As a borrower it may be a bit more difficult to obtain FHA financing in 2010.  Today the FHA announced a series of changes to the FHA insured mortgage program aimed at increasing home ownership in underserved neighborhoods.  The program has become the most widely used program for first-time buyers or move up buyers with down payments less than 10%.

In the FHA official announcement today it spelled out a series of changes that will increase the capital fund of FHA as an effort hedge against the increase of defaulting mortgages.  Fortunately FHA retained the minimum down payment of 3.5%.  The changes will consist of the following:

• Increased mortgage insurance premium by .5% (from 1.75% to 2.25%).
• Seller concessions (credit towards closing costs) reduced from 6% to 3%.
• Increased enforcement on FHA lenders/banks.
• 580 FICO score now required to qualify for 3.5% down payment program (Scores below will require 10% down payment.  However, nearly all FHA lenders nationwide have a minimum 620 FICO score overlay).

The changes come as a necessary precaution for FHA to avoid asking the federal government for assistance to sustain it’s mortgage insurance for homeowners.  FHA does not actually service the mortgages issued by FHA, but insures the loans serviced by the banks.

As a borrower, the increased mortgage insurance premium will have a small impact on your monthly payment and the limit of 3% seller concessions may require you to come to closing with a bit more cash to cover the exceeding amount of closing costs and prepaid items.

The increased enforcement on FHA lenders/banks will be determined by each banks servicing and performance of current FHA loans.  As a precaution to retain the ability to fund FHA loans we will see increased lender guideline overlays in the near future.  A guideline overlay is an individual lender/bank guideline that is usually more stringent than the standard loan guidelines.  As a result guidelines may vary significantly between banks.

We will likely see an increase in FHA loan denials in 2010.  A borrower’s FHA loan may be denied simply because it was sent to the wrong FHA lender.  If you have questions about an FHA loan or want to know if you qualify feel free to give me a call or email me.  As a broker, Landmark Mortgage has several options for FHA lenders.  It will be important for borrowers to work with a knowledgeable broker who has experience and options for each FHA loan applicant.  As a loan officer I will find the right fit for your specific loan profile.

FHA will issue a Mortgagee Letter tomorrow announcing the exact dates of implementation.