FHA 2010 Changes

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FHA Changes to Come in Spring of 2010

When Private lender's (Mortgage Banks)are tight: In a recent conversation with a BofA executive he explained that the reason we are in the current housing climate is because of the steep climb in home prices during 2005 which was caused by in large part easy lending standards. Mortgage banks were allowing loans without down payments or documentation requirements. This is completely contrary to the lending practices of 20 years ago. After the housing collapse banks started raising lending standards for all borrowers. Add to this the poor labor market with the unemployment rate at 10.2 percent and you get mortgage delinquency at alarming rates. Fortunately, current mortgage rates are hovering around 4.8% on 30 year fixed but are expedited to exceeds to over 5.2% by the end of the 1st quarter of 2010 according to Mortgage Bankers Association's economist Jay Brinkmann.

Down payments: What does tight credit mean for buyers?

1. Down payment requirements will be higher than they were in 2005-2006.

2. Loans guaranteed by the Federal Housing Administration come with minimum down payments of 3.5 percent (this may increase next year).

3. Down payments on other loans not guaranteed by FHA will depend on other economic variables, like credit worthiness, and the housing market in your area.

To find the best rate around, you will now need at least 20 percent for a down payment according to local lenders. This doesn't mean banks won't lend you money, this just means you won't get the best rate.

Is the 620 Credit scores gone?: Some experts are predicting that borrowers will need a FICO score of at least 730 to get the best rates. There will be no more "Stated Income" "NoDoc" loans. Instead you will need to fully document your income and assets.

What should you do? To make sure that your credit score is as good get your credit report. The Fair and Accurate Credit Transactions Act allows you to get one free credit Report from TransUnion, Equifax, and Experian per year. You should look carefully at each report to make sure it doesn't include any errors.

Government backed loans: People who can not qualify for private lending can try the FHA (government guaranteed). FHA loans are a bit easier to qualify for and may be less challenging than conventional loans. FHA loans generally require at least a 680 score with a down payment of at least 3.5%. So if you don't have a 730 score and/or the 20% down you should consider FHA. The downside is that your interest rate will be higher plus insurance premium cost but you would have PMI on private lending if you didn't have 20% down.

FHA update 12/7/09: Since the housing collapse the FHA's finances have worsened. According to government figures the seasonally adjusted delinquency rate for FHA loans increased from about 13 % in 2008 to 14.36 % this year. Also the FHA is federally mandated to keep capital reserves (the concept is similar to bank reserves). Currently their reserves have dropped below the level mandated by congress. So Obama has announced new requirements that will make it more difficult for some people to get mortgages backed by FHA. According to HUD secretary Shaun Donavan some changes include higher minimum down payment of about 5%, seller concessions will be cut from 6% to 3% or lower, higher insurance premiums (right now FHA charges an up front premium of 1.75% of the loan), higher annual insurance premium which is added to the monthly payment (currently .55% of the loan) and finally FHA may require a credit score of about 620 which is what Fannie Mae and Freddie Mac use. FHA is also planning on posting a lenders scorecard on its site.

Fannie and Freddie's: The uncertainty of mortgage rates lies in Obama's plans for mortgage giants Fannie Mae and Freddie Mac, in an effort to keep credit moving, buys mortgages from banks. We could have some interruption in the way these loans are distributed within the financial markets depending on what their outcome with be.

Mortgage Banker v. Mortgage Broker: has its owner source of funding while Mortgage brokers have multiple loan sources. You must decide which of the two will originate your mortgage. There are two major issues to consider. Look for the company that offers the best interest rate, and the best terms for your situation. Additionally you may incur a delay in your loan processing due to appraised value when you deal with a Mortgage Broker.

 

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