FHA’s Gone Nuts 26

FHA loan change The FHA has gone crazy, making sweeping new changes in several policies. You’ve got to keep these in mind when clients consider FHA loans.

Here are some of the most extreme changes:

**** Raised up-front costs for insurance

**** TRIPLE downpayment requirements

**** Cut seller concessions by HALF!

The government hopes the new policies will help the organization better handle risk. And they’ve got every reason to be nervous. 9% of all loans that the FHA insures are past due. FHA claims have been skyrocketing with the organization paying out of its capital reserves.

30% of all new loans (and 20% of refinances) are backed by the FHA. This is a 1,000 percent increase over 2006. This seems like shaky ground for the company. The FHA is hoping to scale back to pre-crisis times and minimize their exposure.

The new up-front mortgage premiums have risen to 2.25% starting in the spring. They are also aiming to raise the maximum annual premiums that they can charge. They are hoping these moves will help them replenish their reserves. FICO scores will now need to be at least 580 to qualify for the lower downpayment program (3.5%) instead of 10%. This change begins in summer.

Also, sellers will find themselves with new restrictions as well. Closing costs that they can kick in are limited to 3% of the value of the property, down from 6%. They are hoping this will drive down inflated valuations.

And of course, all these changes come with more oversight. Lenders will be ranked based on performance and these figures will be made publicly available.

The bottom line of these changes is the effort to minimize risk of default and help the housing industry recover (as well as cover the FHA’s a**).

How do you think these new rules will affect us?

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26 thoughts on “FHA’s Gone Nuts

  • Emery Stautzenberger

    This will Kill the FHA Market as it has done in the Past. This will open up the Conv.Market, unless they make changes to.Another Block in the Recovery effort. There will be a lot more Owner Carrys.

  • Barbara Enovijas

    I have been in the mortgage industry for 27 years and thought I’d seen it all! I can appreciate what HUD is trying to do but it’s costing or penalizing all of the new homebuyers, typically in their 20’s & 30’s! My question is who is responsible or accountable for all the MIP’s they have collected in the past years? Where did all that money go because I am sure that many homeowners did not apply or get their mip refunded for one reason or the other.! This is only adding on the costs of buying a home. If you add the upfront and monthly MI and times that by 30 years? Guess what?? So it is a catch 22 situation..They appear to help you on 1 end then they get you in the end for their incompetence or regulating the industry in the first place!!

  • Anita Kazee

    Even though it will hinder some home sales – especially to first-time home buyers, it will help prevent loans to those that cannot afford to buy until they can build their credit and/or save a down payment. Wow, that’s a concept!

    Great website!!


  • Ken Moskowitz

    It has always troubled me that the government is standing behind 97% loans with FHA and 100% loans with the USDA. The qualifying process has been more easily met by borrowers than with convential loans. As a result, a flood of new borrowers to these programs has begun. The fact that 30% of FHA loans are currently in default tells the real story. The economy is not yet stable enough to expect the FHA program to have lower default rates. However good a person’s job is when the qualify for a mortgage, when the lose it, it’s only a matter of time until they can no longer afford their mortgage payment.

    The changes will hurt the programs numbers and I do not believe the lower number of new loans coming in will be sufficient to offset the new losses yet to com.

  • Kathleen

    Isn’t this closing the barn door after the horse has escaped?
    It definitely killed quite a few of my sales. But I agree that it will keep people in homes because they can afford them.

  • Bob Mata

    The reason FHA was started in the first place was to help home buyers with limited funds to be able to purchase a home. For many years they have collected the MIP and were the only profitable branch of the Government. Where did all those profits go?
    Now is not the time to punish current buyers. Those people buying houses today, at the deflated prices, are much less likely to default than those that bought at inflated prices with ARMs and 0 down loans.

