FHA tightening on the horizon….

The Washington Post published this article stating that FHA is expected to announce changes to the popular FHA loan program tomorrow in an effort to shore up the agencies finances.  The objective of the changes is designed to have homebuyers put more “skin in the game” so that walking away from their home is less attractive.  Here is a summary of the proposed changes the article makes comments on (please note that the article is only speculating on changes):

*Higher minimum down payment requirements.  Currently the FHA program only requires a 3.5% down payment.  The article speculates that they may raise this amount to 5%.

*Limit seller concessions.  Currently the FHA program allows the seller to pay up to 6% of the sales price towards the buyer’s settlement charges.  According to the article FHA may reduce this amount to 3%.

*Higher mortgage insurance premiums.  Currently homebuyers who take out a FHA loan putting the minimum 3.5% must finance an upfront mortgage insurance premium equal to 1.75% of the base loan amount AND pay monthly mortgage insurance premiums equal to .55% of the base loan amount.

*Higher credit scores.  This proposed change is irrelevant because virtually all lenders already impose overlays that meet the new credit score requirements.

*Lastly, Lenders who work directly with FHA would have to have higher net worth’s to support possible fraud charges.  Currently the minimum is $250,000 and under the proposed changes the minimum net worth would be $2.5 million.