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FHA announces policy changes to reduce risk - Bye Bye 6% Seller's credit and we now have a minimum credit score!

When I saw this press release come out this morning, I held my breath when I was reading it! The good news?.... They left the down payment at 3.5% for most borrowers! I was relieved for my Sacramento mortgage clients!

So what did they change?

The changes announced today are the latest in a series of changes David Stevens (the FHA Commissioner) has enacted in order to better position the FHA (Federal Housing Administration) to manage its risk while continuing to support the nation's housing market recovery.

Here are the changes that will impact borrowers:

• A minimum FICO score of 580 is required in order for a borrower to benefit from the 3.5% down payment!
  I personally don't think this is a bad thing. They are not cutting off the borrowers who don't meet this mark! FHA will require borrowers with a FICO score less than 580 to put down 10%.
  
  
• Sellers concessions have been lowered to a maximim of 3%!
  I can only speak to my market place here in Sacramento, but it was very rare we saw borrowers with more than a 3% credit from the seller to pay for their closing costs or buy down their rate. I don't think there will be much of an impact on my Sacramento mortgage clients with this rule change because 3% seems like all our Sacramento real estate market can handle.
  
  
• Upfront mortgage insurance will be increased from 1.75% to 2.25%
  Upfront mortgage insurance is required by all FHA borrowers. It requires them to make an upfront payment of 2.25% of the loan amount. The change between 1.75% and 2.25% on a $200,000 Sacramento mortgage means the borrower will have to pay an additional $1,000. Keep in mind that this charge can be financed into the borrowers loan. I don't see much impact with this change.
  

These new guideline will go into effect in the early summer of 2010. But please note that a mortgagee letter from HUD is due out tomorrow to clarify!

I was worried that FHA would make an overall change to their down payment and I am glad they are only (for now) focusing on higher risk borrowers!

 Lenders are also going to be more publically accountable. Lender performance rankings will be made available on HUD's website as of February 1!

This should be interesting to see the default rates of lenders! Read the FHA press release to find out more.

Overall I think these changes are doable! How will it impact you and your clients?