  • Jeff Ringnald

    It seems to me that everything the FHA does is trying to inhibit investors from buying houses… and a LOT of the houses I look at will NEVER be purchased by anyone other than an investor. No homeowner is going to (assuming he’s even able to) buy a house with foundation and/or roof problems not to mention if it needs kitchen and bath updates, etc. They should loosen up on the investor rules so we can buy them, fix them up and put them back on the market so a homeowner can buy them.
    Jeff R., Texas

  • Crystal*S

    For every action, there is reaction…. for everyone. If we can review the why’s, which occur because it is an attempt to correct something…. evaluate, catch attention, take note…. Look at the Bigger Picture, into the Future and apply accordingly or adjust as needed.

    The Movie we are creating is directed “in the moment”, their is no time for a dress rehearsal.

  • Laura B., Georgia

    The government knows that changes must be made. Short sale and REO flipping are becoming more and more accepted by the government and major lending institutions. As evidence, look at Freddie Mac’s recent bulletins, updated credit policies by Wells Fargo to allow for C buyer financing, and revised title bulletins stating that the C purchase price does not need to be revealed to the A lender with certain disclosures made.

    In the biggest/boldest step yet, the FHA has rescinded its 90 seasoning rule and will, for a period of 1 year, allow FHA buyers to obtain loans on properties that have been recently purchased by investors. This is an amazing opportunity for us as short sale specialists and I would encourage investors who were afraid of short sales to get involved. This is a major way for us to help our economy out of this crisis.

  • Gwen P, Illinois

    First Time homebuyers will be able to buy…who do you think will buy them once investors buy and fix up. There are several programs out there now, that provide purchase/rehab loans to owner occupied buyers. That’s a good thing for investors. Investors can buy, sale as is, or rehab and sale. The restrictions have to be loosen for the investors first.

  • Chris J

    I think these changes will not last. FHA will see a decrease in loans. They are setting there standards too high. For this to work they need to be more reasonable. Thanks Chris J. Alabama

  • Ernie O.

    The FHA was created to help low income people buy a home. They have made some changes for the better. Like raising the loan limits. Very good news for people here in New Jersey. The best news for investors is the lifting (for one year) of the 90 day holding restriction for resale. We should all take of advantage of this great new opportunity and welcome FHA buyers.
    Ernie O., New Jersey


    At the rate home values are going, triple the down payment wont mean much, thank you Hank Paulson

  • Jackie L., FL

    Close to 100% financing is never a good idea because there is a rental option if they cannot afford it. Many people I have helped with short sales were the ones with 100% financing. But not sure if the new FHA rules are the best solution. Yes, the best part of the new rule is to enable us to flip without 90 day holding period!

  • Kelly Harper

    I think the FHA is just trying to cover themselves and trying to keep from getting burned. I don’t think the FHA is necessarily concerned about helping the housing industry recovery. The housing industry is going to have a hard time recovering if people can’t afford to buy a house with the raise in the cost of up-front mortgage premiums and with seller concessions being cut to 3%. Sellers may have a hard or harder time selling their home because of these new rules. It could be positive for investors though. If sellers have a hard time selling their homes because of these new rules, it’s a good chance that they’ll look to investors to take their homes off their hands.

    Kelly H., Virginia

  • Patrick G., Maryland

    Is there any government entity that is actually interested in helping out the citizens it’s supposed to serve or just finding more ways to increase bureaucratic red tape? Pretty soon you won’t be able to sell or buy a home. I think someone needs to give the “American Dream” CPR.

  • eugene b Maryland

    We are going to be faced with government regulations good or bad. Just allow a short time and some one will figure out a method of using these regs.to our advantage.

