On the Market: FHA raises standards for insured mortgages
January 24, 2010
The Associated Press reported Tuesday that the federal agency that insures a large portion of mortgages extended to first-time homebuyers is raising its standards.
The Federal Housing Administration is raising fees and tightening lending standards to shore up its strapped finances and avoid a taxpayer bailout.
The government agency has seen its losses increase with the foreclosure rate. Its reserves have sunk below the minimum level required by Congress. A healthy FHA is vital for the housing market because it insures roughly 30 percent of new loans and is the largest backer of mortgages for first-time buyers.
The changes, which will go into effect in the first half of the year, "are among the most significant steps to address risk in the agency's history," FHA Commissioner David Stevens said in a statement.
The FHA does not make loans, but rather it offers insurance against default. Borrowers are willing to pay for the insurance because FHA loans require down payments of 3.5 percent of the purchase price — and that didn't change.
The new policies, to be announced this week, are designed to bring more revenue into the agency, while at the same time keeping loans available.
Recommended Stories For You
Under the changes, homebuyers will:
■ Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee, for example, rather than the current $3,500 fee. Borrowers still will be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.
■ Need a credit score of at least 580 to qualify. Many FHA lenders already require a higher score, but there had been no standard requirement across the program. Borrowers with a score lower than 580 will need a down payment of at least 10 percent.
The changes come as borrowers with loans backed by the agency have increasingly been falling into default. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans, according to the Mortgage Bankers Association.
Mortgage lenders "will find the new rules painful but necessary," said Howard Glaser, a mortgage industry consultant and former Clinton administration housing official.
There also have been fears that unscrupulous operators have shifted their business to the FHA after the subprime business went bust. Last week, the agency served subpoenas on 15 mortgage companies with suspiciously high default rates for FHA loans, part of a broad crackdown on dubious lenders.
The agency already has taken action against several problem lenders. One of the nation's biggest mortgage bankers, Taylor, Bean & Whitaker Mortgage Co., of Ocala, Fla., was banned from the FHA program in August and filed for Chapter 11 bankruptcy protection.
Developer Timbers Resorts becoming active in Vail
One Steamboat Place developer Timbers Resorts has formed a business relationship with a Mexican investment group that bought the Vail Plaza Hotel.
Ferruco Vail Ventures recently announced that Carbondale-based Timbers Resorts will represent the owner in Vail and also will manage real estate operations for the remaining inventory in the property's 38 fractional-ownership condos.
Ferruco Vail Ventures, a family-run investment group based in Mexico City, assumed ownership of The Vail Plaza Hotel and Club on Wednesday. Timbers has a resort in Cabo San Lucas.
"Timbers Resorts is honored to represent and assist Ferruco Vail Ventures in the positioning of The Vail Plaza Hotel and Club," said David A. Burden, CEO and founder of Timbers Resorts. "Our vision together is to enhance the amenities, services and overall experience for their owners, as well as provide a new boutique hotel experience for the returning visitors of Vail."
Ferruco Vail Ventures and Timbers Resorts are looking for a hotel management company to run the property.
Timbers Resorts, founded in 1999, is a developer of small, private, luxury resort properties, including private residence clubs, boutique hotels and club communities.
Current Timbers Resorts properties include: The Timbers Club in Snowmass; Esperanza in Cabo San Lucas, Mexico; The Rocks Luxury Residence Club in Scottsdale, Ariz.; Castello di Casole in Tuscany, Italy; The Preserve at Botany Bay on St. Thomas in the U.S. Virgin Islands; One Steamboat Place in Steamboat Springs; The Orchard at The Carneros Inn in Napa, Calif.; The Villas at Rancho Valencia in Rancho Santa Fe, Calif.; and The Links Cottages at Doonbeg in County Clare, Ireland.