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FHA making changes to avoid bailout
January 20th, 2010 2:44 PM

In an effort to avoid a taxpayer bailout the FHA will be tightening its lending standards and raising fees. This in an effort to help shore up those same strapped finances it claimed would not need any help from taxpayers back in October of 2009. An article from MSNBC shows some details on the changes that the FHA hopes will keep them from needing any assistance.

The new policies, are designed to bring more revenue into the agency, while at the same time keeping loans available.

Under the changes, homebuyers will:

  • Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current fee of $3,500. Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.
  • Need a credit score of at least 580 to qualify. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.

The changes come as borrowers with loans backed by the agency have increasingly been falling into default. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.

The FHA is also cracking down on those they think may be involved in less than honest lending practices.

There also have been fears that unscrupulous operators have shifted their business to the FHA after the subprime business went bust. Last week, the agency served subpoenas on 15 mortgage companies with suspiciously high default rates for FHA loans, part of a broad crackdown on dubious lenders.

The agency has already taken action against several problem lenders. One of the nation's biggest mortgage bankers, Taylor, Bean & Whitaker Mortgage Co. of Ocala, Fla., was banned from the FHA program in August and filed for Chapter 11 bankruptcy protection. Another mortgage company, Lend America, was kicked out in November.

Interestingly this all comes in the wake of news that HUD is going to be waiving an FHA rule on reselling. Reuters had the details in a recent article.

Effective Feb 1, the Housing and Urban Development Department will waive for one year an FHA rule that prohibits insuring a mortgage on a home owned by the seller for less than 90 days, giving FHA borrowers access to a broader array of recently foreclosed properties.

The move is to allow homes to resell as quickly as possible, helping stabilize real estate prices and revitalize neighborhoods after the U.S. housing market collapse.

"This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," HUD Secretary Shaun Donovan said.

FHA research shows acquiring, rehabilitating and reselling foreclosed properties to prospective homeowners often takes less than 90 days, HUD said.

The current rule discourages sellers from signing contracts with FHA buyers because of holding costs and the risks of vandalism from allowing a property to sit vacant more than 90 days, the department said.

"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David Stevens.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties or properties resold through private sales.


Posted by Leah Barr on January 20th, 2010 2:44 PMPost a Comment (0)

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