Starting in the spring, borrowers will have to pay more up front to get a loan. The FHA is raising its upfront mortgage insurance premium from 1.75% to 2.25% of the loan amount. (Homebuyers pay for FHA insurance in two ways: through a one-time upfront premium and through monthly insurance payments.) At the same time, the FHA will ask Congress to raise the limit on the amount it can charge for annual premiums.

While tightening requirements for buyers, the FHA is cracking down on unscrupulous lenders responsible for the agency’s growing defaults and shrinking reserves. Officials at the agency – which is growing to become the lender of choice for buyers without perfect credit or those who can’t amass a 20% down payment – feel the changes are necessary because loan defaults have shrunk the FHA’s reserves below required levels. The problem would right itself by 2013 without intervention, but the proposed changes should bring the reserves back in line in the next fiscal year.

To read our previous blogs about the FHA and FHA changes, click here, here, or here.

By: Present Value

The letter calls the FHA to enhance appraiser independence and to more closely monitor mortgage brokers and appraisal management companies. Below are the specific, overarching recommendations made in the letter:

• Recommendation 1: Establish the conditions for mortgage broker participation in the FHA appraisal ordering process.

• Recommendation 2: Supplement state and federal appraiser independence requirements with more robust appraiser independence requirements specific to FHA.

• Recommendation 3: Rescind Mortgagee Letter 97-46.

• Recommendation 4: Develop rules and expectations relating to appraisal management companies.

To view the full letter to the FHA, visit the Appraisal Institute website, here.

To view Present Value’s previous blog posts on HVCC changes and industry reactions, click here, here, and here.

By: Present Value