Dec
9


FHA to Raise FICO Requirements, Reduce Seller Concessions, Increase Downpayment

Wednesday, December 9, 2009

The Federal Housing Administration (FHA) is not, as some have claimed "the next subprime," according to remarks prepared for presentation to congress this morning by Housing and Urban Development Secretary Shaun Donovan.

Secretary Donovan told members of the House Committee on Financial Services that FHA, in spite of actuarial reports that its secondary reserve level has fallen below the required two percent to 0.53 percent of its total insurance-in-force, is capable of withstanding the current economic downturn.  The actuary concluded Donovan said that FHA's reserves will remain positive "under all but highly severe economic scenarios."

He said that HUD had learned from recent history, "that the market is fragile, and we have to plan for the unexpected.  That uncertainty is complicated by an organization we inherited that, to be honest, was simply not properly managing or monitoring its risk.  Credit and risk controls were antiquated.  Enforcement was weak.  And our personnel resources and IT systems were inadequate.

"Little of this may have been obvious when FHA's market share was 3 percent as recently as 2006.  But when our mortgage markets collapsed last fall, and homebuyers increasingly turned to the FHA for help, the potential consequences of these lapses in risk management became very clear."

His department, he said, is in the process of drafting new policies to address the quality of FHA's current portfolio, improve the performance of future loans, and restore the capital reserve above its mandated levels.

The agency is looking at several measures to improve the quality of its portfolio going forward.  It plans to reduce the maximum permissible seller concession from 6 percent to 3 percent because the current level exposes the FHA to excessive risk by creating incentives to inflate appraised values.  The change, he said, will bring FHA into line with industry norms and even further reductions may be considered.

The minimum borrower FICO score will be raised although the final number has not yet been determined. (rumor is the min score will be 640 up from 620)  The agency is studying whether new FICO minimums should be accompanied by changes in other underwriting criteria for lower down payment loans.

The up-front cash that a borrower will be required to bring to the table for an FHA-backed loan will also be increased to make sure that borrowers have "skin in the game."  The exact way this will be accomplished is still under study.

These proposed changes, Donovan said, only require administrative decisions on the part of HUD, however, Congress will be asked to pass legislation to increase premiums.  The current up-front premium of 1.75 percent is below the statutory cap of 3 percent but the annual premium is at the maximum.  Raising premiums, he said, is the most effective means of raising capital for the reserve fund with the least impact per borrower.

Donovan said that more than 71 percent of the future losses the FHA is anticipating will come from loans already on its books, so, as MortgageNewsDaily reported on Monday, the agency is taking steps to enforce lender accountability.  Donovan said that, in addition to holding lenders responsible for their origination quality and compliance and increasing reviews of that compliance, lenders will be required to indemnify the FHA for losses resulting from their failures to meet FHA requirements and will be sanctioned nationally for any improper activities rather than through the FHA's current policy of sanctioning individual branches.

The secretary reported that the anticipated changes are merely the latest in a series of improvements FHA has made to shore up its lending activities.

The Secretary detailed the active role that FHA is taking in the current housing market, insuring almost 30 percent of purchases and 20 percent of refinances in the housing market, and financing the majority of minority home purchases.  But, he said, "as important as the FHA is at this moment, I want to emphasize that the elevated role it is playing is temporary - a bridge to economic recovery helping to ensure that mortgage finance remains available until private capital returns."






Comments subject to review.
Monday, May 29, 2017
Generational Housing Needs and Their Effect on the Market

Saturday, May 13, 2017
Consumer Agency Launches Tool To Help You Find A Cheaper Mortgage

Saturday, April 8, 2017
King County home prices resume their climb

Tuesday, September 17, 2013
Keys to Help Buyers Compete in a Seller's Market

Thursday, May 23, 2013
10 Things Buyers Need to Know

Sunday, April 14, 2013
Women Consider Owning a Home to be a Vital Component of the American Dream

Tuesday, March 19, 2013
The 8 Top Home-Selling Mistakes You Should Avoid

Thursday, January 10, 2013
Fiscal Cliff Bill a Benefit for Homeowners

Sunday, December 2, 2012
Should You Help Your Adult Kids Buy Their First Home?

Monday, October 29, 2012
Economists Bullish on Housing Recovery

Sunday, October 21, 2012
What is moving housing upward?

Monday, September 10, 2012
Five Common Mortgage Myths

Thursday, August 2, 2012
It's a great time to be a seller

Saturday, June 23, 2012
Are appraisers falling behind on home value increases?

Wednesday, June 6, 2012
Is Now the Time to Invest in Rentals?

Wednesday, May 30, 2012
4 Guidelines for Successful Negotiations

Thursday, May 24, 2012
5 Reasons Now is the Time to Buy

Tuesday, May 15, 2012
Seattle-Bellevue-Everett Unique Housing Market

Thursday, May 3, 2012
Buying a home won’t get much cheaper

Tuesday, April 24, 2012
New Rules to Speed-up Short Sales

Thursday, April 5, 2012
Home Prices to Rise in 2013

Thursday, March 22, 2012
Buying Cheaper than Renting in 98 of Top 100 Major U.S. Markets

Sunday, March 11, 2012
Five Tax Breaks for Homeowners

Thursday, March 8, 2012
How the FHA Loan Plan Can Help You Refinance

Thursday, February 16, 2012
Housing Crisis to End in 2012 as Banks Loosen Credit Standards

Estella said
"That is a beautiful shot with very good lighting ." about Women Consider Owning a Home to be a Vital Component of the American Dream
on Sunday, May 12, 2013 @ 9:57 AM

Chris White - Team Leader said
"Unfortunately you are not alone. It's more than an outcry. The powers that be really need to come down harder on Bofa than they already are. Working on these short sale for over 2 years now I've uncovered down right fraud happening on the lenders parts. If they cared more about moving this country forward than protecting their own wallets then they would cut the red tape and approve these short sales in a timely manner. Our team made the wise decision to get BofA loans which were FHA or Freddie Mac backed, approved prior to listing on the market. Then we can list the home as "Price Approved" and close in 30 days. In this instance BofA does a full appraisal, rather than an incompetent "Broker Price Opinion" (nothing against agents but they have no idea how to make adjustments on comparable homes) and then the bank issues an "Approval To Participate" letter which dictates what price we can go on the market and take anything north of 88%. I really do hope your situation improves. " about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:15 AM

Lisa Zeiner said
"We made an offer 4 months ago to BofA, and have heard nothing. It was a cash offer which is better than the zero money they are collecting now. And since the people don't care they are trashing the place, by the time BofA gets around to it our offer will be gone as the place is a mess!! Septic issues now, garbage being dumnped. All of this could have been avoided if BofA really wanted to correct their cash flow problem and sell these properties in a timely manner. They cry about cash but then do nothing intelligent to fix the problem" about Congressional Bill to Speed Up Short Sales
on Tuesday, August 30, 2011 @ 9:06 AM

Jones Ramirez said
"Thank you for the work you have done into this post, it helps clear up a few questions I had." about How do appraiser’s determine a homes value?
on Tuesday, April 19, 2011 @ 10:07 PM

HollyRobsonf said
"Hey - I am certainly happy to find this. great job!" about Bank of America to Offer Principal Reduction to Underwater Borrowers
on Wednesday, April 13, 2011 @ 6:45 PM