FHA is getting tougher! What’s The BUZZZ?
In an effort to shore up its flailing balance sheet and dwindling capital reserves, the Federal Housing Authority is rolling out sweeping financial changes. FHA borrowers have to look better on paper and be better credit risks.
Mortgage insurance premiums are rising, too.
Changes Effective April 5, 2010
In its official announcement, the FHA said it’s trying to better position itself to “manage its risk while continuing to support the nation’s housing market”.
The changes are effective with case numbers assigned starting April 5, 2010.
One widely speculated change wasn’t made — the increase of the FHA minimum downpayment. Homebuyers in Alameda, Oakland, and elsewhere in the Bay Area and California can still buy with just 3.5 percent down. However HUD did roll out a number of other changes, including:
• An increase in Upfront MIP from 1.75 percent to 2.25 percent
• A reduction in maximum seller contributions from 6 percent to 3 percent
• A Congressional request to increase monthly mortgage insurance premiums
Furthermore, the FHA’s new guidelines institute a minimum FICO requirement of 580 to make the minimum 3.5% downpayment, requiring 10 percent for any applicant whose credit score falls below that level.
HUD Investor Overlays
But, just because the FHA allows 580 FICOs, banks don’t have to allow it.
The official term here is “investor overlay”. It’s when a bank uses Federal Housing Authority guidelines as a starting point for their own set of underwriting rules which are often more strict. Every lender has them and they differ from lender to lender.
And banks have a good reason for making investor overlays.
In January, the FHA subpoenaed 15 lenders because of abnormally-high FHA default rates. The act was a shot across the bow, it appears, because more lenders have been shut down since.
The FHA made a loan performance benchmark and if a bank’s defaults exceed the mean by x number of sigmas, said bank loses its FHA license. Period.
Expect FHA investor overlays to be a running theme of 2010.
A Mortgage Denial May Not Be Permanent
Guidelines will vary from bank-to-bank as lenders take a more active role in managing their originated mortgages. What gets FHA-approved Bank of America, for example, may not be FHA-approved at Wells Fargo.
Many FHA loans will be denied in 2010 simply because the applicant applied at the wrong bank.
If your mortgage has been denied or you just want to have the best chance of being approved possible, call or apply online or email to info@garrick.biz with some notes on your situation. I work for First Priority Financial– a HUD-approved lender. My wife and I have a team with 43 years experience of real estate and mortgage. We knoiw about gov’t financing, short sakes and REO’s and whatr the realistic expectations are today.
In other words, apply once and you’ll be automatically aligned with the bank with the best pricing plus least amount of overlays. That’s what I do for you as your loan officer
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The Buzzz Blog | The Buzzz | March 25, 2010
Do you plan to keep this site updated? I sure hope so… its great!
I quite simply liked this blog post, it helped a lot! Thanks! Can I subscribe to your site?
Do you think the loan mod program can really jumpstart the our maket? Isn’t job creation the most important answer for stimulating a real estate market?
I try to update the site every week. I wish I had time for more videos.
Steffanie – the loan mod thing (Home Affordable Refinance Program) isn’t really helping many at all. Job creation is what we need and with an addition 2K unemployed this month things are not looking too hot.
Great update. It looks like HUD is getting smart about coming losses. At least most buyers can still qualify with only 3.5% down and the MIP get wrapped n to the loan.
[...] The rise in applications was believed to reflect the upcoming expiration of the $8,000 tax credit for first time buyers and $6,500 credit available to “move-up” homebuyers. A sales contract must be in place by the end of April and the entire sale finalized by June 30 for homebuyers to qualify for the credit. The surge in applications, especially during the last week of the month, may also reflect a race to obtain a mortgage before the increase in the FHA up-front premium which took effect on April 5. See FHA is getting tougher! What’s The BUZZZ? [...]