Real Estate Report: FHA Introduces Changes to Help Strengthen Its Financial Health.

In a recent Housing of Urban Development (HUD) news release, a series of changes were announced that will allow the agency to better manage risk and further strengthen the health of the Federal Housing Administration's (FHA) Mutual Mortgage Insurance (MMI) Fund. "These are essential and appropriate measures to manage and protect FHA's single-family insurance programs" said FHA Commissioner, Carol Galante. "In addition to protecting the MMI Fund.

"These changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers."

The major change announced was:

· Consolidation of the Standard Fixed Rate Home Equity Conversion Mortgage (HECM) and the Saver Fixed Rate HECM pricing options, effective for FHA case numbers assigned on or after April 1, 2013. This is anticipated to significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the MMI Fund. Additional changes FHA is expected to announce in the coming days are:

· An increase in its annual mortgage insurance premium (MIP) for most new mortgages by 10 baiss points or by 0.10 percent. And, an increase on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05 percent.

·A requirement for most FHA borrowers to continue paying MIP for the life of their mortgage loan. In 2001, FHA cancelled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance, but their Office of Risk Management estimates that the MMI Fund has lost billions of dollars in premium revenue. Therefore, they plan to once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled.

· Require lenders to manually underwrite loans for borrowers who have a credit score below 620 and a total debt-to-income ratio greater than 43 percent. Lenders will be asked to document compensating factors that support the approval of the loan using FHA guidelines. · Raise the down payment on jumbo mortgages from 3.5 to 5 percent.

· Step up enforcement efforts in regards to FHA-approved lenders who are using misleading advertising and soliciting borrowers who previously experienced a foreclosure that they can “automatically” qualify for an FHA-insured mortgage three years after their foreclosure. Borrowers may qualify for an FHA loan no sooner than three years after they have experienced a foreclosure, but must have re-established good credit and qualify for an FHA loan in accordance with underwriting requirements.

Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.