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January 20th, 2009 |

Author: Gavin

Fha Guidelines Changes

FHA Mortgage Loan Changes – Guidelines and Regulations….

Today, I am here to write to you about FHA mortgage changes that are taking place shortly and hopefully you will be informed somewhat as to whether you; if you are searching for the type loan product you might need, feel more established in your thoughts.

FHA- Who they really are and what they really do:

FHA –Federal Housing Association was originated or should I say developed by the “government” to serve the low to moderate income population of America. Long before “Subprime” loans came into play. They do not make the physical loan, the bank, Mortgage Company, or lender does and FHA insures the loan by a certain percentage. They are the investor, so to speak, kind of like FNMA (Fannie Mae) and FHLMC (Freddie Mac). Usually though when some people acknowledge where they are getting their loan they automatically say FHA. At any rate though, FHA makes the rules and regulations and the lender abides by them in order to deliver the loan to FHA. The guidelines have always been very detailed and a lot of them, but it did provide a way for some communities which would not have had the opportunity to experience homeownership, to do so. The conventional loan has different criteria and somewhat not as detailed.

The “changes” which I will detail below have not exactly made everyone happy, especially some who have been in the business a long time and who more or less cut their teeth of underwriting in the old FHA world…like me for instance. I am not unhappy about this because I am no longer underwriting FHA loans but I did cut my teeth on FHA DE underwriting. I learned the hard way by doing a lot of FHA loans with a lot of guidelines. So I do see some of why those that are a little disappointed have reason to be. HUD has also changed RESPA rules that are to make a big impact on lending in some ways.

FHA has always had a lot of rules but after you got through the basics of leaned the art of how they do business, it was very interesting and worth having a designation to underwrite FHA loans. Underwriter’s as well as lender have to be approved by FHA to do business with them, it is not just “I want to make FHA loan” and you are signed up. There are specific’s that must be adhered to and that is a good thing. During the past few years we all know that all investors have had losses that have cost them lots of money and hard work and made them to rethink what they have done in the past and how they got into the current financial status.

Before the Subprime market took over, FHA was the lender of choice especially for those who has less down payment, weaker credit, and circumstances that were somewhat less stable than conventional buyers. They could get maximum financing to include up to 98% in some cases and only three (3) percent down payment was the general rule for calculating the maximum mortgage amount. It was generally ruled by the State in which the applicant lived as to the maximum mortgage amount. The funds for closing could be borrowed, as long as they were secured with a marketable asset, gifted from a relative, or given by a charitable organization of some sort. The latter has not changed to my knowledge. At any rate there was much more opportunity at FHA for help in circumstances in which the borrower did not have sufficient savings. The next good thing was that the seller could contribute to the closing cost by paying some of it…or all of it…depending upon the amount they needed that did not reach over into the down payment from their sources.

After giving you some details about the past; I will enlighten you to the fact that FHA changed some of their guidelines to get some of the Subprime stuff also, when it was at it’s peak. “EVERYBODY” did… They made it where those with credit collections of high amount even did not have to be paid off etc. Well this is why FHA is now coming back and saying okay, we bent the rules just like everybody else did so we now have to tighten up and these are the exact words on FHA’s website that was written:

Washington- Federal Housing Administration (FHA) “Commissioner David Stevens today (January 20,2010), 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.”

FHA Changes to Produce Recovery

In my own words

1. Mortgage Insurance Premiums: The changes include changing the current percentage of FHA mortgage insurance (MIP) from 1.75 percent to 2.25 percent. This is to build up capital reserves and bring back private lending per FHA. This means that if you have a mortgage base loan amount of $225,000 your MIP amount will be $5062, making you financed total mortgage $230,062. That is a difference of $1,124.50 and averages out to be about $3 monthly over 30 years…but you interest is based upon that total amount which is added into your loan. You will continue to have the monthly MIP in your payment, which is normally around .50 basis points of you base loan amount and can be slightly different based upon certain criteria..Too numerous to talk about in this article. The monthly MIP can be cancelled when the loan to value reaches 78 percent.

2. FHA is changing the credit score structure and down payment requirements: You may still get the 3.5 percent down payment if you credit score is above 580…please note that some lenders will not allow credit scores below 600-620, and their guidelines are prevalent in this situation. This is excellent for those with higher credit scores and good credit practices. Those with weaker credit will be required to have a down payment of 10 percent.

I have not seen anything yet that says that part of the down payment cannot be gifted, borrowed and secured with a marketable asset or from a down payment assistance programs.

Regarding the credit; there are many issues that come into play when credit is evaluated and your score alone is not what makes it a deal or no deal, unless of course it is totally not acceptable. All areas of your financial position is evaluated to include; income stability, reserves, debt to income ratios, credit, and of course the property. A final decision is based upon all of these characteristics.

3. The seller concession will be reduced from 6 percent (6%) to 3 percent (3%). FHA has said that the current level exposes FHA to excess risk by creating incentives to inflate appraised values. This particular change will bring FHA into the industry standards.

The latter is something that can be a good thing as we are seeing the effects now and are “not happy with” from the past; where the values were inflated. Why, because we have declining property values and in neighborhoods where substantially higher priced housing prevails.

Please note that this is latest I have read about; changes occur often and the rules and regulations change on an ongoing basis. There are many other guidelines taken into place at application and through the process of the loan.

If you have questions, please feel free to ask…if I do not know the answer, I will be glad to research it for you. Good luck!

About the Author

if you need additional mortgage information about loans in general you also read about mortgage loan modifications and read about mortgage credit analysis and mortgage review.