April Brought Noteworthy Changes to FHA Financing: Borrowers Take Note

mortgage-fha2013 brought some major changes to the Federal Housing Administration (FHA). FHA does not offer loans, but rather they insure qualified lenders against losses if borrowers (single family homes or multifamily homes) default. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934. The system is relatively simple: Since its creation in the early 1930s, it has collected fees from borrowers to pay lenders for loans that go awry.

The agency reported a $16.3 billion deficit in a report to Congress in November, causing concern that the FHA will require a taxpayer bailout next year for the first time in its 78-year history.

As part of a broad effort to strengthen the FHA’s Mutual Mortgage Insurance Fund (MMI Fund), FHA Commissioner Carol Galante announced a series of changes to be issued in early 2013 that will allow the agency to better manage risk and further strengthen the health of the MMI Fund.

The FHA has tightened a number of standards as of April 1. We’ll discuss three here:

Home Equity Conversion Mortgage (HECM) Consolidation

The Fixed Rate HECM pricing option currently represents a large majority of the loans insured and is responsible for placing significant stress on the MMI Fund. The HECM Fixed Rate Saver will be the only pricing option available to borrowers who seek a fixed interest rate mortgage. Using the HECM Fixed Rate Saver for fixed rate mortgages will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the MMI Fund.

Changes to Mortgage Insurance Premiums (MIP)

According to FHA, the Administration will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by 0.10%. FHA will increase premiums on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05%, to the maximum authorized annual mortgage insurance premium. These premium increases exclude certain refinance transactions.

FHA will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan. Beginning in 2001, FHA cancelled required MIP on loans when the outstanding principal balance reached 78% of the original principal balance. However, FHA remains responsible for insuring 100% of the outstanding loan balance throughout the entire life of the loan, a term which often extends far beyond the cessation of these MIP payments. FHA will once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled.

Manual Underwriting on Loans Required with Credit Scores Below 620 ( get help from Credit Builder Loan Oklahoma City); DTI Ratios over 43%

FHA will require lenders to manually underwrite loans for which borrowers have a credit score below 620 and a total debt-to-income (DTI) ratio greater than 43 percent. Lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded, using FHA manual underwriting and compensating factor guidelines.

For more information visit www.fha.gov or contact us directly; just call or stop by one of our three convenient locations (Lewisburg, Sunbury, Selinsgrove).

We look forward to serving you!