On January 20, 2010, FHA announced major changes to ensure its long-term financial soundness. FHA is trying to balance three fundamental objectives: 1) financial soundness of the FHA insurance fund – ensuring that its capital ratio returns above 2 percent, 2) fulfilling its mission of serving borrowers not adequately served by the private sector and 3) facilitating the recovery of the housing industry and the over-all economy. What follows is a brief description of the changes and a table with the expected timeline of the announced changes.
FHA announced changes in the following areas:
- The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FHA will continue to allow the financing of the UFMIP.
- Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.
- FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the upfront premium.
- Seller concessions will be reduced to 3 percent from 6 percent.
- FHA will make the following lender enforcement changes:
- FHA will implement credit watch terminations at lender underwriting.
- Public reporting of lender performance through Neighborhood Watch scorecard system will be implemented.
- FHA will implement, through notice and comment, indemnification against lenders through Credit Watch. Indemnification will be expanded beyond fraud and misrepresentation.
- FHA will seek legislative authority to enforce indemnifications against direct endorsed (DE) lenders.
- FHA will seek legislative authority to sanction lenders nationwide based on performance of local branch.