FHA Mulling Tighter FHA Mortgage Rules More up-front money from FHA mortgage applicants may be required in an effort to buttress the agency’s finances

Florida Home buyers might soon have to bring more cash to the table to qualify for FHA insured mortgages. The FHA mortgage loans which now make up 30% of the mortgage originations, have surged in popularity because FHA Mortgage applicants need a down payment of just 3.5% to qualify, but the housing crash has battered the FHA insurance agency’s reserves.

(HUD) Housing & Urban Development Secretary Shaun Donovan outlined options for the FHA before the House Committee on Financial Services on Dec. 2. He said the agency’s capital reserve ratio has fallen to 0.53%—far below FHA’s 2% level required by law.

FHA is also weighing options to toughen underwriting standards to lessen default risks but won’t make detailed recommendations until January. Among the possibilities: increasing FHA credit score requirements, insurance premiums paid by FHA mortgage borrowers, and minimum down payment requirements. Donovan and FHA Commissioner David H. Stevens said they want borrowers to have “more skin in the game.” To that end, the agency might force FHA mortgage applicants to pay up-front premiums rather than rolling them into the loan and might reduce the concessions sellers can offer for closing costs from 6% to 3%.

Forcing FHA loan applicants s to pay the premium up front could add as much as ,000 to a typical 0,000 fixed-rate FHA mortgage.

FHA and Credit Score Effects

The agency is seriously considering the possibility of tying payment requirements to credit scores. In other words, FHA borrowers with low credit scores might be required to put more money down and those with high credit scores could be rewarded with a lower minimum down payment. In an interview after the hearing, Stevens said that even FHA loans with higher down payments perform worse when the FHA mortgage applicants credit scores are low.

Stevens would not say what he thought about a House bill that would raise the minimum down payment for an FHA loan from 3.5% to 5%. But he said the agency does not want to make a move that would have a negative impact on the housing market recovery.

“We will consider every scenario,” Stevens said. “We are looking at this much more robustly. What we’re considering is, will this benefit the FHA [reserve] fund and protect the taxpayer far more than a little move like [increasing] the down payment?”

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