FHA Mortgage Loans and Financial Reform

by Karen Lawson
July 26th, 2010
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Financial reform legislation impacts mortgage lenders, borrowers, and brokers in certain ways that can be viewed as helpful or not depending on your viewpoint. Here are the basics of how new rules can impact your FHA loan or refinance mortgage:

  • Fees charged at closing cannot exceed 3 percent; This sounds like great news, but a number of fees were exempted from calculating the fee limit.  These include the FHA up-front mortgage insurance premium (UFMIP) and third party fees including inspection, escrow, and appraisal fees.
  • Lenders no longer allowed to pay mortgage brokers incentives for recommending higher cost mortgage loans: This minimizes the likelihood that mortgage brokers will automatically steer borrowers toward higher cost loans. FHA is phasing out its approval of mortgage brokers; instead, FHA lenders will be responsible for any FHA mortgage loans originated by brokers.
  • Documenting affordability: FHA guidelines require documentation of borrower income and assets for approving FHA loans, but tightening this restriction to include all mortgage lenders may eliminate any temptation (or ability) to “fudge” borrower income and assets. Borrowers should remain vigilant; any lender who asks you to sign blank loan application or mortgage documents or asks you to lie about your assets is putting you at risk of foreclosure and/or mortgage fraud prosecution.

FHA Offers Flexible Mortgage Approval Terms

FHA guidelines are designed to assist moderate income and credit challenged families with buying and keeping homes:

  • Low down payment: FHA allows a minimum down payment of 3.5 percent as compared to 20 percent typically required of conventional mortgage loans.
  • Easier credit requirements: Getting the best mortgage rates on a conventional mortgage loan can require FICO credit scores of 740 and above. FHA borrowers typically have credit scores of 620 and above. does not currently require a minimum credit score, and also allows borrowers without traditional credit to submit alternative documentation including rent and utility receipts.
  • Expansion of programs for assisting unemployed homeowners: High unemployment rates are contributing to longer times between losing your job and finding a new one. The government has announced enhancements to its Home Affordable Modification Program (HAMP) and new options are expected to be rolled out soon.

FHA Helps with Buying (and Keeping) a Home

HUD approved housing counseling and foreclosure avoidance programs: FHA loans are backed by the federal government, which means that FHA reimburses lenders for losses associated with mortgage default and foreclosure. In efforts to reduce such losses, FHA and its parent agency, HUD, have developed a network of approved housing counselors and foreclosure avoidance initiatives that can assist homeowners experiencing financial problems.

If you’re having problems making your mortgage payments, please contact your mortgage company or one of the programs mentioned above to learn more about foreclosure prevention options.

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