FHA ANNOUNCES POLICY CHANGES TO ADDRESS RISK AND STRENGTHEN FINANCES
New Measures Will Help FHA Better Manage Risk, While Maintaining Support for the Housing
Market and Access for Underserved Communities
WASHINGTON – Federal Housing Administration (FHA) Commissioner David Stevens today
announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the
agency to continue to fulfill its mission to provide access to homeownership for underserved
communities. The changes announced today are the latest in a series of changes Stevens has
enacted in order to better position the FHA to manage its risk while continuing to support the
nation’s housing market recovery.
The FHA will propose to take the following steps: increase the mortgage insurance premium (MIP);
update the combination of FICO scores and down payments for new borrowers; reduce seller
concessions to three percent, from six percent; and implement a series of significant measures
aimed at increasing lender enforcement. U.S. Housing and Urban Development Secretary Shaun
Donovan previewed the changes in December of last year, noting that the FHA would announce
additional details before the end of January.
“Striking the right balance between managing the FHA’s risk, continuing to provide access to
underserved communities, and supporting the nation’s economic recovery is critically important,”
said Commissioner Stevens. “When combined with the risk management measures announced in
September of last year, these changes are among the most significant steps to address risk in the
agency’s history. Additionally, by continuing to provide affordable, responsible mortgage
products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest
source of home purchase financing for underserved communities.”
Announced FHA Policy Changes:
1. Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring
back private lending
_ The first step will be to raise the up-front MIP by 50 bps to 2.25% and request legislative
authority to increase the maximum annual MIP that the FHA can charge.
_ If this authority is granted, then the second step will be to shift some of the premium
increase from the up-front MIP to the annual MIP.
_ This shift will allow for the capital reserves to increase with less impact to the consumer,
because the annual MIP is paid over the life of the loan instead of at the time of closing
_ The initial up-front increase is included in a Mortgagee Letter to be released tomorrow,
January 21st, and will go into effect in the spring.
2. Update the combination of FICO scores and down payments for new borrowers.
_ New borrowers will now be required to have a minimum FICO score of 580 to qualify for
FHA's 3.5% down payment program. New borrowers with less than a 580 FICO score will
be required to put down at least 10%.
_ This allows the FHA to better balance its risk and continue to provide access for those
borrowers who have historically performed well.
_ This change will be posted in the Federal Register in February and, after a notice and
comment period, would go into effect in the early summer.
3. Reduce allowable seller concessions from 6% to 3%
_ The current level exposes the FHA to excess risk by creating incentives to inflate
appraised value. This change will bring FHA into conformity with industry standards on
_ This change will be posted in the Federal Register in February, and after a notice and
comment period, would go into effect in the early summer.
4. Increase enforcement on FHA lenders
_ Publicly report lender performance rankings to complement currently available
Neighborhood Watch data - Will be available on the HUD website on February 1.
_ This is an operational change to make information more user-friendly and hold
lenders more accountable; it does not require new regulatory action as
Neighborhood Watch data is currently publicly available.
_ Enhance monitoring of lender performance and compliance with FHA guidelines and
_ Implement Credit Watch termination through lender underwriting ID in addition to
_ This change is included in a Mortgagee Letter to be released tomorrow, January
21st, and is effective immediately.
_ Implement statutory authority through regulation of section 256 of the National Housing
Act to enforce indemnification provisions for lenders using delegated insuring process
_ Specifications of this change will be posted in March, and after a notice and
comment period, would go into effect in early summer.
_ HUD is pursuing legislative authority to increase enforcement on FHA lenders. Specific
_ Amendment of section 256 of the National Housing Act to apply indemnification
provisions to all Direct Endorsement lenders. This would require all approved
mortgagees to assume liability for all of the loans that they originate and
_ Legislative authority permitting HUD maximum flexibility to establish separate
"areas" for purposes of review and termination under the Credit Watch initiative.
In addition to the changes proposed today, the FHA is continuing to review its overall response to
housing market conditions, and continuing to evaluate its mortgage insurance underwriting
standards and its measures to help distressed and underwater borrowers through FHA/HAMP and
other FHA initiatives going forward.
HUD is the nation's housing agency committed to sustaining homeownership; creating
affordable housing opportunities for low-income Americans; and supporting the homeless,
elderly, people with disabilities and people living with AIDS. The Department also promotes
economic and community development ad enforces the nation's fair housing laws. More
information about HUD and its programs is available on the Internet at www.hud.gov and
Source: FHA Announcement-1.20.10.pdf