More cash and better credit — that’s what it may take secure an FHA mortgage in the coming months, according to changes announced this week by the U.S. Department of Housing and Urban Development.
With the FHA’s reserves now below government-mandated levels, the agency is considering ways to minimize risk and exposure. FHA borrowers may soon face a higher minimum down payment (it’s currently 3.5 percent) or pay more in mortgage insurance premiums.
The agency is also considering raising the minimum credit score to qualify for a loan.
"The loans FHA insures must be safe and self-sustaining for the taxpayer over the long-term," Donovan said in his prepared remarks. “With these reforms and others we will be considering, the Administration is committed to ensuring that they are today — and into the future."
At this point, there’s no consensus on what measures will take effect, or for how long. Changes to the credit score requirement would likely be temporary and not a permanent agency shift.
That’s also a switch that the FHA can make unilaterally. But it cannot raise mortgage insurance premiums without Congressional approval.
"We've learned from recent history that the market is fragile, and we have to plan for the unexpected," Donovan told legislators this week.
The FHA has enacted a host of changes since it became clear the agency would see its reserve fund dip below the level required by law — 2 percent of the value of all its mortgages. Studies put the current fund level at about .50 percent.
For example, FHA-approved lenders now have to have more than $1 million in cash reserves. The previous level was a quarter of that.