Georgia Mortgage Blog

FHA is announcing changes today for future FHA originated loans for 2010. This is being done in an effort to stem the rising defaults in the agencies back loans, which have risen during the current economic downturn. The agency has been  under pressure to "shore up" their finances over the last couple of years. The FHA loan program has been a very popular choice for borrowers over the years with all of the changes the mortgage market has gone through. It offers the ability for many lower income and lower credit rated borrowers to purchase homes at affordable rates.

Some of the changes include an increase in the up front funding fee required by FHA. The current fee is 1.75% of the loan amount which was an increase from the original 1.5%. The new fee will be 2.25%, according to recent posts and comments, and the agency is looking for approval to hike its on going monthly premium charge as well. Both changes would be a direct attempt to increase the agency's reserves.

Another change would be an increase in down payment requirements for borrowers with lower fico scores. There is a proposal to increase the current requirement of 3.5% to 10% for borrowers with credit scores under a 580. Most do not see this as having a major effect on the loan market since the average credit score as of late has been closer to a 693.

An item that may have more of an impact on the amount of funds required at closing by the borrower would be the reduction in the amount of closing costs the seller is allowed to cover. Currently, sellers are allowing to cover up to 6% of the sales price in closing costs. This may be reduced to 3%, which is closer to requirements in place on many conventional loan products. This could directly affect home buyers with limited funds and reserves.

All of this is being done to decrease the growing default ratios seen with FHA insured loans and to try and increase the agencies reserves back to the 2% cover ratio mandated by Congress. The fear would be to add another blow to an already down turned economy and beleaguered housing market. We would not want to see FHA take away its ability to help borrowers who may not get the opportunity to own a home on other loan programs. Home ownership is not a right, it is a privilege. But with that being said, everyone deserves a chance to achieve that goal.

If you would like more information on FHA loans, please check FHALoans or ContactUs

This was brought to you by the Tallman/Bland Mortgage Team at Mortgage Solutions of Georgia, LLC.