January 29th, 2010
New FHA rules affects consumers, housing market, and economy
The Federal Housing Administration is undergoing major changes in 2010 to tighten lending standards, raise credit score requirements, and increase mortgage premium costs in an effort to strengthen the agency’s weakened financial state and reform the lax lending practices that contributed to the housing crisis.
The FHA does not provide mortgage loans itself, but offers government-backed insurance against defaults for mortgages issued by approved lenders. FHA loans appeal to new and first-time homebuyers because they require down payments of 3.5% of the home’s purchase price, in comparison to the industry standard of 20% or more. However, the agency has been criticized for backing mortgages with little or no down payments, which was the type of lending that contributed to the current wave of foreclosures. The agency is also financially strapped as more than 18% of FHA borrowers are at least one payment behind or in foreclosure compared with 14% default rate for all loans, reports USA Today.
