In 2007, the housing crisis happened making Federal Housing Administration mortgages possible to receive. The FHA virtually eliminated barriers to entry to the housing market to keep mortgage lending from entirely drying up. FHA mortgages are used in a of the housing market today. But risks and delinquencies from those loans are rising. And The FHA’s reserve funds used to cover losses when borrowers default or go into foreclosure are shrinking. To protect those reserves, the easy terms of an FHA mortgage are about to change.
Hardly any FHA mortgage insurance anymore
There is hardly any mortgage insurance for FHE loans which is hurting right now although it didn’t matter during the housing crisis. According to the Real Estate Channel, 360,000 loans, or 6.2 percent, from FHA were given to buyers who had 500 or less in FICO scores. Foreclosures, bankruptcy or 60 days delinquent are the result of 37 percent of these loans. Foreclosure was avoided by 450,000 families 2009 fiscal year because of help that came from the FHA. 2010’s first quarter had the FHA helping 122,000 families keep their homes. There was a default rate of 67 percent within the next twelve months after being helped by the FHA, reports the Office of Comptroller of Currency and the Office of Thrift Supervision. In May 2010, 555,000 FHA mortgages were delinquent more than 90 days.
Terms becoming tougher for FHA reserves
Because of soaring loan delinquencies and defaults, the FHA is taking actions to protect its Capital Reserve Account, which had dwindled to $ 3.5 billion by 2009, compared to a $ 19.3 billion balance on Sept. 30, 2008. FHA mortgages can have their annual insurance premium increased because of a bill passed in Senate last week, reports SmartMoney.com. At least a 580 credit score has to be met to qualify for a 3.5 percent down payment with the FHA. A credit score between 500 and 580 would require a 10 percent down payment to be made.
New FHA mortgage loan requirements
September 2010 is when new FHA mortgage loan requirements can be put into place. As outlined by Chicago 77, those buyers who can barely afford a home will no longer be able to get to that point. Under the new structure, FHA needs a borrower to pay an upfront mortgage insurance premium calculated at 1 percent of the loan amount. The good news is that this is down from the 2.25 percent presently required. Unfortunately, the monthly figure could be .90 percent annually instead of the .55 percent it was before. As an example, Chicago77 examines a $ 150,000 home purchase:
Before Sept. 7 2010
Upfront Premium (2.25 percent): $ 3,256.88
Monthly payment including mortgage insurance: $ 793.93
On or after Sept. 7 2010
Upfront Premium (1.00 percent): $ 1,447.50
Monthly payment including mortgage insurance: $ 826.93
Net changes
Upfront cost: Decreased by $ 1,809.38
Monthly cost: Increased by $ 33.00
Additional reading
Real Estate Channel
realestatechannel.com/us-markets/residential-real-estate-1/real-estate-news-fha-mortgages-mortgage-backed-securities-mbs-federal-housing-administration-fha-department-of-veterans-affairs-va-congress-home-loans-keith-jurow-2969.php
SmartMoney
smartmoney.com/personal-finance/real-estate/the-fha-rethinks-its-mortgage-lending/
Chicago77
thechicago77.com/2010/08/major-fha-changes-coming-on-the-september-7th/
