House Committee Considers Bill to Strengthen FHA
Now that the majority of buyers below the 270K price tag are utilizing the FHA Loan, HUD has made several revisions to keep the program strong and to allow its continuance. Some revisions that have already passed include changes to buyer qualifications and underwriting practices. HUD has also tightened up on appraisers requiring stricter appraisal practices in the data they use to make home valuations. Severe disciplinary practices have caused many appraisers who may be unfamiliar with an area lean more conservatively towards the home values they provide to sellers & buyers.
In October, HUD released an audit that showed their capital reserves had fallen below the Congressionally-mandated level of 2%. In response, FHA announced a number of changes to the program to strengthen its financial position.
The House Financial Services Committee began consideration of H.R. 5072, the "FHA Reform Act of 2010." This bill will complete several changes FHA needs to insure the solvency of the mutual insurance fund. This bill includes authority for FHA to increase the annual premium. To date, FHA has increased the up-front premium, because they lacked authority to increase the annual. This change was made effective April 5th. Initially the up-front fee was 1.75% of the loan (which can then be financed into the loan) the increase has brought it to 2.25%. Currently the annual fee that is charged is .55% of the loan.
Once this new law has passed, FHA plans to reduce the up-front premium and raise the annual instead. In addition, the bill includes a number of lender enforcement provisions.
The National Association of Realtors - NAR is supporting this legislation, and opposing a series of amendments by Rep. Garrett (R-NJ) that would increase the down payment requirement. NAR is working with a coalition of housing, community and consumer groups to fight any increase in the down payment.
The Committee is expected to complete its work on the bill early this week.
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