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FHA's Galante announces measures to firm up Insurance Fund.

On Jan. 30, Federal Housing Administration (FHA) Commissioner Carol Galante announced steps to shore up the financial footing of the FHA's Mutual Mortgage Insurance Fund (MMI Fund). The steps include changes to the FHA's reverse-mortgage program, raising annual insurance premiums for most new mortgages and no longer canceling premium payments for loans reaching 78 percent of the original loan balance.

In announcing the moves to tighten up FHA's finances, Commissioner Galante said in a press statement, "These are essential and appropriate measures to manage and protect FHA's single-family insurance programs."

She added, "In addition to protecting the MMJ Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers."

Among the changes Galante announced was a move to make the Fixed Rate Saver Home Equity Conversion Mortgage (HECM) the only pricing option available to borrowers seeking a fixed-rate reverse-mortgage product through FHA. Galante explained, "Using the HECM Fixed Rate Saver for fixed-rate mortgages will significantly lower the borrower's upfront closing costs while permitting a smaller payout than the HECM Fixed Rate Standard product, thereby reducing the risks to the Mutual Mortgage Insurance Fund."

The change will be effective for FHA case numbers assigned on or after April 1, 2013.

In response to the announced changes to FHA's credit policies and, specifically, its reverse-mortgage program, the office of Sen. Bob Corker (R-Tennessee), a strong advocate for changes to the HECM program, issued a statement saying, "In December, Corker secured a commitment from FHA Commissioner and Assistant Secretary for Housing Carol Galante to make substantial changes to FHA underwriting requirements in order to begin restoring financial stability at FHA after substantial losses, primarily from a flawed reverse-mortgage program."

Other steps announced by Galante included a move to require manual underwriting on FHA loans with a "decision credit score" of less than 620 and a total debt-to-income (DTI) ratio greater than 43 percent. A press release stated that "lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded, using FHA manual underwriting and compensating factor guidelines." The FHA issued a new DTI mortgagee letter outlining the changes.

FHA also published a notice of rulemaking in the Federal Register proposing raising down payments for mortgages with original principal balances higher than $625,500. FHA is proposing that the minimum down payment for these loans go from 3.5 percent to 5 percent.

To further bolster the fund, FHA is increasing its annual mortgage insurance premium for "most new mortgages by 10 basis points." A press release announcing the changes states that for jumbo FHA loans, the premium increase will be lower. "FHA will increase premiums on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05 percent, to the maximum authorized annual mortgage insurance premium."

FHA noted that the premium increases will exclude certain streamline refinance transactions.

To further boost the stream of income flowing into the MMI Fund, the FHA will no longer automatically cancel FHA insurance on loans that have paid down to a point where the outstanding balance has reached 78 percent of the original loan balance. The FHA's press release noted, "Fl-IA will once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled. This will permit FHA to retain significant revenue that is currently being forfeited prematurely."

The automatic cancellation policy was adopted in 2001. FHA's Office of Risk Management and Regulatory Affairs estimates that the MMI Fund "has foregone billions of dollars of premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy."

Finally, FHA said it would crack down on aggressive and false marketing by lenders to borrowers who have undergone foreclosures implying that they can qualify for FHA home loans "automatically" three years after their foreclosure. FHA noted that such borrowers must meet all FHA underwriting guidelines in order to secure any new loan, and that marketing to the contrary is "simply not true, and such misleading advertising will not be tolerated."
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Title Annotation:NEWS ROOM
Comment:FHA's Galante announces measures to firm up Insurance Fund.(NEWS ROOM)
Publication:Mortgage Banking
Date:Mar 1, 2013
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