The Federal Housing Administration is raising fees and tightening lending standards to shore up its strapped finances and avoid a taxpayer bailout.
The government agency has seen its losses rise with the foreclosure rate. Its reserves have sunk below the minimum level required by Congress. The FHA insures roughly 30 percent of new loans, and is the largest backer of mortgages to first-time buyers.
The changes, which will go into effect in the first half of the year, "are among the most significant steps to address risk in the agency’s history,” FHA commissioner David Stevens said.
The FHA does not make loans, but rather offers insurance against default. Borrowers are willing to pay for the insurance because FHA loans only require down payments of 3.5 percent of the purchase price.
The new policies, to be announced today, are designed to bring more revenue into the agency, while at the same time keeping loans available.
Under the changes, homebuyers will:
- Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.
- Need a credit score of at least 580 to qualify.
The changes come as borrowers with loans backed by the agency have been falling into default. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.
