Proposed Changes with FHA in 2013

Filed under: FHA Loans, Market Comentary

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The Federal Housing Administration is proposing some changes to its program rules that might impact or affect some loan applicants in 2013. These are designed improve revenue flows to the agency and cut back on losses.  Although none of these appear to be “set in stone” quite yet, prospective FHA buyers may want to take action quickly, because if the changes do take place, they will be immediate.  So, here’s your warning!

According to Ken Harney, here are some of those important changes you can look forward to in the upcoming year.

  • One of the most immediate changes will focus on new borrowers who will likely be charged slightly higher annual mortgage insurance premiums (PMI). Currently, FHA borrowers have a PMI rate of 1.25%, but that will increase to 1.35% early next year.  If the loan is above $625,000 in areas such as California and metropolitan Washington, D.C., the annual premium will increase from 1.5% to 1.6%. This should not be a major problem for most people, but it could definitely cause certain buyers to look into FHA’s competitors.
  • FHA may also be abandoning its practice of allowing borrowers to cancel their annual mortgage insurance premium payments when their loan balance drops to 78% of the property value. This is to increase revenue streams long term and will mean that borrowers obtaining a 30-year FHA loan could possibly be paying premiums for decades.
  • There will also be more financial counseling for applicants who have low FICO credit scores, who are buying their first homes, and are looking to make a minimum of 3.5% down payment on a house.
  • Another change involves a new short-sale program that targets existing FHA homeowners who are seriously delinquent and heading toward foreclosure. According to FHA acting Commissioner Carol J. Galante, the agency plans to streamline the short-sale option, where owners are permitted to sell their homes for less than the balance on the mortgage in order to avoid the huge costs of foreclosure.
  • There will also be a change to the structural alterations to FHA’s reverse mortgage program, which allows senior homeowners to withdraw funds based on the equity in their property. Even though few details are not yet available and Congress would have to approve any statutory changes, Galante said the agency plans to restrict the amounts that seniors can draw down in a lump sum up front.

So how concerned should we be with these changes? According to Jeff Lipes, vice president of Rockville Bank, FHA isn’t making fundamental changes; FHA’s basic lure, which include low down payments, low credit score requirements, and generous underwriting rules compared with their competitors aren’t going away so these changes most likely have little impact on most FHA buyers.

However, if you really want to avoid these changes, the best course of action would be to buy before the end of 2012.  It could end up saving you thousands of dollars over the life of your loan.

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