Magazine article Mortgage Banking

FHA's Galante Announces Measures to Firm Up Insurance Fund

Magazine article Mortgage Banking

FHA's Galante Announces Measures to Firm Up Insurance Fund

Article excerpt

On Jan. 30, Federal Housing Administration (FHA) Commissioner Carol Galante announced steps to shore up the financial footing of the FHA's Mutual Mortgage Insurance Fund (MMI Fund). The steps include changes to the FHA's reverse-mortgage program, raising annual insurance premiums for most new mortgages and no longer canceling premium payments for loans reaching 78 percent of the original loan balance.

In announcing the moves to tighten up FHA's finances, Commissioner Galante said in a press statement, "These are essential and appropriate measures to manage and protect FHA's single-family insurance programs."

She added, "In addition to protecting the MMJ Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers."

Among the changes Galante announced was a move to make the Fixed Rate Saver Home Equity Conversion Mortgage (HECM) the only pricing option available to borrowers seeking a fixed-rate reverse-mortgage product through FHA. Galante explained, "Using the HECM Fixed Rate Saver for fixed-rate mortgages will significantly lower the borrower's upfront closing costs while permitting a smaller payout than the HECM Fixed Rate Standard product, thereby reducing the risks to the Mutual Mortgage Insurance Fund."

The change will be effective for FHA case numbers assigned on or after April 1, 2013.

In response to the announced changes to FHA's credit policies and, specifically, its reverse-mortgage program, the office of Sen. Bob Corker (R-Tennessee), a strong advocate for changes to the HECM program, issued a statement saying, "In December, Corker secured a commitment from FHA Commissioner and Assistant Secretary for Housing Carol Galante to make substantial changes to FHA underwriting requirements in order to begin restoring financial stability at FHA after substantial losses, primarily from a flawed reverse-mortgage program."

Other steps announced by Galante included a move to require manual underwriting on FHA loans with a "decision credit score" of less than 620 and a total debt-to-income (DTI) ratio greater than 43 percent. A press release stated that "lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded, using FHA manual underwriting and compensating factor guidelines. …

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