The reason Federal Housing Administration mortgages happened was because of the housing crisis in 2007. To keep mortgage lending from stopping completely, the FHA helped individuals get loans. A 3rd of the mortgage market has been surviving off FHA mortgages. But risks and delinquencies from those loans are rising. The FHA before would cover losses that occurred when a borrower defaulted onto their loan, although that is not happening as much anymore. To protect those reserves, the easy terms of an FHA mortgage are about to change.
Mortgage insurance for FHA gets hit hard
Mortgage insurance for FHA loans being so low was fine during the housing crisis but is really hurting right now. The Real Estate Channel reports that the FHA said 6.2 percent (about 360,000 loans) of the entire insured FHA mortgage portfolio had been issued to homebuyers with FICO scores lower than 500. Foreclosures, bankruptcy or 60 days delinquent are the result of 37 percent of these loans. During the housing crisis, the FHA helped 450,000 families keep their homes out of foreclosure in fiscal year 2009. 122,000 families were helped within the first quarter of 2010 alone. There was a default rate of 67 percent within the next twelve months after being helped by the FHA, reports the Office of Comptroller of Currency and also the Office of Thrift Supervision. More than 90 days delinquent were 555,000 FHA mortgages in May 2010.
Terms becoming tougher for FHA reserves
On Sept. 30, 2008, the Capital Reserve Account for the FHA was $ 19.3 billion, while in 2009 it had gone down to $ 3.5 billion, which is why the FHA is trying to protect itself. SmartMoney.com reports that last week the Senate passed a bill that allows the annual insurance premium to increase on FHA mortgages. At least a 580 credit score has to be met to qualify for a 3.5 percent down payment with the FHA. A credit score between 500 and 580 would require a 10 percent down payment to be made.
Needs for FHA mortgage loans
There will be new FHA mortgage loan requirements once September 2010 hits. According to Chicago 77, those buyers who can barely afford a home will no longer be able to get to that point. Under the new structure, FHA calls for a borrower to pay an upfront mortgage insurance premium calculated at 1 percent of the loan amount. 2.25 percent is needed now which means this is good. The bad news is the monthly figure will increase from .55 percent annually to .90 percent annually. As an example, Chicago77 examines a $ 150,000 home purchase:
Before Sept. 7 2010
Upfront Premium (2.25 percent): $ 3,256.88
Monthly payment including mortgage insurance: $ 793.93
On or after Sept. 7 2010
Upfront Premium (1.00 percent): $ 1,447.50
Monthly payment including mortgage insurance: $ 826.93
Net changes
Upfront cost: Decreased by $ 1,809.38
Monthly cost: Increased by $ 33.00
Discover more data on this subject
Real Estate Channel
realestatechannel.com/us-markets/residential-real-estate-1/real-estate-news-fha-mortgages-mortgage-backed-securities-mbs-federal-housing-administration-fha-department-of-veterans-affairs-va-congress-home-loans-keith-jurow-2969.php
SmartMoney
smartmoney.com/personal-finance/real-estate/the-fha-rethinks-its-mortgage-lending/
Chicago77
thechicago77.com/2010/08/major-fha-changes-coming-on-the-september-7th/
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