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HUD announcement: FHA Seller concession to be cut in half

By Anonymous

From HUD: HUD seeks Public Comment on Three Initiatives to Boost FHA Capital Reserves

For the next 30 days, HUD is seeking public comment on the following policy changes, each of which are designed to mitigate risk to the Mutual Mortgage Insurance Fund while promoting sustainable homeownership for FHA borrowers:

1. Update the combination of credit and down payment requirements for new borrowers. New borrowers seeking FHA-insured financing will be required to have a minimum FICO score of 580 to qualify for FHA?s flagship 3.5 percent down payment program. New borrowers with credit scores of less than a 580 will be required to make a cash investment of at least 10 percent. Borrowers with credit scores of less than 500 will no longer qualify for an FHA-insured mortgage.

2. Reduce allowable seller concessions from six to three percent. Allowing sellers to contribute up to six percent of the home?s sales price to offset a buyer?s costs exposes the FHA to excess risk by potentially driving up the cost of the home beyond its appraised value. Reducing seller concessions to three percent will bring FHA into conformity with industry standards.

3. Tighten underwriting standards for manually underwritten loans. When using compensating factors in the underwriting process, lenders will be required to consider those factors which are the best predictive indicators of loan performance, such as the borrower?s credit history, loan-to-value (LTV) percentage, debt-to income ratio, and cash reserves.

This will become effective after the 30 day comment period - so around August 15th.

Update: For more details, here is the public notice.

Full post as published by Calculated Risk on July 16, 2010 (boomark / email).