Important FHA News

FHA Announces Policy Changes to Address Risk

On January 20th, the Federal Housing Administration (FHA) announced policy changes that will tighten lender requirements in an attempt to better manage risk. The anticipated changes will increase up-front mortgage insurance premium (MIP) to 2.25%; require a minimum FICO score of 580 to qualify for the 3.5% down payment (below 580 will require a minimum 10% down payment); reduce allowable seller concessions from 6% to 3%; and increase enforcement on FHA lenders. For the complete HUD Announcement, please click here.

Enforcement 'Restraint' Promised on New GFE, HUD-1

HUD says it will implement a 120-day period of "restraint" on its enforcement of Real Estate Settlement Procedures Act (RESPA) rules that take effect Jan. 1, 2010. Restraint will be shown for FHA approved lenders acting in good faith to comply with the new mandatory Good Faith Estimate and HUD-1, among other provisions.

FHA Removes Second Appraisal Requirement

FHA is eliminating the need for a second appraisal on loans that exceed $417,000, have an LTV equal or greater than 95 percent, and are secured by properties located in declining markets, according to FHA Mortgagee Letter 2009-48. It also eliminates the need for a second appraisal on cash-out refinances. Second appraisals continue to be needed when a property is resold between 91 days and 180 days following acquisition by the seller. This is part of the agency's property flipping prohibition policy.

Actuarial Report: FHA Below Reserve Requirements

FHA's Mutual Mortgage Insurance Fund's (MMIF) capital declined to $2.7 billion and its capital ratio decreased to .53 percent, which is below the 2 percent required by law, according to the agency's annual independent actuarial review. The actuarial review takes a snapshot of the portfolio at a particular point in time and then uses economic projections to estimate reserves necessary for the remaining lifetime of the existing portfolio. FHA auditors state that an actuarial review "reflects projections of events more than 30 years into the future." A significant portion of loans performing poorly in the FHA portfolio are from seller-funded down payment assistance programs, which are no longer permitted.

FHA Eases Concentration, Other Condo Rules

In an effort to give condo lending a boost, FHA has released a Mortgagee letter (2009-46 A) that temporarily increases FHA concentration requirements to 50 percent. It also excludes vacant and REO property in the calculation of the owner-occupancy percentage. Other changes reduce the pre-sale requirement to 30 percent and extends spot loans through Feb. 1, 2010. The temporary guidance is effective for all FHA case numbers assigned on or after Dec. 7 and is effective until Dec. 31, 2010. The spot loan approval process has an earlier sunset date.