As part of a broad effort to strengthen the Federal Housing Administration’s (FHA) Mutual Mortgage Insurance Fund (MMI Fund), FHA Commissioner Carol Galante announced a series of changes to be issued this week that will allow the agency to better manage risk and further strengthen the health of the MMI Fund. These changes are for FHA case numbers issued after April 1, 2013.
Changes to Mortgage Insurance Premiums
FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by 0.10 percent. FHA will increase premiums on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05 percent, to the maximum authorized annual mortgage insurance premium. These premium increases exclude certain streamline refinance transactions.
FHA will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan.
Requiring Manual Underwriting on Loans with Decision Credit Scores below 620 & DTI Ratios over 43 Percent
FHA will require lenders to manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income (DTI) ratio greater than 43 percent. Lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded, using FHA manual underwriting and compensating factor guidelines
Raising Down Payment on Loans above $625,500
Through a Federal Register Notice to be published in the next several days, FHA will announce a proposed increased down payment requirement for mortgages with original principal balances above $625,500. The minimum down payment for these mortgages will increase from 3.5 to 5 percent.
Access to FHA after Foreclosure
Borrowers are able to access FHA-insured financing no sooner than three years after they have experienced a foreclosure, but only if they have re-established good credit and qualify for an FHA loan in accordance with FHA’s fully documented underwriting requirements.
These changes can dramatically affect the qualification of home buyers.
Courtesy: Michael Vernon, AVP – First Mariner