guidelines.

FHA Mortgage Lending Back in Style

In an effort to preserve the sacred FHA loan program, HUD announced it will be raising its annual mortgage insurance premium from 0.55 % of the mortgage amount to 0.90% (for loan to values higher than 95%) or 0.85% (for LTVs lower than 95 %). This insurance premium hike will go into effect, October 4th, 2010.  In an effort to save face, FHA will be lowering their upfront mortgage insurance to compensate homeowners for their rising monthly payments. This is good news for new homebuyers because the fees are dropped to 1% of the loan amount from 2.25%.  Overall, it looks to add $300 million a month to the insurance fund by taking these actions.

FHA Borrowers to Pay More Monthly

So what does that mean to FHA buyers come October? It means they will be paying more each month.  For example, let’s take a $250,000 purchase. Under the current FHA mortgage insurance framework, the upfront premium would be $5,428 for a total loan amount of $246,678. The monthly mortgage insurance would be $110.57. Take an interest rate of 4.625%, and the principal and interest payment would be $1,268.27. Add the $110.57 and you get $1,378.84.

Under the new FHA requirements, the new upfront amount would be about $2,500 on a FHA mortgage loan amount of $250,000. However, the monthly insurance jumps to $180.94. Take the same interest rate, and the principal and interest payment decreases to $1,252.76. But with the higher premium, that total payment comes in at $1,433.70, an increase of almost $55 a month.  To a borrower who is just barely qualifying, that can have an effect. It also puts into play taking another look at private mortgage insurance as an alternative for the borrower.  These types of adjustments shouldn’t be surprising as FHA tries to adjust to the marketplace. It recently released its quarterly report to Congress, and it shows just how much FHA has become a part of the mainstream when it comes to mortgage lending.

The government agency tightened FHA loan requirements with amendments on the FHA guidelines making qualifying more challenging for new home buyers.  Read the original FHA loan article online at > Home Buying Opportunities with Declining FHA Loan Rates

According to FHA requirements, home buyers may qualify to assume the seller’s FHA mortgage loan. This is an attractive benefit if FHA rates are higher than your existing FHA loan at the time you’re selling your home.  FHA mortgage lending programs provide an important service to buyers, homeowners, and housing markets. FHA has been in the news a lot lately because HUD is looking for new opportunities to  rebuild the FHA mortgage reserves.

Many first time home buyers are using FHA home purchase loans to get approved to buy their dream home.  HUD reported that February delinquent levels for 90 days late FHA home loans dropped from 9.4% in January to 9.2% in February.  Many FHA enthusiasts saw this as a supporting indication that FHA lending programs were moving in the right direction.  

According to the Mortgage Bankers Association the FHA loan product had a 3.57% home foreclosure rate in the fourth quarter of 2009. That’s lower than the 4.58% home foreclosure rate for non FHA loans. A few years back, HUD created the Neighborhood Stabilization Program (NSP) in an effort to eliminate the stress from regions that high home foreclosure rates and home abandonment. Through the purchase and redevelopment of foreclosed and abandoned homes and residential properties, HUD moves to stabilize the housing markets and local economies. HUD just announced that the definition of “foreclosure” will be expanded to include homes with FHA mortgages that are 60 or more days in arrears, and “abandonment “means the property has a mortgage at least 90 days delinquent.

5 Concerns Noted by the FHA Home Loan Refinancing Company

1.  FHA loan defaults have risen dramatically over the last 48 months.

2.  FHA mortgage reserves have dropped to dangerously low levels.

3.  FHA guidelines have tightened significantly and most FHA lenders require a 640 credit score to refinance.

4.  The FHA requirements for FHA streamline programs thus fewer borrowers qualify.

5.  The change in the appraisal policy for FHA refinance loans has slowed the process and increased the closing costs for borrowers.

Read the original FHA Refinance Loans article online.

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.