FHA program announces changes

FHA is an integral part to the continued recovery of the real estate industry and the overall economy. NAR will continue to work with FHA, the Administration, and the Congress to ensure FHA can fulfill its mission while providing for the safety and soundness of the insurance fund.
NAR is committed to assisting FHA as they balance risk management with creating homeownership opportunities across the country.

In October 2009, FHA announced that its capital reserve fund had fallen below the congressionally mandated level of 2 percent. The drop in capital reserves has led Congress and the Administration to call for changes to strengthen FHA.

On January 20, 2010, FHA announced major changes to ensure its long-term financial soundness.

FHA is trying to balance three fundamental objectives:
1) financial soundness of the FHA insurance fund – ensuring that its capital ratio returns above 2 percent;
2) fulfilling its mission of serving borrowers not adequately served by the private sector; and
3) facilitating the recovery of the housing industry and the overall economy

NAR has met with the Commissioner on several occasions to discuss the state of the housing market and to underscore FHA’s invaluable role. By all accounts the new changes are a victory for home buyers. FHA has carefully balanced the need to make financial reforms with the need to keep FHA available to a large segment of consumers. This is evident by retaining the 3.5 percent minimum down payment requirement and allowing the upfront mortgage insurance premium to be financed.


The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FhA will continue to allow the financing of the UFMIP.

Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.

FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the upfront
premium.

Seller concessions will be reduced to 3 percent from 6 percent.


FHA will make the following lender enforcement changes:
• FHA will implement credit watch terminations at lender underwriting.
• Public reporting of lender performance through scorecard system will be implemented.
• FHA will implement, through notice and comment, indemnification against lenders.
• Indemnification will be expanded beyond fraud and misrepresentation.
• FHA will seek legislative authority to enforce indemnifications against direct endorsed (DE) lenders.
• FHA will seek legislative authority to sanction lenders nationwide based on performance of local branch.

Caution - if it sounds too good to be true........

One of our clients contacted us last week asking if we were familiar with an FHA loan offering with a super low interest rate of 4 7/8 %. He had received a letter in the mail with government-type headings/logos, using the pretext of the government's stimulus bill as the reason behind the low interest rate.

The closing costs seemed super high so he wondered if we had heard of this program. We had not and told him to proceed with caution but only after checking with several other mortgage professionals the team had experience with and trusted.

When he called the number on the letter for more information, they finally admitted that this was not an FHA loan, and the very low rate of 4 7/8% had a point included in the closing costs.

He asked that we let other clients know there are still unscrupulous loan folks out there trying to take advantage so remember….

If it sounds too good to be true, it probably is! Be careful out there.

Questions? Concerns? Contact us and we’ll help. That’s what we are here for.

Breaking News - May 14, 2009 - First Time Homebuyer Credit To Be Used For Downpayment

First-time homebuyers will soon be able to access their $8,000 federal tax credit when closing on a home through a short-term bridge loan that will cover their down payment on FHA-backed loans.

The Federal Housing Administration will soon publish a policy that will allow FHA-approved lenders, HUD-approved non-profits, and state and local housing finance agencies to "monetize" the tax credit through short-term bridge loans, Secretary of Housing said Tuesday.

This is a great time to be buying a home!!