Federal Housing Authority (FHA) Commissioner David Stevens announced a sweeping series of policy changes this morning to address concerns about FHA’s capital reserves and strengthen the agency against further risk.
The policy changes include an increase in the MIP, updating the combination of FICO scores and down payments required for new borrowers, reducing the percentage of seller concessions, and implementing new changes aimed to increase lender enforcement. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history,” said Stevens.
Stevens announced that the up-front Mortgage Insurance Premium (MIP) will be raised by 50bps to 2.25%. The FHA will also request legislative authority to further increase the maximum annual MIP they can charge. If they are granted the authority, they will shift some of the raise from the up-front MIP to the annual MIP. The goal from changing the MIP is to quickly build up the FHA’s reserves and bring back private lending. A Mortgagee Letter will announce the changes tomorrow, and they will go into effect in the spring.
The FHA also intends to reduce the allowable seller concessions from 6% to 3%. This change will be posted in the Federal Register in February, and, after a comment period, is expected to go into effect this summer.
While the FHA will now require new borrowers to have a 580 FICO score in order to put down a 3.5% payment, and require a 10% down payment for borrowers with a FICO score below 580, these changes will not affect the reverse mortgage market.
Finally, the FHA announced a series of changes to increase the enforcement on FHA lenders. While some of these changes, such as the Credit Watch initiative and publicly reported lender performance data to complement current available Neighborhood Watch data, are more applicable to the conventional mortgage industry, HUD announced that is pursuing legislative authority that would require all approved mortgagees to assume liability for all of the loans they originate and underwrite, according to section 256 of the National Housing Act.
No changes were announced for FHA’s reverse mortgage product.
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