FHA Changing their Guidelines for 2010

FHA has announced that they will be tightening their lending guidelines in 2010.   The changes are designed to strengthen FHA reserves.  Due to the increase in foreclosures, FHA reserves have dipped down to just .53% of the value of insured loans.  Congressional legislation requires that they keep their reserves at least 2%.

Now, you might think that the foreclosures causing the changes were caused by the aggressive lending practices that once existed.  It is surprising to learn that 20% of all new mortgages (read: made after the real estate bust and mortgage market implosion) are actually in some stage of default.

Under the new guidelines, borrowers with scores less than 580 will be required to put at least 10% down.  The 3.5% required down payment will remain for borrowers with credit scores above this.  While it is a relieve to some that bad credit mortgages still exist, it will certainly be more difficult for many to get into a home.

Seller concessions will be reduced from a maximum of 6% to a maximum of 3%.  Another major change is that the required mortgage insurance premiums will be increased by 50 bps, going from 1.75% to 2.25%.  These two changes will cause a significant increase in the amount of cash that borrowers must bring to the table.

There is some debate as to how much the new guidelines will really impact the mortgage industry.  After all, in early 2009, most banks shifted their underwriting guidelines to not make loans to individuals with credit scores below a 620.  (Remember – the FHA insures loans that meet their guidelines but it does not underwrite them.  The individual lenders are the ones who underwrite the loans.)

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Tagged as: FHA, FHA 2010, FHA Guidelines