FHA Policy Changes Announced

FHA ANNOUNCES POLICY CHANGES TO ADDRESS RISK AND STRENGTHEN FINANCES

New Measures Will Help FHA Better Manage Risk, While Maintaining Support for the Housing Market and Access for Underserved Communities

WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery.

The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said Commissioner Stevens. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”

Announced FHA Policy Changes:

1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
• The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge.
• If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP.
• This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing
• The initial up-front increase is included in a Mortgagee Letter to be released tomorrow, January 21st, and will go into effect in the spring.
2. Update the combination of FICO scores and down payments for new borrowers.
• New borrowers 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%.
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• 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.
3. Reduce allowable seller concessions from 6% to 3%
• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. 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.
4. Increase enforcement on FHA lenders
• Publicly report lender performance rankings to complement currently available Neighborhood Watch data - Will be available on the HUD website on February 1.
• 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.
• Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
• Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
• This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
• Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
• HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
• Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
• Legislative authority permitting HUD maximum flexibility to establish separate "areas" for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to the changes proposed today, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward.

Source: HUD, KFGO News Center 

The Importance of the Preapproval

The following is an article that the Kansas City Star ran recently, and one that I believe is well-worth repeating!


Preapproval is an important first step


You need to make sure you can get a mortgage, and know exactly how much you'll be allowed to borrow, before you start house hunting.

A few years ago, anyone with a pulse could qualify for a mortgage as lenders recklessly lowered their standards during the housing boom.

Now banks and mortgage companies are rejecting about half of all borrowers because they don't meet increasingly difficult demands for higher credit scores, bigger incomes and fewer debts.

Asking to be preapproved for a mortgage is your first chance to find out where you stand.

You fill out an application that asks how much you make, how much you've saved and how much you owe on everything from cars to school loans to credit cards.

The lender evaluates that info, checks your credit reports and credit scores, and replies with a letter that says you can qualify for a mortgage and how much it's willing to loan.

The process is usually free, and being preapproved boosts your credibility with real estate agents and sellers who don't want to waste their time on buyers who may not be able to get financing.

Indeed, if you're looking for a good deal -- and who isn't? -- you stand a better chance of your offer being accepted if you've been preapproved. It's harder to turn down a sure thing.

Don't settle for being prequalified -- otherwise known as "preapproval light."

That means the lender took your word for everything and didn't pull your credit history or scores. It doesn't really say much about your ability to get a loan, and sellers consider it to be meaningless.

Here's how to get an actual loan preapproval:

Step 1. Check and fix your credit reports.

Your credit history plays a huge role in winning approval for a mortgage. You want to see it before any lender does.

You are entitled by law to a free credit report from each of the three major credit reporting agencies every year. To get all three reports, go to www.annualcreditreport.com.

Credit reporting agencies don't check the information given to them by credit card companies, utilities or other companies. According to a survey by the Government Accounting Office, nearly three-quarters of all credit reports contain at least one error.

Check every entry on every report for accuracy. Then contact the reporting agency to correct any mistakes. Each credit report tells you how to do this.

You can't ask the reporting agency to remove legitimate black marks on your credit report, such as missed or late payments, repossessions, foreclosures or bankruptcies.

But you can attach a written statement to your credit report explaining your side of the story. For example, describe how an illness, injury, or unemployment caused a financial crisis or that a late payment was caused by an online banking error.

Step 2. Assemble your paperwork.

Use our mortgage checklist to gather all the documentation you'll need for an application.

You'll need lots of information from those documents to complete the application. The lender should ask for at least some pay stubs, credit card bills, bank or retirement plan statements.

Step 3. Pick a lender.

The best loan for most buyers is a traditional 30-year, fixed-rate mortgage with no points and fees of $2,000 or less.

These are safe, totally predictable loans that carry none of the risks associated with interest-only or adjustable-rate mortgages. You'll never have to worry about interest rates going up, principal payments kicking in or any other nasty surprises that could drive up your housing costs a few years down the road.

Use our extensive database of mortgage rates to find a bank or mortgage company offering the best deal.

You don't have to get your loan from the lender that preapproves you, but you'll be one step ahead if you do.

Step 4. Apply for preapproval.

Whether you apply in person or online, through a bank or a mortgage company, the information you'll have to provide is pretty much the same. You'll be asked:

For your street address, e-mail address, phone and Social Security number. If you've lived at your current address for less than three years, the lender will want to know where you lived before that. If you are buying this home with someone else, they'll probably want to know your relationship to any co-borrowers.
Whether you currently rent, own or live with family.
How many dependents you have.
Your annual income.
Your occupation, employer and how long you've worked there. If you've been with the company for less than two years, it will ask where you worked previously.
Your assets -- what you own and what it is worth. This includes your current home and other property, checking and savings accounts, stocks, bonds and retirements accounts.
Your liabilities -- how much you owe, to whom and how much you pay every month.
Whether you have filed for bankruptcy in the last 10 years.
Whether you are behind on any bills.
Whether you are a first-time buyer.
Whether you are buying a home as a residence or rental property or, in the case of a duplex or other multifamily unit, both.
You should get preapproval in one to two weeks. The more complicated your finances, the longer it will take.

You may be asked to clarify or provide additional information by phone, e-mail, fax, or traditional mail.

Step 5. Start hunting for that dream house.

When you find out how much you can borrow, you're ready to start house hunting.

Preapproval usually comes with a 30- to 90-day time limit. Most lenders will run another credit check and extend the offer if necessary.

By Sally Herigstad


Interest.com Contributing Editor


interest.com - 2009-12-10