FHA Loan Guidelines May Be Changing for the Worse

There was an informative article in the Washington Post about how FHA is toughening requirements for borrowers. The assumption is that people are walking away from homes because they don't have enough skin in the game. That they were able to get into homes for very little money and it is therefore not much of a personal loss to abandon them.

While this is true for some, I don't think this applies to the majority of people. Most homeowners are emotionally attached to their houses and do not make a strategic decision to foreclose. Its usually the result of a job loss and the resulting loss of income. If loan modifications were readily available, I believe most of these people would remain in their homes.

These are the proposed changes to FHA loan guidelines:

1. Borrowers will contribute more money, possibly 5% instead of 3.5% currently required.
2. The seller contribution will be reduced from 6% to 3%.
3. The borrower's upfront and monthly mortgage insurance premiums will be increased.
4. The minimum credit score will increase.

You can read the article by clicking here.

I am admittedly biased on this topic. I think its a bad idea to make it more difficult for people to borrow money given the current economic conditions. I do, however, recognize that this may potentially be favorable to FHA and mortgage lenders in the long term if it results in fewer foreclosures.