Pending FHA Legislation

Here's some FHA news from the National Association of Mortgage Processors:

H.R. 5072, “The FHA Reform Act” is moving its way through Capitol Hill. It passed the House Financial Services Committee on Tuesday, April 27th and will likely end up passing into law because it has the support of a diverse group of organizations including the National Urban League, the National Council of La Raza, the National Community Reinvestment Coalition, the Mortgage Bankers Association, the National Association of Realtors and the National Association of Home Builders.

This bill proposes increasing FHA annual mortgage insurance premiums from the current .50 and .55 rates to 1.50 and 1.55 which is a substantial increase to monthly mortgage payments for potential FHA homeowners. This is a bit concerning since as we all know, up-front mortgage insurance premiums were just increased from 1.5% and 1.75% to 2.25% effective in early April. If the annual mortgage insurance is increased for FHA, it may make FHA lending more difficult as far as qualifying lower income borrowers in certain areas of the country.


Ed. Note:  What does this mean for homebuyers and homeowners refinancing with FHA mortgages?  Here's an example:  An FHA mortgage of $153,375 ($150,000 base loan amount with $3,375 up-front mortgage insurance) would currently have an annual mortgage insurance premium of $843.56 ($70.29 per month).  With the passage of this law, the same mortgage would have an annual mortgage insurance premium of $2,377.31 ($198.11 per month).

In addition the bill proposes to hold lenders accountable for indemnification of loans with claims paid out whereas a determination is made that fraud was involved. The bill also proposes that HUD has the right to terminate underwriting authority for those lenders whose default rates are determined excessive, in addition to a number of other measures that are presented to preserve and protect the mortgage insurance reserve fund.

FHA Change Coming Soon

One of the features of an FHA loan is the ability to have the seller pay the buyer's settlement costs.

At this time, up to 6% of the sales price can be used to cover closing costs, prepaid items (such as insurance and prepaid interest) and reserves (deposits for property taxes and insurance).

Very soon, the percentage of the sales price that can be used to pay settlement costs will be reduced to 3%. So, for example - right now, a buyer can purchase a home with a $200,000 sales price, and have the seller pay up to $12,000 of their settlement costs. Once FHA changes the rule on seller contributions, however, only $6,000 would be covered in this example.

FHA expects to make this rule change some time this summer, so it's best to act soon if having the seller pay your settlement costs on your home purchase is an important part of your house-hunting plan!