HUD announced they were making changes to the guidelines for with FHA mortgage products. The Federal Housing Administration still has money, but its loan reserves are depleting to dangerously low levels. FHA’s capital reserves are supposed to be 2% of outstanding loans. According to the actuarial review for fiscal year 2009, the reserves are a mere 0.5%. By the time you read this, FHA loan reserves might have disappeared entirely, thanks to the increasing number of FHA home foreclosures. All FHA borrowers pay a mortgage insurance premium. These premiums go into the FHA’s capital reserves fund and are used to pay for home loans that are foreclosed upon. As FHA refinance loans and purchase mortgages have become much more popular, and the unemployment numbers have risen, more of these loans have gone bad, requiring more payments from the capital reserves.
Unlike the Federal Deposit Insurance Corporation , which recently proposed that banks pay three years of insurance premiums at once in order to replenish the FDIC’s reserves, FHA can’t require current borrowers to pay more. But it can change the rules going forward that will make it more difficult to qualify for an FHA loan. According to a senior official at the Department of Housing and Urban Development , conversations are ongoing to determine what will make the most sense. “Nothing will be taken off table,” the official said. “Everything needs to be assessed through the lens of the FHA core mission as well as the broad economic policies of the Administration with regard to stabilizing housing.”
