After announcing a $16.3 billion deficit in November of 2012, FHA is on the verge of needing taxpayer bailout. In order to avoid this, FHA mortgage
programs are expected to undergo a series of changes over the next few months—changes that will assist in raising the Federal Housing Authority’s reserves. Most significant among these changes are more stringent credit score requirements and raised minimum down payment requirements (from 3.5 percent to 5 percent) for mortgage premiums that are more than $625,500.
Another significant change that will occur this year is in the Standard Fixed Rate HECM, FHA’s reverse mortgage program, which will no longer be available as an option for a fixed interest rate mortgage. However, borrowers will still be able to make use of the HECM Fixed Rate Saver, which according to FHA, “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 (FHA’s) Mutual Mortgage Insurance Fund.”
Perhaps the most worrisome change for many FHA borrowers will be a rise in the annual mortgage insurance premium—an expected increase of 10 basis points, or 0.1 percent. For most mortgages, this change will only reflect an average $13 increase on monthly mortgage payments, it is an increase nonetheless. Jumbo mortgages will see a rise of .05 percent.
If the borrower has a credit score above 620 and a debt-to-income ratio of less than 43 percent, TOTAL Scorecard can still be used to process the borrower’s application through the automated FHA system. However, if the borrower’s credit score is below 620 and debt-to-income ratio is more than 43 percent, the information will have to be manually processed.
Finally, FHA will extend its efforts to stop lenders from advertising “guaranteed” FHA loans three years after a foreclosure. Such borrowers will have to meet new FHA requirements, which require a better credit outlook and down payment than in the past—therefore, nothing is “guaranteed.”