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Very Important Changes to FHA Guidelines

Very Important Changes to FHA Guidelines

Today, HUD Secretary Shaun Donovan, announced some very important changes to FHA guidelines that will be implemented as early as the first quarter in 2010.

Below is an excerpt from her testimony today. You can find the entire written testimony at:   


An initial measure is to reduce the maximum permissible seller concession from its current 6 percent level to 3 percent, which is in line with industry norms, and we will continue to consider additional reductions.  The current level exposes the FHA to excess risk by creating incentives to inflate appraised value.

Secondly, to protect the fund from the riskiest borrowers, we will for the time being also raise the minimum FICO score for new FHA borrowers.

We are currently analyzing what this floor should be, including the relationship between FICO scores and downpayments to determine whether we should increase FICO minimums in combination with changes to other underwriting criteria for lower downpayment loans.

Third, we have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan - to make sure that FHA borrowers have more "skin in the game" and a stronger equity position in their loans.  There are several ways to accomplish this, and so we are currently analyzing various options to determine which is the most effective and consistent with our mission.
Finally, we are examining our mortgage insurance premium structure, to determine whether an increase is needed and, if so, whether it should be the up-front premium, the annual premium or both. Our current up-front premium of 1.75 percent is below the statutory cap of 3 percent, while the annual premium is currently at the statutory maximum.  To protect against future uncertainty in market conditions, we are requesting authority from Congress to raise annual premiums, as this is one of the most effective means of raising capital for the fund with the least impact per borrower.
Indeed, while most of these changes I've just described we can make on our own with no additional authority-and we expect to provide detail and public guidance for these changes by the end of January-in some cases, we will need Congress' help.  In addition to asking Congress to increase the current cap on the annual mortgage insurance premium for new borrowers, we are asking for additional authority for our proposals to hold all FHA lenders responsible for their fraud or misrepresentations by indemnifying the FHA fund.  We will also be asking Congress to expand FHA's ability to hold lenders accountable nationally for their performance as I mentioned earlier.


Marianne Snygg, GRI, ABR, ASP
Broker Associate
ERA Herman Group Real Estate

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Colorado Springs and Monument Real Estate

Comment balloon 12 commentsMarianne Snygg • December 07 2009 12:30PM


I have read several blogs about this new set of FHA guidelines, and all I gotta say is that this is gonna knock a number of FHA buyers right out of the water.  I understand the need to lend to more secure buyers,  Seems like they should have considered that before now.  But, we will just have to wait and see how much effect it has on the new year's market.

Posted by Jean Hanley, Specializing in Folks Who Want To Buy/Sell Homes (Coldwell Banker Kivett Teeters) almost 11 years ago

Have you heard about the new GFE that goes into affect next month??? It's crazy... okay - you be the judge: what are the two things a buyer wants to see on a GFE? How much the home is going to cost them: per month AND at closing. Right??? Guess what??? The new GFE is not going to reflect either total (for instance, if seller is paying any closing costs, it doesn't get subtracted from the amount they need at closing.) RIDICULOUS!

Posted by Ruth Vogt, 719-592-0855 Apply 24/7 (Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate.) almost 11 years ago

This appears to be more knee jerk, poorly thought out changes that will only lead to fewer sales.

Posted by Mike Saunders (Lanier Partners) almost 11 years ago

Marianne, That's what we need are more changes.  I'm glad I have a lender who stays on top of things as it has been a year of changes.

Posted by Marchel Peterson, Spring TX Real Estate E-Pro (Results Realty) almost 11 years ago

Hi Jean: Yup, we're just going to have to wait and see how this effects the market. I really hope it won't have too big an impact.

Hey Ruth: I'm still confused about this new procedure and the lack of a GFE. It's doesn't make any sense to me.

Hi Mike: I can understand the need to do responsible lending, but why, after all the stimulus to excit the market, are they clamping down on it? It's an oximoron. Or someone's a moron...

Hi Marchel: I agree with you that you need great lenders on your side. They protect you, advise you, and promote you. I, too, have a favorite lender that I think is really on top of things.

Posted by Marianne Snygg, ABR, ASP, GRI, SFR (ERA Herman Group Real Estate) almost 11 years ago

After 20 years in the industry my head is spinning with all these changes.  I feel like a new guy or a student in this industry because nothing is the same anymore. Do they want people in homes anymore with such strict guidelines, all people are not bad!

Posted by Shawn Olson (Gateway Funding Diversified Mortgage Services) almost 11 years ago

These changes will do nothing but "stall" the housing recovery.  FHA financing is likely to be the "go to" mortgage option for a large percentage of buyers in the near future.  Changes of this nature will eliminate hundreds-of-thousands of potential buyers from the buying-pool, just at the time when we need them the most to fuel a full recovery of all segments of the market.  I hope the "powers that be" come to their senses before more damage is done to the housing industry.

Posted by Tom Boos, Providing the very best of service to Sellers and (Sine & Monaghan Realtors, Real Living) almost 11 years ago

Marianne -

There are also some signifcant changes on debt to loan ratios that will make it harder for buyers despite appraisals.  Looks like we will be paying for past indescretions for a long time.

Michael in Alexandria - Northern Virginia's Best Small City

Posted by Michael Bergin, Northern Virginia Real Estate (Coldwell Banker Residential Brokerage - ABR - SRES ) almost 11 years ago

Hi Shawn: I haven't spent 20 years in this business, only 4. But, it's been the toughest 4 in 20 years! I keep hoping to see "the good times," and they just don't come.

Hi Tom: You are so right! Stall is a great word for this mini-recovery we're seeing...they're going to stall it! Dang. Are they crazy?

Posted by Marianne Snygg, ABR, ASP, GRI, SFR (ERA Herman Group Real Estate) almost 11 years ago

Hi Michael: I heard that those would be changing, too. Well, it'll cull the herd! Thanks so much for stopping by.

Posted by Marianne Snygg, ABR, ASP, GRI, SFR (ERA Herman Group Real Estate) almost 11 years ago

Wonderful and Informative blog!  Keep up the great work!

Posted by Joyce Heffner-Williams, Owner/Broker/EcoBroker - Monument Real Estate (Keller Williams Clients' Choice Realty) almost 11 years ago

Hi Joyce: Thanks for the encourage ment. AR is a really great learning tool.

Posted by Marianne Snygg, ABR, ASP, GRI, SFR (ERA Herman Group Real Estate) almost 11 years ago

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