New FHA guidelines. The times they are a changin'

FHA has been under close scrutiny as of late because, quite simply, they give out mortgages to many borrowers with shaky credit histories and questionable abilities to repay. Hoping to mitigate potential losses, the government is instituting several new policies bent on making the trillion dollar FHA-insured loan portfolio less prone to subprime-style blowout.

1. UFMIP increased to 2.25% with case numbers after April 5, 2010. This is the amount that borrowers have to pay at closing for their mortgage insurance. This fee is why FHA loans are so expensive compared to conventional ones.

2. Seller contribution to closing costs reduced to 3% effective in the summer (exact date TBA).

3. Increased lender enforcement. (This means we must be diligent in the loans we approve and close-expect more patriot act type verification of identity).

4. HUD is also asking Congress for authority to increase the cap on the annual MIP.

5. Waiver of property flips. (Our lenders have verbally informed us that once a mortgagee letter is sent by HUD, they will follow the flip waiver guidance shortly thereafter). This is the good part, as many flippers will sell their finished houses to FHA first timers who don't want to do fixup work.


On the surface this looks like HUD is getting stricter, however in an effort to protect the FHA insurance fund these changes are necessary to ensure longevity in the fund. Keep in mind that HUD has had a history of lowering MIP’s once the fund improves along with the overall economy. FHA remains the only choice for many borrowers, and I believe that FHA is the linchpin that is supporting the revival (or at least sustenance) of the residential housing market.