Today, David Stevens, the Commissioner of the Federal Housing Administration (FHA), announced proposed policy changes designed to strengthen the FHA’s financial position while enabling it to continue to support the recovery of the nation’s housing market. The proposed policy changes follow a hearing held last October by the House Financial Services Committee’s Subcommittee on Housing and Community Opportunity and are the latest in a series of changes made by the FHA.

The proposed changes, reviewed last December by Shaun Donovan, Secretary of the U.S. Housing and Urban Development (HUD), include the following measures:

  • Increasing mortgage insurance premiums (MIP) - Initially, the up-front MIP will be increased by 50 basis points to 2.25%. Thereafter, the FHA will request legislative authority to increase the maximum annual MIP that it may charge over the life of a loan. The initial up-front increase will go into effect in the spring.
  • Increasing required minimum down payments - For new borrowers with a FICO score of less than 580, the FHA’s current down payment program of 3.5% would be increased to at least 10%. The proposed change will be posted in the Federal Register in February for review and comment and would go into effect in the early summer.
  • Reducing seller concessions - Allowable seller concessions would be reduced from 6% to 3%. The proposed change will be posted in the Federal Register in February for review and comment and would go into effect in the early summer.
  • Increasing enforcement on FHA lenders - (1) Effective immediately, enhancements have been made to the monitoring of lender performance and compliance with FHA guidelines. (2) On February 1, user-friendly lender performance rankings will be publicly available on the HUD website. (3) Proposed changes to certain lender indemnification rights will be posted in the Federal Register in March for review and comment and would go into effect in the early summer. (4) HUD is seeking legislative authority to increase enforcement of FHA guidelines and standards on lenders.