The FHA has gone crazy, making sweeping new changes in several policies. You've got to keep these in mind when clients consider FHA loans. Here are some of the most extreme changes:
- Raised up-front costs for insurance
- TRIPLE down-payment requirements
- Cut seller concessions by HALF!
The government hopes the new policies will help the organization better handle risk. And they've got every reason to be nervous. 9% of all loans that the FHA insures are past due. FHA claims have been skyrocketing with the organization paying out of its capital reserves.
30% of all new loans (and 20% of refinances) are backed by the FHA. This is a 1,000 percent
increase over 2006. This seems like shaky ground for the company. The FHA is hoping to scale back to pre-crisis times and minimize their exposure.
The new up-front mortgage premiums have risen to 2.25% starting in the spring. They are also aiming to raise the maximum annual premiums that they can charge. They are hoping these moves will help them replenish their reserves. FICO scores will now need to be at least 580 to qualify for the lower down payment program (3.5%) instead of 10%. This change begins in summer.
Also, sellers will find themselves with new restrictions as well. Closing costs that they can kick in are limited to 3% of the value of the property, down from 6%. They are hoping this will drive down inflated valuations.
And of course, all these changes come with more oversight. Lenders will be ranked based on performance and these figures will be made publicly available.
The bottom line of these changes is the effort to minimize risk of default and help the housing industry recover (as well as cover the FHA's a**).