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Loan Modification
: Mortgage Lender Implode-o-MeterFHA Ups Loan Requirements on Riskier Borrowers
By Implode-Explode Heavy Industries
Beginning this summer, borrowers with credit scores below 580 will be required to put down a minimum of 10%. For borrowers above that credit score, the down payment requirement will remain 3.5%.
The amount that a seller can contribute to closing costs will drop to 3% from 6%, while the premium for mortgage insurance will jump to 2.25% from 1.75%.
Bravo to the FHA. However, we see no reason that reasonable downpayments should only be limited to people with poor FICOs. Negative equity is the most important contributor to default, moreso than FICO. And people with higher FICOs may yet be tempted (or forced by circumstance) to walk away.
Also keep in mind that lenders have basically cut off most FHA business under 620 FICO, so this is more or less an empty change at FHA -- a "low hanging fruit" of the policy world.
If FHA wanted to seriously avert losing more taxpayer money, they would institute the 10% downpayment requirement (or more) above 620.
Full post as published by Mortgage Lender Implode-o-Meter on January 20, 2010 (boomark / email).
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