FHA continues to toughen its lending criteria.
In January, new appraiser independence guidelines will take effect for FHA lending. FHA is adopting the language of HVCC. The goal is to separate loan origination from the appraisal. Banks will set up separate appraisal ordering processes for their internal originators and for their broker originators.Coming soon FHA will change the approval process for lenders and correspondent/brokers. This change will give lenders more say over which mortgage brokers they accept. It will also increase the lender net worth requirement over 3 years. The new net worth requirement will be $2 million, with 20% liquid.
Tougher enforcement has already been evident - see TBW and Lend America and many others. Now there will be tougher lender approval guidelines.
We will see how this change will impact competition, but it may be that near future FHA lending guidelines will so severely restrict the number of qualified buyers that lender competition will be less of a concern.
The biggest, most impacting, change though, for consumers as well as for lenders, will be in the area of borrower qualifications. Already we have seen tightening for FHA Streamline refinances.
Coming soon:
- higher mandated credit scores
- larger down payment - to 5%?
- lower allowed seller paid closing costs - to 3%?
- increased mortgage insurance premiums
Details are expected to be announced by the end of January, but in a recent NPR interview Secretary Donovan said,"We just lowered the percentage of what we call seller concessions." I have not seen the change, but Secretary Donovan said it has been done.
He wants "more skin." He want borrowers to bring more cash to closing. Apparently a lot more.
I take that to mean that the decision is finalized - more skin right now means lower seller concessions.
And soon it will mean higher down payments and higher monthly payments from higher mortgage insurance.
Here is the interview.
Richard: Thanks for your post. Lending guidelines will get tougher indeed...Now FHA...
Richard, thank you for the update. The lending rules keep changing!!
If the proposed changes go through, the only reason anyone would use FHA would be to escape the ding for a lower credit score. I can't see how that is going to help FHA recover from any mess that might be looming...
Julia,
The score requirement will be soon be increased, I suspect fairly high. I have not heard anything about restricting the available sources for funds, such a gift.
The seller concessions thing, if true, will be significant especially for lower loan sizes.
Despite expressed concerns to the contrary, I do not think FHA's concerns are focused on the housing recovery. I think their concerns are reducing market share and protecting the MMI fund. Over the last year their market share jumped to a volume they might not want.
With the loss of competition, FHA can pretty much do what they want.
Richard
Maira and Lisa,
The good news is that with all that skin in the game borrowers can save on sun screen.
Richard