Posted on Saturday, January 23, 2010
Once again we're faced with a choice; make easily available mortgage money easily the top priority so folks will borrow, buy homes, absorb excess inventory and help stabilize housing prices. Or make prudent lending standards the top priority at the risk of knowing less folks with qualify.
In an effort to jump start the market, the Fed opted for the former. Until now. Last week the FHA announced it will shift the the later strategy.
FHA currently backs about 30% of all new loans for purchases and 20% for refinances.
FHA market share has increased almost 1000% since 2006.
Almost 9% of the single family mortgages FHA insures are at least 90 days past due.
The claims FHA has had to pay are through the roof leaving it reserves below that required by law.
The chnages will;
This Spring, increase up from mortgage insurance premiums paid by borrowers from 1.75% to 2.25% meaning you will need more cash in hand to buy.
Increase premiums paid over the life of the loan.
Starting early summer, minimum 580 FICO score to qualify for 3.5% downpayment program. Anyone with less than that will need to put down at leats 10%.
Beginning this summer, seller contribution drops from 6% to 3%.
Increaased oversight of FHA lenders.
The bottom line, visible pain in the short run as home sales will no dounbt be effected, but lomng term benefit of less defaults and a much better example being set by government.