The New FHA Credit Standards
According to the FHA Credit Standards article in the Wall Street Journal, the Federal Housing Agency will fall short of it’s legally required 2% reserves by the end of this month. Unfortunately, this means they need to tighten their credit standards to increase their reserves.
The good news is that the down payment percent and rates will stay the same. The bad news is that the following will change:
Lenders making FHA loans will need to show a net worth of at least $1 million, as opposed to the earlier amount of $250,000. The point of this is to make sure that lenders have the money to compensate the FHA if it turns out their loans weren’t meeting FHA guidelines.
There will also be a maximum loan value of 125% of the current estimated value on home refinances. This brings them in line with Fannie Mae and Freddie Mac. There will also be new rules for verifying income and other safeguards to maintain quality.
Appraisals will now only be good for four months, not six months as they were before.
Perhaps most concerning in the article is the current numbers at the FHA. Right now they have reserves equal to 4.4% of all the loans they’ve insured. Which doesn’t sound bad, until you see the next number: in July, 7.8% of the single family mortgages insured by the FHA were either 90 days late or in foreclosure.
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