FHA's mortgage program ! Credit Score Needed

Joined: 20 Aug 2009 Posts: 3 Location: Nyack, NY

The Federal Housing Administration won't raise the 3.5 percent minimum down payment requirement for mortgages it guarantees as long as borrowers have FICO scores of 580 or better.

Beginning early this summer, however, borrowers with credit scores below 580 will be required to make down payments of at least 10 percent in order to participate in FHA's mortgage insurance program.

This spring, the Obama administration also plans to raise the upfront mortgage insurance premiums paid by all FHA borrowers to 2.25 percent, up from 1.75 percent now.

The increase some of which may later be shifted to annual premium payments will help build FHA capital reserves back to statutory minimums and bring back private lending, FHA Commissioner David Stevens say’s.

Stevens also said enforcement of FHA lenders will be stepped up, and that allowable seller concessions will be reduced from 6 percent to 3 percent early this summer. The current 6 percent level exposes FHA to excess risk by creating incentives to inflate appraised values, he said.
Mortgage bankers, who do the bulk of business with the FHA, supported the moves. "The changes outlined are obviously designed to improve FHA's financial position and ensure its long-term ability to guarantee affordable mortgages for qualified home buyers, particularly first-time buyers," said Robert E. Story Jr., chairman of the Mortgage Bankers Association.

"The fact is that many lenders have already tightened their credit standards well in advance of this announcement in an effort to mitigate the risks posed by the current housing environment," he added. "Borrowers may have to pay a little more for their FHA-insured mortgages or certain borrowers will have to put more money down for their home, but these changes are necessary given the stress that the housing downturn has put on the FHA program."

The measures announced Wednesday, Jan 20, 2010 include the following:

* An increase in the mortgage-insurance premium. The premium will rise to 2.25% of the loan amount, up from 1.75%. The FHA will seek legislative authority for the hike, which would apply both to the up-front and annual premiums it charges. The FHA does not make loans itself, but provides a government guarantee against default for mortgages issued by approved lenders. The mortgage premium is split between an up-front charge paid at closing and an ongoing annual fee. The new premium rate will go into effect in the spring.

* A hike in FICO score 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. New borrowers with less than a 580 FICO score 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.

* A reduction in allowable seller concessions from 6% to 3%. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value, according to Stevens. 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.

* Increased enforcement on FHA lenders. The agency will publicly report lender-performance rankings to complement currently available Neighborhood Watch data, which will be available on the HUD Web site starting Feb.1. Stevens said this is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available. The agency will also enhance monitoring of lender performance and compliance with FHA guidelines and standards. The changes are effective immediately.

* A series of proposed additions to FHA legislative authority that would further tighten reins on lenders.