Today's Mortgage Rates

Recently, FHA has decided that they want to have more oversight and regulatory authority for FHA approved lenders. Yesterday, they released a statement declaring that HUD will be focusing more on regulatory authority when it comes to FHA lenders – in addition to some of the current HUD investigations that are currently being held.

According to the press release, here are some of the regulatory oversight changes coming soon to the FHA approved lender program:

• Publicly report lender performance rankings to complement currently available Neighborhood Watch data – Will be available on the HUD website on February 1.
  • This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available.
• Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
  • Implement Credit Watch termination through lender underwriting ID in addition to originating ID.
  • This change is included in a Mortgagee Letter to be released tomorrow, January 21st, and is effective immediately.
• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lenders using delegated insuring process
  • Specifications of this change will be posted in March, and after a notice and comment period, would go into effect in early summer.
• HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific authority includes:
  • Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
  • Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches

In addition to raising the net worth requirement for lenders and potentially changing the way that loan officers are allowed to be compensated – it appears as if the entire landscape of the origination business is changing and with the vast amount of changes happening, one thing is clear – no one is sure what unintended consequences there will be.

Yesterday, FHA announced that they were going to implement a number of things that are designed to help FHA get back on the right financial track. One of the major things that they announced was that seller concessions for any new home purchase were going to be reduced from 6% to 3%.

According to the announcement:

• The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions.
• This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

One of the bigger problems that led to the current housing problem was the problem of inflated appraisals due to the down payment gift programs as well as seller concessions. FHA eliminated the seller paid down payment programs about 15 months ago and now is adjusting the allowance for seller concessions.

This change will likely impact the first time home buyers the most – because they are the ones who largely are trying to get into their first home and have no equity from their current residence to cover many of the closing costs and moving expenses.

This change, along with increasing the up front mortgage insurance requirements and raising the down payment for people with poor credit will definitely impact the number of people who can qualify for a FHA loan – and not in a positive direction. Expect there to be fewer home owners as a result of these changes.

Yesterday, FHA announced that they were going to raise the minimum down payment requirements for FHA borrowers who have low credit scores.

According to the announcement, this change will take effect sometime in the summer after a comment period and is expected to impact FHA borrowers who have credit scores that are lower than 580.  Currently, many FHA lenders require a credit score of at least 620, so I think that it is safe to say that the limited lenders who currently allow lending to borrowers with a 580 credit score or lower are going to become nearly-extinct.

According to the FHA press release:

• New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%.
• This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.
• This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

I expect that by putting this in place, it will not be very long before a minimum of a 620 credit score (and possibly higher) will be required to get an FHA loan. This change was made in conjunction with raising the mortgage insurance requirements to get an FHA loan as well as reducing seller concessions from 6% to 3% – which are all moves designed to make it tougher to get an FHA loan.

And more expensive.