FHA OutLines Higher Fees, More Lender Oversight
January 20th, 2010
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The FHA is raising its mortgage insurance premium and taking other steps to boost revenue and reduce risk.
In a telephone press conference with reporters this morning, FHA Commission David H. Stevens announced a series of changes which will both boost borrower costs while increasing funds to help bolster FHA reserves.
1. The FHA mortgage insurance premium (MIP) will be increased from 1.75 percent to 2.25 percent. This change will likely be officially announced tomorrow in a letter to mortgage lenders, however the higher fees will not go into effect until the Spring. IMPORTANT: If you want an FHA mortgage it will be cheaper to get it now rather than in a few months.
The idea that the FHA loan program needs a higher insurance premium should surprise no one. First, the increase was proposed two years ago. Second, the FHA reserve accounts have been reduced by billions of dollars. While the FHA has substantial funds set aside for the short-term, no insurance plan can operate eternally with reserve levels falling.
2. The FHA will ask Congress for authority to raise the MIP still higher. The authority to raise insurance premiums does not mean they will be raised, rather the FHA is seeking to prepare for the future in case the 2.25 percent MIP turns out to be insufficient to cover costs.
3. The FHA will seek authority to not only raise the up-front MIP — that 2.25 percent — but also the annual MIP, now at .55 percent per year. This fee is paid as part of the basic monthly mortgage payment.
3. The FHA wants to assure that those with weak credit will pay more upfront. “New borrowers, says the FHA, “will now be required to have a minimum FICO 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%.” Look for this rule to go into effect this summer.
4. FHA loan guidelines will be changed to limit seller concessions. At this time owners can credit buyers with a seller contribution equal to as much as 6 percent of the sale price. Under the new rules the maximum seller contribution will fall to 3 percent. Expect this change to go into effect this summer.
4. The FHA will do more to police lenders. It will also rank lenders by performance — and will post the results online. This program will start as soon as possible, perhaps tomorrow.
5. The FHA will seek additional authority to oversee lenders.
The bottom line: Higher costs for borrowers, more security for the FHA program and fewer FHA lenders as a result of increased monitoring.
As well, keep your eyes on Capitol Hill. In today’s environment it should be fairly easy to pass new rules that will help federal agencies better oversee lenders.
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This entry was posted on Wednesday, January 20th, 2010 at 9:41 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
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