January 31, 2013

Galante says FHA changes ahead

Federal Housing Administration Commissioner Carol Galante on Wednesday announced a series of changes ahead aimed at improving FHA's risk management and the strength of the Mutual Mortgage Insurance Fund.

Galante unveiled the planned changes – changes she committed to in advance of her confirmation by the Senate to a term appointment – the same day that House Financial Services Chairman Jeb Hensarling, R-Texas, announced a series of hearings that will examine the FHA and housing finance reform issues. (See story.)

The changes are as follows:

  • Loan lockouts: FHA says it will step up enforcement efforts for FHA-approved lenders over aggressive marketing to borrowers with previous foreclosures and will work with regulators regarding false advertising by non-FHA lenders. (To further discourage strategic defaults, NAFCU has further urged that FHA increase its lockout period to seven years, the same as at Fannie Mae and Freddie Mac.)
  • Home equity conversion loans (reverse mortgages): FHA plans to consolidate its fixed-rate pricing options into one that features lower up-front costs for borrowers and permits a smaller payout, beginning with FHA case numbers assigned on or after April 1.
  • Premiums: Annual mortgage insurance premiums will rise for most new mortgages by 10 basis points, or 0.10 percent; for jumbo loans ($625,500 or larger), they will rise basis points, or 0.05 percent. Most borrowers will have to pay annual premiums over the life of the loans.
  • Manual underwriting: Lenders will be required to manually underwrite loans when borrowers have a decision credit score below 620 and a total debt-to-income ratio greater than 43 percent. Lenders will have to document compensating factors using FHA guidelines.

FHA says it will also soon announce a proposed increase in the down payment requirement for mortgages with original principal balances above $625,500 from 3.5 to 5 percent. The announcement will be published in the Federal Register.