FHA Announces Some Big Changes!

I wanted to let you know that FHA Commissioner David Stevens made some big announcements today.  FHA’s capital reserves are evaporating, and they’ve been working on some solutions for a while now.  In the announcement, they stated the goal of “trying to better position the FHA to manage its risk while continuing to support the nation’s housing market”.

Here’s a link to the press release, and below are some highlights.

Higher Mortgage Insurance, Larger Down Payments, Higher Fees

It’s going to get tougher to qualify FHA borrowers. Key changes coming are:

  • upfront Mortgage Insurance Premium fee increased from 1.75% to 2.25%
  • reduction of maximum seller contributions from 6% to 3%
  • Congressional request to increase maximum monthly mortgage insurance premiums from 0.55% 

One key item was missing: The widely speculated notion that down payment minimums would increase from 3.5%. Homebuyers can still access the market with just 3.5% down. However, the new guideline requires a 580 FICO score to be eligible for 3.5% down. Lower FICO borrowers will need a 10% down payment.

Get Familiar with ‘Investor Overlays’

But just because FHA will allow a 580 FICO doesn’t mean banks will approve a 580 borrower. Banks use FHA Guidelines as a base for their own underwriting rules, which are often more strict. FHA is on the prowl for lenders who approve FHA loans that result in higher than average default rates – and cancelling them from FHA lending. So banks have good reason to create ‘investor overlays’ rather than approve loans right at the brink of non-approval.

With the new focus on policing FHA approved lenders, ‘investor overlays’ will be a hot topic for the coming year. Guidelines are going to vary between banks, and not all banks will approve the same deal.

RPM is a HUD-approved lender, and we underwrite and fund from our own accounts. We work with the largest FHA lenders in the nation, so your clients need to apply only once and we’ll align them with the bank source that hasthe best pricing and least overlays.

Timing

These changes are expected to be effective in the spring. Official dates should be announced tomorrow.

Thank you,
John

John C. Glynn, CMPS
RPM Mortgage
415 674 1283 direct
866 898 0227 fax
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