The Federal Housing Administration announced a series of expected changes Wednesday aimed at shoring up the agency's finances.
Many of the changes, which were outlined late last year in the FHA's annual report to Congress, will raise the cost of home loans for consumers. Key among them is an FHA proposal to increase the down payment requirement to 5%, from 3.5%, for jumbo loans above $625,000. That proposal will be published in the Federal Register in the next few days, FHA Commissioner Carol Galante said in a press release.
The FHA faces a projected $16.3 billion shortfall due to massive defaults on loans made at the height of the financial crisis. That projected shortfall to its insurance fund includes $2.8 billion of losses on its most popular reverse mortgage product for seniors. To avoid a bailout from the Treasury Department in September 2013, the FHA has asked Congress for more authority to make such changes
On Wednesday, the FHA also said it will increase its annual mortgage insurance premium for most new loans by 10 basis points, and will increase premiums on jumbo loans above $625,000 by 5 basis points. The agency also will require that new FHA borrowers continue paying annual premiums for the life of the loan.
An FHA policy dating from 2001 had allowed borrowers to cancel their premium payments when their outstanding balance reached 78% of the original principal balance. As a result of that flawed policy, FHA's Mutual Mortgage Insurance Fund has foregone billions of dollars in premium revenue from mortgages originated in the past few years.
Galante called the changes "essential and appropriate measures to manage and protect FHA's single-family insurance programs.
Among the expected changes, FHA also will require that lenders manually underwrite loans for borrowers who have a 620 credit score and debt-to-income ratio above 43%.
The FHA also is consolidated its reverse mortgage programs — the Standard Fixed-Rate Home Equity Conversion Mortgage, known as HECM, and Saver Fixed Rate HECM after April 1.
And the FHA plans to ratchet up enforcement efforts against lenders that aggressively market loans to borrowers who have previously been in foreclosure, and typically can only get another fully-underwritten FHA loan after three years. The FHA said it is working with other federal agencies to address such false advertising.