On July 15, 2010, HUD issued a notice seeking comment on three initiatives that HUD proposed would contribute to the restoration of the Mutual Mortgage Insurance Fund (MMIF) capital reserve account. We provided a brief outline and a copy of that issuance in our Compliance Update, FHA: Proposes to Revise Underwriting Guidelines (7/16/10).
Today, September 3, 2010, HUD announced that it has completed its review and considered public comments. The issuance does not cover all three initiatives, but is limited to implementation of HUD's proposal to introduce a minimum credit score threshold and reduce the maximum LTV. The remaining two initiatives, involving (1) capping seller concessions, and (2) tightening manual underwriting guidelines, will be dealt with in a forthcoming issuance.
Effective Date: October 4, 2010
Credit Score and LTV Chart
The following chart outlines the changes in New Loan-to-Value and Credit Score requirements:
Minimum Credit Score
Borrowers will be required to have a minimum decision credit score of no less than 500 to be eligible for FHA financing.
The LTV for FHA-insured mortgage loans (purchase and refinance) will be limited to 90 percent for borrowers with a decision score between 500 and 579. Maximum FHA-insured financing (typically, 96.5 percent LTV for purchase transactions and 97.75 percent for rate and term refinance transactions) will continue to be available for borrowers with credit scores at or above 580.
Temporary Exemption for Refinances
FHA is providing a special, temporary allowance to permit higher LTV mortgage loans for borrowers with lower decision credit scores, so long as they involve a reduction of existing mortgage indebtedness pursuant to FHA program adjustments announced in HUD Mortgagee Letter 2010-23.
In accordance with Mortgagee Letter 2010-23, the current mortgage lender will need to agree to accept a short pay off, accepting less than the full amount owed on the original mortgage in order to satisfy the outstanding debt.
This exemption is applicable only to borrowers with credit scores between 500 to 579. Further, the exemption is applicable only to refinance transactions originated pursuant to Mortgagee Letter 2010-23 and closed on or before December 31, 2012.
Visit Library for Issuance
FHA Risk Management Initiatives:
New Loan-to-Value and Credit Score Requirements
Federal Register, Vol. 75, No. 171
September 3, 2010
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