Will FHA Loan Products Require a Minimum Credit Score for Refinancing?
It looks like finally the government is tightening the FHA credit guidelines for home loans and refinancing. The Federal Housing Administration has always been a great proponent of homeownership and fair lending, but FHA loan defaults are sucking up the FHA reserves. FHA announced they were considering a proposal to no longer approve FHA mortgage loans to borrowers with credit scores below 500. After Congress left the 2010 FHA loan limits at high levels FHA mortgage companies knew that the mortgage news can’t always be good. Let’s be honest — For the most part, FHA mortgage refinance programs have been pretty aggressive with subprime borrowers.
The results of these FHA lending changes are starting to be realized as the FHA loan portfolio is starting to perform better with less delinquencies and defaults. Stevens continued, “These are the latest in a series of modifications to allow the FHA to manage its risk better while continuing to support the recovery for the U.S. housing sectors.” HUD reported that in May, FHA loans that were seriously delinquent rose almost 9%. That was up from 7.93% at this time in the previous year. The good news is that FHA loan defaults have declined since January, when they rose to 9.16% which was a record high. The effects of the foreclosures have been drastic as they have nearly drained the once healthy, FHA reserves. Congress requires that FHA keep the reserves above a minimum of 2%.
Earlier this year, FHA proposed a measure to implement a minimum Fico score system to the FHA mortgage programs. Jerry Mlnar of Woodfield Planning, who is a trusted Illinois mortgage company said, “FHA has to protect the government home finance program to promote affordable home financing and credit score resquirements for FHA mortgages makes sense.”
The initiative is being considered as a pro-active measure to reduce delinquencies and FHA loan defaults. Congress considered raising the minimum down-payment requirements to 5% and 10% for borrowers with Fico scores that fell below 580. For the most part, home buyers are only required to come up with a 3.5% down-payment when financing with FHA home loans. However FHA direct endorsed underwriters have the discretion to require higher down-payments for candidates that pose a higher risk.
In a recent article, CNNMoney evaluated the FHA lending policies that are being considered in the reform circles of the lending community. stage. Before going into effect, the department is soliciting public comment on the matters for 30 days. Then, it will evaluate the comments before implementing any changes.
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