FHA raises fees, tightens loan standards
Agency trying to shore up finances, prevent possible need for bailout
WASHINGTON - The Federal Housing
Administration is raising fees and tightening lending standards to
shore up its strapped finances and avoid a taxpayer bailout.
The
government agency has seen its losses rise with the foreclosure rate.
Its reserves have sunk below the minimum level required by Congress. A
healthy FHA is vital for the housing market because it insures roughly
30 percent of new loans, and is the largest backer of mortgages to
first-time buyers.
The
changes, which will go into effect in the first half of the year, "are
among the most significant steps to address risk in the agency's
history," FHA Commissioner David Stevens said in a prepared statement.
The
FHA does not make loans, but rather offers insurance against default.
Borrowers are willing to pay for the insurance because FHA loans only
require down payments of 3.5 percent of the purchase price — and that
didn't change.
The
new policies, to be announced Wednesday, are designed to bring more
revenue into the agency, while at the same time keeping loans available.
Under the changes, homebuyers will:
- Pay
an upfront mortgage insurance premium of 2.25 percent of the total loan
amount, up from the current level of 1.75 percent. A borrower taking
out a $200,000 mortgage would pay a $4,500 fee, for example, rather
than the current fee of $3,500. Borrowers will still be able to wrap
these fees into the total amount borrowed. FHA officials also plan to
ask Congress to increase the maximum annual premium that FHA can charge.
- Need
a credit score of at least 580 to qualify. Many FHA lenders already
require a higher score, but there had been no standard requirement
across the program. Borrowers with a score lower than 580 will need a
down payment of at least 10 percent.
The
changes come as borrowers with loans backed by the agency have
increasingly been falling into default. More than 18 percent of FHA
borrowers are at least one payment behind or in foreclosure, compared
with 14 percent for all loans, according to the Mortgage Bankers
Association.
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Mortgage
lenders "will find the new rules painful but necessary," said Howard
Glaser, a mortgage industry consultant and former housing official
during the Clinton administration.
There
also have been fears that unscrupulous operators have shifted their
business to the FHA after the subprime business went bust. Last week,
the agency served subpoenas on 15 mortgage companies with suspiciously
high default rates for FHA loans, part of a broad crackdown on dubious
lenders.
The
agency has already taken action against several problem lenders. One of
the nation's biggest mortgage bankers, Taylor, Bean & Whitaker
Mortgage Co. of Ocala, Fla., was banned from the FHA program in August
and filed for Chapter 11 bankruptcy protection. Another mortgage
company, Lend America, was kicked out in November.
The Associated Press