FHA to tighten some loan rules
The Federal Housing Administration (FHA) announced a series of changes to be issued this week.
Commissioner Carol Galante calls the changes “essential and appropriate” as the administration tries to bolster its cash reserves in its Mutual Mortgage Insurance Fund (MMI Fund).
Changes to mortgage insurance premiums
FHA will increase the annual mortgage insurance premium (MIP) added onto most new mortgages by 10 basis points (0.10 percent). Premiums on FHA jumbo mortgages ($625,500 or larger) will go up by 5 basis points (0.05 percent). There are a few exceptions, such as some streamline refinance transactions.
In addition, most new FHA borrowers will pay the MIP for the life of their loan.
Previously, FHA automatically cancelled MIP on loans when the current principal balance reached 78 percent of the original principal balance. FHA’s Office of Risk Management and Regulatory Affairs says that cancellation has cost the MMI Fund billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012.
Manual underwriting on higher-risk loans
If a buyer has a credit score below 620 and a total debt-to-income (DTI) ratio greater than 43 percent, FHA won’t allow lenders to automatically approve a loan request. Lenders must now manually underwrite these loans, document compensating factors that support their approval based on FHA guidelines.
Higher downpayment on loans above $625,500
FHA says it will raise the mandatory downpayment on jumbo loans from 3.5 to 5 percent. It will officially announce it soon in the Federal Register. FHA says the change will encourage more private lenders to participate in the housing finance market.
Home equity conversion mortgage consolidation
FHA will consolidate its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed Rate HECM pricing options. This change will be effective for FHA case numbers assigned on or after April 1, 2013.
FHA loans after a foreclosure
FHA has a minimum waiting period of three years for a borrower who went through a foreclosure. However, the administration says it’s not that simple – a buyer must also reestablish good credit and qualify under other FHA loan guidelines.
“It has come to FHA’s attention that a few lenders are inappropriately advertising and soliciting borrowers with the false pretense that they can somehow ‘automatically’ qualify for an FHA-insured mortgage three years after their foreclosure,” FHA says in a release. “This is simply not true and such misleading advertising will not be tolerated.”
FHA says non-FHA lenders have also started advertising FHA mortgages. “FHA will work with other federal agencies to address such false advertising by non-FHA-approved entities,” according to the release.
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