FHA Requirements Increasing for Home Buying Down Payments
Americans have grown accustomed to FHA loans for purchasing and mortgage refinancing. A recent Bloomberg article highlighted new obstacles for Homebuyers seeking mortgage refinancing to take advantage of FHA loan program. Borrowers will now have to put down additional funds in some cases as officials look for ways to shore up finances at the Federal Housing Administration. FHA loan defaults have sky-rocketed over the last few years because of the economy and lack of mortgage loan products.
HUD secretary Shaun Donovan told reporters “Down payment is one of the elements we’re looking at.” Donovan continued, “A second is the upcoming mortgage insurance premium and then additional money that needs to be brought to the table.”
The FHA is also considering cutting the amount of home seller concessions a buyer can receive by half to 3% of the purchase price to combat inflated appraised home values. The minimum credit scores required for borrowers may also be raised, and the guarantee fees charged to lenders may increase, Donovan said. “We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan, to make sure that FHA borrowers have more ‘skin in the game,’” Donovan told the committee.
HUD, which oversees FHA, will provide details in January, he said. Some FHA guideline changes may take affect in the first quarter while others, like raising annual insurance premiums, need congressional approval and will take more time, he said.
The National Association of Realtors said FHA must be careful not to raise costs too high for borrowers and constrict access to credit. “Requiring a larger down payment will make homeownership out of reach for many families and for others could deplete their cash reserves for home and other emergencies,” said Vicki Cox Golder, an Arizona Realtor and president of the National Association of Realtors, which represents the industry from Washington.
The FHA mortgage lending continues to struggle as mortgage insurance reserves fell to the lowest level in history last fiscal year and the government said more steps are needed to shore up the agency that guarantees one of every 5 single-family loans. The insurance fund tripled in size last year and has taken on more risk as private industry sources for lenders to finance and insure home loans dried up and mortgage default rates rose to record highs.
FHA’s net capital ratio, or reserves after accounting for projected losses, fell to its lowest level on record, 0.53%, in the year ended in September, from 3% in fiscal 2008 and 6.4 % in 2007, according to an annual review released last month.
FHA, along with federally controlled mortgage-finance companies Fannie Mae and Freddie Mac, accounted for more than 90% of all U.S. mortgage loans in the first half of this year.
The agency may raise the up-front insurance premiums of 1.75% that it charges FHA lenders to guarantee the loans, Donovan said. The agency is seeking permission from Congress to increase its annual insurance rates as well, which will raise FHA home loan costs for consumers, Donovan said.
