As you may know, I am attending the NAMB legislative conference in Washington DC. We are having meetings with members of Congress about the current climate of mortgage lending. Days are also filled with speakers from various regulatory and legislative groups. Yesterday, we heard from Vicki Bott, Deputy Assistant Secretary of HUD. She discussed FHA news.

HUD has researched the value of increasing borrowers’ downpayments from 3.5% to 5% and has determined that it had no appreciable impact on loan performance. There will be additional requirements for very low credit scores, but in general we can expect downpayments to stay at 3.5% for the majority of FHA loans.

There has been discussion of eliminating a borrower’s ability to finance the up-front mortgage insurance premium for FHA loans, which would increase the amount of cash needed to close. Research has shown that this, too, was not impactful to mortgage performance, so no change is likely.

Bott was surprised by the industry concernsover the 203k origination fee confusion. With the advent of the new GFE, HUD relaxed it’s rule on FHA 203B (the standard FHA loan) origination caps. Previously, HUD restricted orgination fees to 1%, but the new GFE requires that origination fees be lumbed together with all lender fees. Therefore, HUD released the cap, but maintained its’s expectance that the origintion fee portion of the charge would not exceed 1%. The rehab loan, known as a 203k, was excluded from this change and therefore became infeasable to originate and cover basic loan costs. It appears this was not the intent and HUD will review the the issue and should release clearer guidance.

The final contentious topic was net worth requirements. It appears that, as early as March 1, HUD could announce changes to the requirement of net worth a lender needs to have to in order to offer FHA loans. Final numbers were not released, but the preliminary propsal indicated that mortgage brokers would no longer need audited financials and would work directly with lenders that meet the FHA requirements. The lenders net worth requirement, however, is likely to increase significantly. This could jeopardize a small bankers ability to offer FHA loans directly.

One of our talking points with Congress is making FHA more accessible by removing the net worth requirement all together and substuting a bond or recovery fund. It is also imparative that brokers not lose the ability to work directly with FHA, or else consumer choice will be limited. We are already seeing the lack of portability in appriasals, we cannot afford a lack of portablity in FHA case numbers.

Stay tuned, much more to come.