FHA says its tightening standards, but doesn't seem like it

Here’s the new rules:

 

As part of the plan, FHA is increasing up-front mortgage insurance premiums paid by borrowers from 1.75 percent to 2.25 percent. The change will go into effect “in the spring,” the agency said.

FHA has also requested legislative approval to raise the maximum annual premiums that FHA can charge. If this authority is granted by Congress, then the second step will be to shift some of the premium increase from up-front to the annual fees assessed. FHA says this shift will allow it to increase capital reserves with less impact to the consumer, because the annual premium is paid over the life of the loan instead of at the time of closing.

Changes are being made on the seller side of the equation, as well. Beginning this summer, the amount that sellers can kick in – typically in the form of closing costs – will drop from 6 percent to 3 percent of the home’s value. FHA says the current level exposes the agency to excess risk by creating incentives to inflate appraised value, and the reduction will bring its criteria in line with industry standards on seller concessions.

Okay raising fees and reducing seller credits will make it harder for some to qualify and will increase real equity. However this next change is either no change or still silly.

 

New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5 percent down payment program. Homebuyers with less than a 580 FICO score will be required to put down at least 10 percent. This change is expected to take effect early this summer.

From what I heard about 9months back, most of the big banks stopped lending FHA to anyone with less than a 580 score a while back. So I guess the shady banks were still doing this. But really, why are they lending to anyone with only 3.5% down with only a 580 FICO. Let’s be conservative and say those whose FICO is less than stellar need to put more down (make that a 680 minimum FICO) and those whose FICO is higher than 680 can put less cash down.

 

-sunil

 

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