According to this MSN Money article, Last chance for lowest-cost loans (Coming soon to FHA-backed loans: Higher FICO scores and more cash at closing. The changes are needed to help keep the agency afloat.), Federal Housing Administration (FHA) loans are about to get more expensive and more difficult to obtain due to the financial problems that the FHA is experiencing that are a result of record FHA mortgage loan default rates. Simply put, the FHA is paying more out to cover loan losses than it collects in Mortgage Insurance Premiums (MIP) from FHA borrowers and, as a result, the FHA is going bankrupt. As usual, I am ahead of the curve and told you about this in my blog posts: FHA Will Tighten Underwriting and FHA in Deep Trouble: Default Rates Skyrocketing. The debt hot potato game continues with private debt becoming public debt. Rest assured that the end result will be more short sales and foreclosures.
According to the article, the Obama Administration announced that there will be 4 changes to the FHA loan process that are aimed at lowering the FHA default rate. Those changes are as follows:
- Increasing the minimum down payment required to obtain a FHA insured loan.
- Raising the minimum credit score needed to qualify for a FHA insured loan.
- Raising the cost of the FHA Mortgage Insurance Premium (MIP) and possibly changing how FHA mortgage insurance premiums are collected.
- Reducing the amount of the buyer's closing costs that the seller will be allowed to pay (i.e. possibly reducing this amount from 6% to 3%).