FHA Announces 2010 Policy Changes

Last week Federal Housing Administration (FHA) Commissioner David Stevens announced a set of policy changes to strengthen the FHA's capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes are the latest in a series of changes made to help to better position the FHA to manage its risk while continuing to support the nation's housing market recovery.

The FHA will take the following steps:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending.  The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.   If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.  This will help decrease the initial impact on consumers because annual MIP is paid over the life of the loan instead of at closing.  The initial up-front increase will go into effect in the spring.
2. Update the combination of FICO scores and down payments for new borrowers.  New borrowers will now have different credit requirements to qualify for FHA's 3.5% down payment program. Depending on th eir credit score, some new borrowers will be required to put down at least 10%.  This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3%.  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.  This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.
4. Increase enforcement on FHA lenders.  HUD will pursue legislative authority to increase enforcement of FHA lenders, publicly report lender performance rankings to complement currently available Neighborhood Watch data and enhance monitoring of lender performance a nd compliance with FHA guidelines and standards.   These changes vary in when they will go into effect.  Some happen immediately and some will take place this summer.