Steps to shore up the agency's capital reserves will include raising mortgage insurance premiums and changing requirements for FICO credit scores and down payments for new home buyers.
By Mary Ellen Podmolik
March 8 , 2010
The Federal Housing Administration will raise mortgage insurance premiums, update requirements for so-called FICO credit scores and down payments for new home buyers and take other measures designed to shore up the agency's low capital reserves.
The FHA, which insures mortgages, also will reduce allowable seller concessions to 3% from 6% and institute a number of measures to increase lender enforcement.
The proposals were outlined by U.S. Housing and Urban Development Secretary Shaun Donovan.
Home buyers who want to make the minimum down payment of 3.5% on an FHA-insured loan would need a minimum FICO credit score of 580, instead of the current 500. New borrowers with scores under 580 would have to put down 10%. However, most participating lenders require borrowers to have a score of 620 or higher.
In addition, the FHA seeks to raise the upfront mortgage insurance premium to 2.25% from 1.75% of the loan amount. The increase goes into effect on April 5.
FHA has also proposed raising the the annual mortgage insurance premium to a level above the current cap of 0.55 percent. This increase will require congressional action and approval.
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