The WSJ reports this morning that the Federal Housing Administration will announce changes today regarding the FHA loan program which are designed to improve the financial health of the administration. The changes, with no time frame yet reported, are as follows.

Increase the upfront Mortgage Insurance Premium from 1.75% to 2.25%.

Request an increase in the monthly mortgage insurance, which requires congressional approval.

Require borrowers with a credit score below 580 to make a minimum 10% down payment.

Reduce seller concessions from 6% or purchase price to 3%.

How impactful are these changes? In my opinion the credit score change and the seller concession reduction will not make much difference in most markets. The majority of investors require a 620 credit score already, at least in the Colorado Springs Lending market; and 3% is usually sufficient to cover the majority of closing costs, especially in a time when increasing seller paid costs can jeopardize your appraisal.

The increase in the upfront mortgage insurance as well as the potential increase in the monthly insurance may benefit the FHA, but will not benefit borrowers. The FHA is concerned about borrowers having more skin in the game, yet they just eroded their equity by another .50% with an increase in the upfront premium. Umm, that’s less skin in my opinion. The potential increase monthly will also have an effect on the monthly payment ability. This Colorado Springs Mortgage Lender would have preferred a tiered risk approach compared to a blanket change. Charge a higher premium on loans with more risk, but don’t make the well qualified FHA borrower (and yes they are the majority) pay for the administrations problems.

Anyway, we’ll all have plenty of chances to debate the merits of the changes; bottom line is we will have to adapt, like we always do, in order to continue to serve our clients.

Michael Gordon, Colorado Springs Mortgage Lender, Peoples Mortgage