FHA Loans Too Cheap and Easy?
FHA loans have become popular since the conventional mortgage debacle because of easier qualifying guidelines. FHA loan fundings have grown to 30% of home purchases and 20% of refinance loans.
Mortgage defaults however, are depleting FHA’s reserves, which is far below the mandated level to cover possible losses. Now, the agency is looking for ways to reduce loan defaults and increase cash reserves, which may include raising the minimum down payments, credit scores, insurance premiums, and cutting seller contributions.
Down Payments - One possible change will be a requirement that borrowers have more equity in a loan transaction to discourage missing payments or risking foreclosure. An FHA loan currently has a minimum down payment of 3.5%, which may increase to a minimum of 5%.
Credit Scores - FHA loans offers the most lenient and flexible credit guidelines compared to Fannie Mae and Freddie Mac. Critics say this generous qualifying policy has contributed to increased loan defaults and foreclosures, which could lead to imposing stricter credit requirements and rate adjustments.
Insurance Premiums - FHA loans have an up-front mortgage insurance premium, which is usually added onto the financed loan amount, plus an annual premium, paid in monthly installments. In order to rebuild capital reserves, FHA could raise these fees to the maximum allowed by congressional limits.
Seller Contributions - One of the popular benefits of an FHA loan is the allowance of home seller contributions to the borrower’s closing costs. The current policy limit allows a maximum of 6% of the purchase price, which critics believe to be excessive. They believe less seller contributions would reduce loan defaults by requiring more funds from borrowers.
FHA Rates
Mortgage defaults however, are depleting FHA’s reserves, which is far below the mandated level to cover possible losses. Now, the agency is looking for ways to reduce loan defaults and increase cash reserves, which may include raising the minimum down payments, credit scores, insurance premiums, and cutting seller contributions.
Down Payments - One possible change will be a requirement that borrowers have more equity in a loan transaction to discourage missing payments or risking foreclosure. An FHA loan currently has a minimum down payment of 3.5%, which may increase to a minimum of 5%.
Credit Scores - FHA loans offers the most lenient and flexible credit guidelines compared to Fannie Mae and Freddie Mac. Critics say this generous qualifying policy has contributed to increased loan defaults and foreclosures, which could lead to imposing stricter credit requirements and rate adjustments.
Insurance Premiums - FHA loans have an up-front mortgage insurance premium, which is usually added onto the financed loan amount, plus an annual premium, paid in monthly installments. In order to rebuild capital reserves, FHA could raise these fees to the maximum allowed by congressional limits.
Seller Contributions - One of the popular benefits of an FHA loan is the allowance of home seller contributions to the borrower’s closing costs. The current policy limit allows a maximum of 6% of the purchase price, which critics believe to be excessive. They believe less seller contributions would reduce loan defaults by requiring more funds from borrowers.
FHA Rates
posted by CRHOME.com at
6:36 AM
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