Major players in the mortgage market continue making changes to their loan programs

Major players in the mortgage market have been making changes to their programs in an attempt to help alleviate the risk in their portfolios and improve their financial condition. One very well known player is the Federal Housing Administration (FHA). The FHA has modified its processes in order to provide loans to as many people as possible by designing an aggressive risk reduction program.
Among the changes that the FHA has implemented is the raise for the upfront premium for its insurance from 1.75 percent of the loan amount to 2.25 percent, in April. This change in premium increases the amount of cash the borrower must bring to the table. In addition, the ceiling on annual FHA premiums was raised from 0.5 percent of the outstanding balance to 1.55 percent in August.
“ While FHA has said premiums will not hit the new ceiling, it does expect to shift some of the upfront premium increase into that fee, spreading it out in more manageable chunks,” explains reporter Jann Swanson from The Washington examiner.
“Current low interest rates are cushioning the effect of the increase in premiums,” said Christopher Gardner, president of FHA Pros, which advises condo associations seeking FHA approval. “This is especially true since the increase can be financed.”
“Even if monthly fees increase,” he said, “FHA has so many advantages and will still be a smidgen less expensive than a traditional loan.” That FHA loans can be assumed by a new owner; is like gold when it is time to sell, he added.
Furthermore, the FHA has also raised the minimum FICO score for its 3.5 percent down payment program to 580, and the minimum for all FHA-insured mortgages to 500. In addition, there has been a reduction in the allowed seller concessions. While previously a buyer was able to negotiate concessions up to 6 percent of the price of the home, concessions are now limited to 3 percent.
The concession change is also unlikely to have much effect, said Michael “Mick” Poe, an agent with Re/Max Allegiance Real Estate in Burke. “Just because you can do something,” he said, “doesn’t mean you will. In the real world, we rarely saw concessions as large as 6 percent. The number of buyers this will affect will be negligible, he added.