Real Estate Information Archive

FHA announces policy changes

Federal Housing Administration (FHA) Commissioner David Stevens 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.  These changes that have been enacted, are guiding 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. 

*Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending.  Ultimately, if approved by legislative authority, 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. This is set to go into effect in the spring.

For more information, visit http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-016

*Update the combination of FICO scores and down payments for new borrowers.  New buyers 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 is set to go into effect in the early summer. 

*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 is set to go into effect in the early summer.

*Increase enforcement on FHA lenders.  These changes will hold lenders more accountable and ensure that they are in compliance with FHA guidelines and standards.  This is effective immediately.  Currently, you can view lender performance rankings on Neighborhood Watch and the HUD websites.

***Attention First-Time Homebuyers***ACT NOW - ONLY 6 MONTHS REMAIN!!! Use your 1st-time homebuyer tax credit of $8,000 towards closing costs or down payment!

The US HUD Secretary, Shaun Donovan, announced that the Federal Housing Commission (FHA) will allow homebuyers to apply the $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home.

Currently, this tax credit can only be accessed after filing their tax returns with the IRS. Today's announcement allows Home buyers using FHA-approved lenders to apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.

You can review the full announcement on the Housing and Urban Development (HUD) website by clicking here.

The following video released by the National Association of Home Builders discusses use of the First Time Homebuyer Tax Credit towards downpayments.

Questions about how the $8,000 Federal Housing Tax Credit works?  Watch the video prepared by the National Association of Home Builders below:

**NOTE-  This video does not yet reflect today's announcement above!**

Yesterday the Obama Administration announced details of new efforts to help bring relief to responsible homeowners under the Making Home Affordable Program which include; Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity, and the Parallel Second Lien Program.

These latest announcements will make it easier for borrowers to modify or refinance their loans under FHA's Hope for Homeowners Program. The Federal Housing Commissions, Hope for Homeowners, requires the holder of the mortgage to accept a payoff below the current market value of a home, allowing the borrower to refinance into a new FHA-guaranteed loan.  Refinancing into a new loan below the home's market value takes a borrower from a position of being underwater to having equity. 

Under the changes made yesterday, when evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a Hope for Homeowners refinancing.

The Second Lien Program announced will work in tandem with first lien modifications offered under the Home Affordable Modification Program to provide a solution for struggling borrowers.  Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when the first lien is modified.

To read more about these new changes, visit http://www.treas.gov/press/releases/tg108.htm or http://makinghomeaffordable.gov.