WASHINGTON – July 16, 2010 – Federal Housing Administration (FHA) Commissioner David Stevens unveiled three specific policy changes that he says will strengthen FHA’s capital reserves while still allowing the agency to fulfill its mission. As part of the process leading to acceptance of the new rules, the U.S. Department of Housing and Urban Development (HUD) published a notice in the Federal Register.
For the next 30 days, HUD will accept public comments on the proposed FHA changes. Those changes include:
• Update the combination of credit and downpayment requirements for new borrowers. New borrowers seeking FHA-insured financing would need a minimum FICO score of 580 to qualify for FHA’s flagship 3.5 percent downpayment program. New borrowers with credit scores less than 580 would need a downpayment of at least 10 percent. Borrowers with credit scores less than 500 will no longer qualify for an FHA mortgage.
• Reduce allowable seller concessions from six to three percent. FHA says that allowing sellers to contribute up to six percent of a home’s sales price exposes FHA to excess risk by potentially driving the cost of the home beyond its appraised value. Reducing seller concessions to three percent brings FHA into conformity with industry standards.
• Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders would be required to consider the factors that best predict loan performance, such as the borrower’s credit history, loan-to-value (LTV) percentage, debt-to income ratio and cash reserves.
All comments on the proposed FHA regulations must include the docket number and the title: Federal Housing Administration Risk Management Initiatives:
• Docket No. FR–5404–N–01
• Federal Housing Administration Risk Management Initiatives: Reduction of Seller Concessions and New Loan-to- Value and Credit Score Requirements
Comments should be mailed to:
Regulations Division
Office of General Counsel
Department of Housing and Urban Development
451 7th Street, SW., Room 10276
Washington, DC 20410-0500
Reprinted with permission. Florida Realtors®. All rights reserved.
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