FHA Changes – What’s the Big Deal?

Home mortgage professionals, real estate agents, and home buyers…we’ve pretty much seen it all in the past couple of years as far as procedural changes and adjustments we’ve had to make in order to provide mortgage loans. But regardless of the media-inspired drama, what’s with all the hoopla about the latest FHA changes? Was it a slow news day?

Per Mortgage Data Web, FHA made home buying possible for 1.9 million people in 2009. And now they’ve determined that they need to charge an additional .5% toward the upfront mortgage insurance premium in order to help replenish their capital reserves. So for a $100,000 dollar mortgage this translates to $2.68/month over 30 years. Sorry, but that is not worthy of exclamations that the sky is falling.

The other “sweeping FHA change” going into effect on April 1st is the requirement of a 10% down payment instead of the current 3.5% down if the mortgage borrower’s FICO is under 580.

As I have always been a huge proponent of borrowers needing to have skin in the game, I think this is a completely fair stipulation — again considering the percentage of FHA borrowers that have defaulted on their loans. The bigger issue here is the preponderance of lenders that have minimum credit standards far above 580.  This will affect an extreme minority and will not have an effect on mainstream lending.

The one other stipulation that WILL affect many is the probable decrease in the seller-paid contributions from 6% to 3%. We don’t for sure know when this is happening, but there will certainly be an impact on the lower priced homes. OK…that change gets my attention, but the others are simply the cost of doing business and compensating for the actions of bad borrowers.

So is it a big deal that an organization needs to compensate for losses suffered at the hands of those who don’t honor their obligations and demands better assurance that a loan will be repaid? At the end of the day, I don’t think that is a lot to ask.

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