Today the Federal Housing Administration (FHA) announced policy changes aimed at strengthening the “FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities.”
Specifically, FHA is proposing to take the following steps:
1) Increase the mortgage insurance premium (MIP) – The first step will be to raise the upfront MIP to 2.25 percent and request legislative authority to increase the maximum annual MIP that the FHA can charge. If authority is granted, the upfront/annual premium structure will be adjusted, with some of the upfront premium being shifted to the annual premium. The shift will allow for an increase to the capital reserve with less impact on the consumer.
2) Update the combination of FICO scores and down payments for new borrowers – According to the FHA, new borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5 percent downpayment program. New borrowers with less than a 580 FICO score will be required to put down at least 10 percent;
3) Reduce allowable seller concessions from 6 to 3 percent – The FHA has found that the current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
4) Increase enforcement on FHA lenders – This includes publicly reporting lender performance rankings to complement current available data and enhancing monitoring of lender performance and compliance with FHA guidelines and standards.