January 20, 2010

On January 19, Federal Housing Administration (FHA) Commissioner David Stevens announced the latest policy changes in a series of measures FHA has taken to shore up the FHA insurance fund and tighten lending and lender standards.

According to the announcement, HUD will increase the up-front mortgage insurance premium (MIP) by 50 basis points, to 2.25 percent, in an effort to bolster capital reserves. The up-front MIP increase will go into effect in the spring. Further details are provided in a Mortgagee Letter released on January 20. Additionally, FHA plans to request congressional authority to increase the annual MIP that FHA can charge to shift some of the increase in the up-front MIP to the annual premium.

HUD said it intends to maintain the current down payment requirement for most borrowers but will increase the down payment requirement to 10 percent for borrowers with FICO scores of less than 580. HUD will publish a Federal Register notice in February to implement this change, which HUD expects to become effective this summer, following a notice and comment period.

HUD also proposes to reduce allowable seller concessions from 6 percent to 3 percent, in hopes of removing any incentives that sellers have to inflate appraised value. This change will also be posted in the Federal Register in February and go into effect in the early summer, following a notice and comment period.

FHA said it plans to make lender performance rankings publicly available on its website, as of February 1. Stevens also announced that FHA will ramp up its monitoring of lender compliance and performance, effective immediately. Further details are provided in another Mortgagee Letter released on January 20.

Additionally, HUD will pursue legislative authority to require all approved mortgagees to assume liability for all loans they originate or underwrite and to withdraw approval for a lender nationwide on the basis of its performance of its regional branches.

NCSHA is analyzing the impact of these proposals and will provide comments as necessary. Please send your comments to Garth Rieman.