FHA Announces Additional Policy Changes: How Will They Impact Relocating Employees?
On December 2nd 2009, the Secretary of Health & Urban Development announced that the FHA’s cash reserves have fallen well below the Federally-mandated level of 2%, to a staggering .53%. As a result, the Federal Housing Administration (FHA) has announced a new set of policy changes which are designed to strengthen the FHA’s capital reserves and manage its risk while continuing to support the nation’s housing market recovery. These changes include:
More Money Down: Due to the staggering economy, over the past several years FHA loan programs have become more popular with home buyers because of their low down-payment requirements. As the popularity grew, lending institutions realized that their inventory has become more risky. In order to address this challenge and mitigate the risks associated with these loans, the FHA will now require as much as 5% down payment for new home purchases.
Higher Fees: Associated fees for FHA loans have always been higher due to their risky nature. With recent record foreclosure rates in the U.S., the FHA is arguing that in order to balance the risk of taking on these loans, they will need to increase their fees, which are already at their legal limit. These fees are predominantly associated with Private Mortgage Insurance (PMI), which the agency uses to reimburse lenders in the event that the loan defaults.
Increased Credit Scores: Historically the FHA has required borrowers to have a minimum credit score of 500. As of now, which is subject to change, the agency will require a minimum score of 580. However, it is important to note that most of the lenders that have been funding FHA loans will not approve borrowers with an overall credit score of less than 620. Thus, the majority of borrowers will not be impacted by this change.
Lower Debt-to-Income Ratios: In the past the FHA has been lenient on borrowers with higher debt to income ratios (DTI) making exceptions for people in extenuating circumstances or with longer credit histories. The FHA will now only allow a maximum DTI of 45%; if a borrower’s debt is more than 45% of their total income, the FHA will not approve their loan.
In summary, the Federal Housing Administration is tightening their belt. Those relocating employees who qualified for FHA lending even six months ago may no longer qualify. And more changes could occur, so please stay tuned.
Posted on 02/9/2010 in Mortgage | Comments (1)
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