Federal Housing Administration
Commissioner Carol Galante has just announced several significant changes to
FHA requirements, processes, and fees in an ongoing effort by the agency to
shore up its Mutual Mortgage Insurance Fund (MMI Fund.) The first change – the consolidation of FHA’s
Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) with its Saver Fixed
Rate HECM – was officially announced today.
HECM is commonly referred to as a reverse mortgage and is available only
to homeowners over the age of 62.
FHA said that the Fixed Rate
Standard HECM pricing option currently represents a large majority of the loans
insured through FHA’s HECM program and is responsible for placing significant
stress on the MMI Fund. To preserve the program as a financial option for
aging homeowners FHA will make the HECM Fixed Rate Saver the only pricing
option available to borrowers who seek a fixed interest rate mortgage.
Using the 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 Mutual
Mortgage Insurance Fund. This change will be effective for FHA case
numbers assigned on or after April 1, 2013.
Other changes for which official
announcements will be forthcoming over the next few days are:
An increase in annual mortgage
insurance premiums (MIP) on most mortgages by 10 basis points or 0.10
percent. Premiums on jumbo mortgages
with balances of $625,000 or larger will increase by 5 basis points or 0.05
percent. This will bring jumbo mortgage
premiums up to the maximum premium authorized by Congress. These premium
increases exclude certain streamline refinance transactions.
FHA will reverse its existing policy
of cancelling MIP on loans when the outstanding principal balances reached 78
percent of the original balance. Because
FHA remains obligated to insure 100 percent of the outstanding loan balance for
the life of the loan, homeowners will now be required to maintain principal
payments over that period as well. FHA’s
Office of Risk Management and Regulatory Affairs estimates that the MMI Fund
has foregone billions of dollars in premium revenue on mortgages endorsed from
2010 through 2012 because of this automatic cancellation policy.
FHA will require lenders to
manually underwrite loans for which borrowers have a decision 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.
FHA will propose an increase in the
minimum down payments for jumbo loans from 3.5 to 5 percent. The proposal will be published in the Federal Register within the next few
FHA will step up its enforcement
efforts for FHA-approved lenders with regard to aggressive marketing to
borrowers with previous foreclosures. Borrowers
are currently able to access FHA-insured financing no sooner than three years
after they have experienced a foreclosure, but only if they have re-established
good credit and qualify for an FHA loan in accordance with FHA’s fully
documented underwriting requirements. It has come to FHA’s attention that a few
lenders are inappropriately advertising and soliciting borrowers with the false
pretense that they can somehow “automatically” qualify for an FHA-insured
mortgage three years after their foreclosure. FHA will work with other
federal agencies to address such false advertising by non-FHA-approved
Finally, as discussed in its Annual
Report to Congress, FHA is also committed to structuring a new housing
counseling initiative that would apply to a number of borrower classifications,
including borrowers with previous foreclosures.
“These are essential and appropriate measures to manage and
protect FHA’s single-family insurance programs” said Galante. “In addition to protecting the MMI Fund, these
changes will encourage the return of private capital to the housing market, and
make sure FHA remains a vital source of affordable and sustainable mortgage
financing for future generations of American homebuyers.”
Here is the full document provided by HUD.