Earlier this year the Federal Housing Administration (FHA) Commissioner David Stevens announced policy changes to FHA guidelines.

When asked to write this article the first question that came to mind is why now. If the average American bank account could make noise it would sound like the straw scraping the bottom of a McDonald's shake.

The official answer is the new measures will help FHA better manage risk, while maintaining support for the housing market and access for underserved communities.

Unofficially - in 1993 I was showing houses to a man who was emigrating here from a country of undisclosed origin. An avid people watcher, I asked him what he found the most striking in North American culture when compared to his own. He answered, "North Americans don't own anything and borrow everything." Then he asked, "Sheila, do you ever wonder what would happen if everyone borrowed to the maximum of their capability without having the resources to pay it back?" I thought about it and shrugged. I dismissed the idea as highly unlikely and never brought it to mind again, until now.

The siege on the banking industry is nothing less then terrorism. The origin is not some foreign shore. Just like removing our shoes before boarding a plane thanks to the shoe-bomber. I am still nervously anticipating new requirements in the aftermath of the underwear bomber. The new FHA guidelines are the Government response to counter financial terrorism.

1) The Monthly Insurance Premium (MIP) has gone from 1.75% of the loan amount to 2.25% of the loan amount. The mortgage insurance on government insured loans is paid over the lifetime of the loan. Based on a 30 year amortization with a 5% rate, no points on the maximum FHA loan for the Tampa area ($272500) the difference in payment is less than $10 per month.

2) A new borrower's minimum FICO score will need to be 580 or more. Please note most buyer/borrowers will quote you their highest score, lenders on the other hand take their middle score reported by the three credit repositories. Buyer/borrowers with a middle score of less than 580 will still be considered, however, they will need a minimum down payment of 10% of the purchase price, still more favorable than the 20% down payment required on conventional loans.

3) The seller or third party concessions to the buyer/borrower will be reduced from 6% to 3%. We all know that third party concessions artificially inflate the value of a property, a risk that FHA can no longer afford.

4) FHA is seeking to make lenders more accountable for the FHA loans that they originate and underwrite. I like to think of this portion of the new guidelines as a ‘you break it, you buy it'. In other words, if a Bank either regionally or nationally breaks faith with FHA they jeopardize future FHA access, forfeit government (that's all tax paying Americans) insurance protection, requiring them to buy back bad loans.

　

The changes are scheduled to take place sometime in the spring/summer time frame. FHA will be sure to announce more exact dates as the process develops.
Sheila Desautels Broker/Owner RE/MAX Top Notch Associates.813-855-2800