Tighter underwriting guidelines unveiled Wednesday (1/20/10) by the Federal Housing Administration (FHA) will make it harder for lenders to qualify borrowers in a year when origination volumes are already expected to tank.
FHA commissioner David Stevens announced four major policy changes that he said would primarily affect borrowers "at the margins":
1) raise mortgage insurance premiums;
2) require higher down payments from borrowers with low credit scores;
3) reduce home-seller concessions;
4) and step up enforcement actions against FHA lenders.
Raising the up-front premium by 50 basis points, to 2.25%, may have the most immediate impact, several lenders and mortgage experts said (beginning April 15, 2010).
FHA is halving the maximum share of a homebuyer's closing costs that sellers can pay, to 3% (down from the 6% allowed before) and this may have a bigger impact by disqualifying many first-time buyers.
Another FHA policy change will require, beginning early summer, that borrowers with FICO scores of 580 or less make a down payment of at least 10%. Major lender's who allowed lower than 620 credit scores are now out of business (Taylor, Bean and Whittaker).
Beginning today the FHA will begin monitoring the performance of loans vetted by individual underwriters, not just the lenders they work for. HUD also is asking Congress to give it more authority to kick lenders out of the FHA program and make the remaining ones eat credit losses.
FHA is trying to close the gap between its guidelines and the stricter standards of Fannie Mae and Freddie Mac (Conventional financing). These changes will certainly affect some borrowers and I will be monitoring the impact and giving advice in future Blog posts.
With the $8,000 tax credit for first time home buyers currently scheduled to expire April 30, 2010, and the impending tightening of FHA qualification guidelines, whether you are a first time home buyer or looking to upgrade or downsize, call me today and I can review your situation.