FHA Mortgage Loans – Harder to Qualify?
For many years, Federal Housing Administration (FHA) mortgage loans have been assisting millions of Americans to realize the dream of home ownership. During the mortgage "boom," FHA loans lost a lot of popularity because the sub-prime loans were so much easier to obtain. Since the proverbial mortgage sky began to fall in 2007, FHA mortgages are back in the mainstream and make up a very healthy share of all loan origination today.
Recently, the Secretary of HUD (Housing and Urban Development) announced that the FHA mortgage insurance reserve pool had fallen to a level of 0.53%, much less than the federally mandated 2% threshold. It is no surprise that Mr. Donovan is now scrambling for ideas of how to get that reserve back to its required level and then save his job. Maybe.
Here are a few of his groundbreaking ideas:
1. Raise the required minimum down payment from 3.5% to 5%
2. Lower the maximum seller assist from 6% to 3%
3. Establish a minimum credit score (this was implemented by investors already – good luck getting a loan done under 580 FICO)
4. Raise the cost of the Up Front Mortgage Insurance Premium (UFMIP)
5. Eliminate the ability to finance the Up Front Mortgage Insurance Premium (UFMIP)
6. Raise the cost of the FHA monthly mortgage insurance premium
As it stands right now, any loan originator will tell you how much more difficult it is to get approved than it was 6 months ago. Hell, 2 years ago, it looked like a cake walk. One of my purchase closings in October was a client who had a 620 score and I helped instruct her how to get to that level! It was a sigh of relief when that loan closed on time (before the original tax credit had been extended) since most lenders are already requiring a 640 FICO now.
It is a shame that the negligence of HUD and its executives are now punishing the would be home buyers to pay for the mistake they made. I am more than confident to say any, if not all of these proposed "solutions," are going to severely hinder the ability of potential home buyers to get approved for a loan. These home buyers need the advantages of the FHA mortgage loan program to allow them access to realize the dream of home ownership. Obviously, we, as an industry & a country, need these people to buy homes. If not, this housing mess we are in is only going to get worse. Much worse.