  • Dexter B., Georgia

    Americans are being stiffled by more qualifications that are designed to pacify Politicians egos. We are really in for a major problem with Housing.
    The people who are making these rules have never worked in the Mortgage business and don’t understand the basics about this business. FHA new rules are not what they think they’re caked up to be, requiring that a borrower put down more money is no guarantee that if they lose their job they are going to keep their home or prevent a foreclosure.
    Yes, it will limit FHA exposer. so they say by 3.5%?
    First,as an example consider a borrower that places 3.5% down on a $300k home. The borrower would need approx $10,500 that they would be required to take out of their reserves. Contrarily, if this money was left in their reserves on the other hand, their monthly payment not including taxes and insurances would be approx – $60-$75 per month more than, if they had put the 3.5% down. The down payment used to be 3% and some Politician perhaps a Lawyer needed a way to justify his fees and convince them to change it to 3.5%.
    Consider this common sense observation. In the event of a job lost would a person having more money set aside in their checking or savings account be better off & able to make payments,budget and maintain a life style than having the 3.5% amt. tied up in equity?
    Their chance of staying out of forclosure would be strongly enhanced by having reserves in place. Add a tax credit to this scenario and you have a more stable & happy capable Citizen of Amercica.
    Secondly, doing away with Consessions upto 3% & seller paid down payment assistance is another joke in it’s self. If a seller is making less on a sale and donating the equity that would normally, go into their pocket. Where is the crime?

    Ok, another business in America makes a little money in the process for adding a fee aka a down payment assistance program which employees x amt. of employees throughout America. ( Jobs ). If that’s such a crime just allow seller to pay it directly, out of closing proceeds no dpa company necessary.

    Ironically, what would make even more sense and pacify all the so called statistics. Why not increase the down payment to 5% and let it be seller funded. Now, what’a the problem?
    Now top that for a thought!

    Oh, I forgot they have to have something in it.

    Alternative keep renting with no benefits?
    I guess they have to fill the renters void in America.
    So they just come up with anything imaginable to address the problem whether it makes sense or not?

    More dumb answers to the problem.
    The so called Government State & City approved- down- payment assistance- programs charge almost 2-3 pts. more in interest rates to home buyers than if they went thru mortgage companies. How about a 8.75% rate on a FHA 30 yr, fixed vs. a mortgage company that earns a yield spread of 3 pts with a 5.25 % rate given to the buyer.
    Opps, a mortgage company making a little money. I guess they better cut that out. Those mortgage people are crooks!

    Wow, I wonder who in the hell has a greater chance for being a foreclosure candidate?
    Who actually, did the buyer more justice? Go figure!

    Interestingly, common sense would dictate changing the credit qualifications to say a 650 middle score and still allow Seller paid down payment assistance and allot FHA a bone to increase the MIP to 2.25%.

    The monthly payment is no where near what a 2-3% higher rate would have been with the so called approved state & city sponsored down payment assistance programs .
    They also, force the borrower to stay in their home for at least 5 years and not allowing them a chance to refinance as needed or to consolidate bills etc.
    They honor the buyer by placing a soft second on the home and require that the borrower have to pay back the down payment if they have to move.as a penalty. Imagine simply getting a better job opportunity and needing to relocate. Perhaps, having to get a divorce and the house want sell. People are not allowed to even rent the homes out.
    I have met several borrowers who were forced to try and sell their homes to no avail as their only option.
    Due to the fabulous common sense guidelines & rules of the creators of all the so called State & City sponsored programs not allowing them a option to lease out their homes.
    The borrowers were forced just to allow the homes to go into foreclosure. Even though, they had numerous people desperate to rent or buy on a lease purchase at the time they trying to sell the properties.Where are the statistics on this fact?

    People who have maintained such basic scores over time have already proven their ability to manage their finances and maintain their credit to a repectful degree. Even though the credit reporting agencies have changed the scoring models.

    People should not be forced to exhaust all of their funds in order to bail America out of a crisis. Let the sellers on the other hand give up a little to equity and move America along and keep the deals flowing.

    When people are able to buy houses several hundred people are employed in various industries. It takes over 30 people employed in the mortgage business to put a deal together. We need these job opportunities in place.

    Another dumb Idea is the 90 day seasoning on titles requirements. Perhaps, Politicians should be able to buy more houses and the requirements would definitely, change?

    Too much, Government no common sense!

  • Craig S.

    Although these changes may not be popular and may not be in the best interest of many real estate investors, at least it is nice to see one government agency that is trying to be responsible and proactive in an attempt to reduce the possibility of further major problems.

