- Borrowers with credit scores of 580 or less would have to put 10% down in cash in order to qualify for an FHA loan. (This may not hurt that many people, since few lenders will even grant a loan to borrowers with a credit score of 580 or less at the moment, even though FHA permits it.)
- Borrowers with higher credit scores would be able to put down only 3.5% in cash on their purchase.
- FHA's mortgage insurance premium (known in the industry as "MI" versus "PMI" for private sector private mortgage insurance) will rise from 1.75% to 2.25%.
- FHA will ask congress for approval to raise the annual mortgage insurance premium from its current .55 percent level.
- Sellers will only be allowed to give 3% to the buyer to defray closing costs, down from 6%
The moves are being made to shore up FHA's flagging finances and help the agency avoid a nasty taxpayer bailout
In last year's annual audit, it was revealed that FHA had fallen below the 2% capital reserves required by congress. The current level of capital reserves is somewhere around .53%, according to the agency, down sharply from 3% in 2008
"striking the right balance between managing the FHA's risk, continuing to provide access to under deserved communities, and supporting the nation's economic rec0very is critically important," Stevens said in a statement.
FHA has become the only lender available for many Americans. Over the past few years, FHA has gone from insuring around 3% of loans to more than 25%- a level that Stevens called unhealthy for the mortgage market.
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