More Changes Coming for FHA Loans

Today, HUD Secretary Shaun Donovan testied before the House Committee on Financial Services addressing the financial health of the FHA mortgage insurance fund.  You can read his prepared testimony here.

Donovan has pledged to reduce the allowed seller contribution (currently at 6%) and to bring it down to "more of the norm".  Currently, with a conventional mortgage, if you have less than 10% down payment, the maximum seller contribution that is allowed is 3%.

Mr. Donavan also addressed increasing the annual mortgage insurance rate (paid monthly).  The National Mortgage News reports that he's considering raising the annual mortgage insurance rates on FHA High Balance loans.  In the greater Seattle area, this would be loan amounts from $417,001 to $567,500 in 2012.  

In my opinion, it would be great if HUD would revise their streamlined refi guidelines to allow borrowers to keep their existing mortgage insurance premium rates and to allow refinacing from an ARM to a fixed rate product to satisfy their "net tangible benefit" without having to meet the 5% improvement in principal, interest and mortgage insurance payment – especially when the borrower qualifies for the higher payment.  

I'm also in favor of risked based pricing, which HUD tried to implement a few years ago based on credit and amount of down payment.

HUD has been threatening to reduce seller contribution for quite a while now and quite frankly, I've rarely had a seller contriubte the full 6%.  The biggest impact will be when HUD raises the mortgage insurance premiums…again.

…well that's enough from the peanut gallary!

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