    Craig S., California

  • James Moore

    The housing industry is going to have a hard time recovering if people can’t afford to buy a house with the raise in the cost of up-front mortgage premiums and with seller concessions being cut to 3%. Sellers may have a hard or harder time selling their home because of these new rules. and they are try to regulate the amount of profit a investor can make. if we find a great deal with more than 20% profit why should we have to justify why it is on lower in homes

  • Jennifer G - WA State

    “these changes is the effort to minimize risk of default and help the housing industry recover (as well as cover the FHA’s a**).” This will do more harm than good for the FHA. It will also make it more difficult for the seller to help out with the closing. Along with making the American Dream seem so unattainable or even untouchable by the young kids who once thought owning a home was “the American Dream” I believe it is too soon to start trying to sell homes to those who truly can’t afford them, after all, that is how we got into this mess in the first place. We need to find a way to bring the upside down mortgage right side up again, without the owner of the home losing their shirt. Which is, the banks will have to take the loss, after all, when we go to the bank for loans of any kind they shake there finger at us and say, no we can’t give you a loan, your credit is not good enough, well, the banks are now in the wrong and it’s time for them to accept responsibility for their actions.

  • Jamie Lane

    I would say FHA has made these changes on purpose because they no longer want to do 30% of the new loans. I remember a time in history where FHA was not the preferred loan of chose. These changes have been made to benefit them, not us.
    Jamie L., South Carolina

  • Joseph B. Mattheeussen

    Agreed, (especially no’s 18 & 21 above!) it’s always the little people who ‘work, sweat and toil’ to provide for their fami-lies, who end up suffering at the hands of the rich and po-werful, e.g. the Banks and politicians…! Gee, lets’ see now, for me it’s been: a.) Several years of combined of unemploy-ment over my career, has cost me 100’s of thousands in los-ses for that, b.) I’ve lost 100’s of thousands in my divorce, I lost all of my personal possessions and I’ve had to start all over again from scratch at 43… c.) Then, I’ve lost 100’s of thousands in ‘income taxes’ and ’employment taxes’ that I’ve never, ever owed, nor that I’ve been legally liable for in the first place, but I’ve been ‘forced to pay’ those for over 30 years of my adult life…?!? d.) How many other 10’s of thou-sands of dollars have we all lost in city, county, state and federal governmental ‘scams’ and ‘built-in cost mark-ups’ because of unneeded ‘rules, regulations and interference’,
    e.) I’m just like the next guy, I’m proud as an American to pay lawful and legitimate ‘taxes’ that are Constitutional in nature and lawful, due to legitimate ‘taxable activities,’ but NOT to being scammed, lied to and fraudulently led along by scam-artists who masquerade as governmental employ-ees, boy, our current system is so corrupt it’s amazing that it still functions at all…?!?

    Thanks for the opportunity to share, God Bless, Joseph from the ‘Republic of Connecticut’, (the Constitution state!) jbm…

  • Jerry P.

    Hi! Cory:

    When I read the above information about the new FHA rulings I think of Dejavu of the years of 2004-2007 during the Sub-Prime Magic years.

    It’s like feast or famine. before the FHA restrictions 1.5% premium, 3% down-payment, no credit score and grant down payment assistance programs like the Nehemiah program and others are all gone.

    The good thing is the one year memorium on the 90 day restriction property holding period for investors and with the buyer’s new qualification standards will reduce the unlikely event of contracts falling through at the closing table.

    The other good things is that the tree has been shaken and the rotten fruit has fallen out.

    Although the new FHA policies and rules seems strengthen and more restrictive.

    In the end we will be moving towards a future of quality not quantity and it will bring more integrity back to the industry.

    Thanks for the opportunity to Express… Regards, Jerry P.

  • Wan Boykin, Maryland

    Since now a day, lender is more strick of giving out the conventional loan. It is the chance for FHA to change their policy. Comsumer is still feel it is OK compare to try to get conventional loan.

  • James W., California

    Here in my town of Santa Maria, FHA insured loans kept the prices from falling more and more. These loans opened up the buying pool so that lots of people could qualify. Things may be a little tougher with these changes, but if this will help FHA from needing a bailout then you can’t slight them for trying to save their hides. On the positive side, FHA loosening the resale time requirements is a big plus for investors.