David Stevens, the new Commissioner at FHA, was just interviewed on CNBC. There have been rumors floating around that the FHA mortgage program is underfunded and would need a bailout. Per Mr. Stevens, FHA has over $30 billion in real combined capital, which represents a 4% true reserve account and they will not be short in their total reserves. Their surplus fund may fall below the 2% requirement, but they should be able to handle this shortage without taxpayer assistance and without Congressional funding. He stated that while banks and GSE’s (Fannie Mae and Freddie Mac) required bailouts, the FHA is standing tall and won’t be needing financial assistance.
Several years ago, FHA mortgage originations made up about 2% of all mortgage originations; currently, they make up about 30% of all originations. Because of the low down payment requirement on an FHA loan, many people who may not have used an FHA mortgage before are now utilizing it, which has resulted in an increase in the average credit score of an FHA borrower. Several years ago, the average credit score for an FHA borrower was 630; today, it is 690, meaning that the quality of the mortgages may actually be improving.
Last year, the previous FHA Commissioner implemented “risk-based pricing”, which Mr. Stevens has said is something that he doesn’t see having to be implented again. Risk-based pricing means that the higher the risk, the higher the pricing (interest rate and/or mortgage insurance).
Mr. Stevens does foresee the FHA making some credit policy changes. Currently, there is no minimum credit score requirement for an FHA mortgage (although the investors who actually make these loans do set minimums and most of them have gone to 620, with some actually going up to 640; we still have one investor that allows us to do an FHA mortgage for a borrower with scores down to 530 that can give a reasonable explanation for the credit being that low and that has 3 months’ worth of mortgage payments or more as the balance left in their bank accounts after they close and pay their down payment and closing costs).
Mr. Stevens was asked about the First Time Homebuyers Credit of $8,000 that is set to expire on November 30. The interviewer asked him if he felt that the Administration should extend this credit. In a truly non-committal and diplomatic way, Mr. Stevens stated that “Congress and the Administration will be reviewing this policy that has definitely helped the housing market and make a determination that I will agree with”.
Because they are talking about a possible credit policy change, it would be highly recommended that a potential buyer looking to buy a home and use the FHA program with a credit score under 620, and possibly under 640, should consider purchasing a home before these changes may be implemented.
Sue Botelho, Northstar Mortgage Group, Ft. Walton Beach, FL 32548 850-362-6901
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