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FHA to raise fees, tighten rules

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MattH
Senior Contributor

FHA to raise fees, tighten rules

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TU 791 02/11/2013, EQ 800 1/29/2011 , EX Plus FAKO 812, EX Vantage Score 955 3/19/2010 wife's EQ 9/23/2009 803
EX always was my highest when we could pull all three
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Message 1 of 9
8 REPLIES 8
Jazzzy
Valued Contributor

Re: FHA to raise fees, tighten rules

I think these rules will also now limit the money that can be contributed by sellers for closing costs.

 

I understand the need to stop the bleeding from the delinquencies that FHA has to deal with, but it seems these new rules will give the housing industry another blow while they're already down. That said, if these rules had been in place for the last decade, we might not be where we are today.

Message 2 of 9
Watchmann
Valued Contributor

Re: FHA to raise fees, tighten rules

These changes had to be done.  FHA was becoming way too large and was in danger of starting another subprime mess.  Too many dodgy loans were being channeled through the FHA.  A 3.5% downpayment is insufficient and should have been raised, but they were afraid it would choke off any housing recovery.  But to me they are just continuing to prop up unrealistic house values, and this will only stifle the recovery.
Message 3 of 9
DallasLoanGuy
Super Contributor

Re: FHA to raise fees, tighten rules


@LynetteM wrote:

I think these rules will also now limit the money that can be contributed by sellers for closing costs.

 

 


 

talk of limiting it to 3%

 

mortgagee letter should be out tomorrow. i will try to get it posted here

 

Retired Lender
Message 4 of 9
Jazzzy
Valued Contributor

Re: FHA to raise fees, tighten rules


@Watchmann wrote:
These changes had to be done.  FHA was becoming way too large and was in danger of starting another subprime mess.  Too many dodgy loans were being channeled through the FHA.  A 3.5% downpayment is insufficient and should have been raised, but they were afraid it would choke off any housing recovery.  But to me they are just continuing to prop up unrealistic house values, and this will only stifle the recovery.

I agree Watchmann, and I think the $8k tax credit has temporarily inflated values as well. I will be curious to see what happens to the market when/if the tax is let to finally expire.

Message 5 of 9
Anonymous
Not applicable

Re: FHA to raise fees, tighten rules

I thought that the FICO requirement had been raised to 620, does this mean they are going to start loaning to people at 580 and below again?
Message 6 of 9
Anonymous
Not applicable

Re: FHA to raise fees, tighten rules

Krissie, until now, FHA has never had a FICO minimum.  They had recomendations that they prefered lenders use, and the investors that were buying the loans had limitations on what they would buy.  It is the individual lenders (and the investors who buy their loans) that have until now determined the minimu m FICO.  That and FHA's more recent policies of stepping up audits on companies with lower average ficos and/or higher than average default rates.  That said, if FHA is now officially saying 580 min, loans under 620 will probably be harder to come by.  Just the fact that FHA is putting in a minimum will probably scare off investors a little bit and there are just not that many people willing to buy thos loans anymore (and when they do you can expect alot higher rates and more hurdles to go through.)
Message 7 of 9
Anonymous
Not applicable

Re: FHA to raise fees, tighten rules

Thanks for replying. It seems to me that establishing a minimum might actually help investers, and therefore borrowers. Less ambiguity. If FHA says 580, then that is a true minimum. Not something an investor may or may not decide. They need to get more loans flowing, anything else is counterintuitive.
Message 8 of 9
Anonymous
Not applicable

Re: FHA to raise fees, tighten rules

the problem with that is that statistics show us that borrowers with less than 620 score can only maintain the properites in an upwards trending market which allwos them to get sell or refi the house when a sitatuation arises.  The % of people who default with scores under 620 verses over 620 is way different.  Propping up the market any further than is already being done is just not feasible nor recommended.  The bottom line is that most people with sub 620 scores and low cash in pocket are not ready to buy a home whether they want one or not.  The gov't should not try to force the issue or we will be back where we were 18 months ago...  Too much credit is why we have problems now, not a lack of it.

 

As far as FHA's 580 rule making a hard bottom line, will not happen.  investors look at how loans perform.  That fact that FHA has a high enough default rate now that they are instituing a FICO min, raising PMI rates, possibly raising down payment %, and tightening exclusions on underwriting items is not in any way going to encourage more or looser FHA lending, but increase it.  Many banks are already pushing 640 or 660 FICO for FHA now and that is likely only to become more common.

Message 9 of 9
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