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FHA, VA and HECM mortgage news. HUD and G i n n i e news also. Originations, servicing and FHA approval.

Subprime Borrowers Face Lower FHA LTVs

10% downpayment proposed

July 16, 2010

By staff

Lower loan-to-values are being proposed for subprime borrowers on mortgages insured by the Federal Housing Administration.

The proposal is part of three initiatives announced yesterday by the U.S. Department of Housing and Urban Development. Over the next month, the housing agency will be accepting comments from the public about the proposed changes.

HUD hopes the moves will strengthen the FHA's capital reserves.

"FHA proposes to tighten
only those portions of its underwriting guidelines that have been found to present an excessive level of risk to both homeowners and FHA," a public filing yesterday said.

For new FHA borrowers who make the minimum 3.5 percent down payment, HUD proposes a minimum FICO score of 580.

New borrowers with credit scores less than 580 would be required to make a cash investment of at least 10 percent. Borrowers with credit scores less than 620 are generally considered subprime.

Borrowers whose credit scores fall below 580 would not qualify for an FHA loan.

HUD originally unveiled the LTV changes in HUD letter No.10-016 issued in January.

HUD is also proposing to cut seller concessions from 6 percent to 3 percent. The reduction in seller-paid fees was also mentioned in the January letter.

On loans that are manually underwritten, HUD proposes to require that lenders consider the borrower's credit history, LTV, debt-to income ratio and cash reserves.

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