PARAMOUNT MORTGAGE - LENDER'S BLOG

Buyers Rush to Beat FHA Tightening

The national Mortgage Bankers Association (MBA) reported on Wednesday that its seasonally adjusted Purchase Index improved 9.3 percent from one week earlier.

The MBA's data was collected for the weekly period ending October 1.

This is the highest Purchase Index observed in the MBA's Weekly Mortgage Applications Survey since the week ending May 7, 2010.

"The increase in purchase activity was led by a 17.2 percent increase in FHA applications, while conventional purchase applications also increased by 3.6 percent," said Jay Brinkmann, MBA's Chief Economist.

"This is the second straight weekly increase in purchase applications and the highest Purchase Index level since the expiration of the homebuyer tax credit program," continued Brinkmann.

"One possible driver of last week's big increase in FHA applications was a desire by borrowers to get applications in before new FHA requirements took effect October 4th."

Under changes announced in July, FHA borrowers will need a 580 FICO score in order to purchase a home with the minimum 3.5 percent down payment. Investor overlays in many instances require higher scores.

Borrowers with scores between 500 and 579 must make down payments of at least 10 percent to qualify for the government-backed mortgage insurance program. Scores below 500 won't qualify a borrower for the program at all, HUD said in a September 3 letter to lenders.

October 4th also brought changes to FHA's mortgage insurance for its single family housing program.

FHA's monthly Mortgage Insurance premium increased to .90 percent for LTVs greater than 95 percent, and increased to .85 percent for LTVs of 95 percent or less.

FHA's Upfront Mortgage Insurance Premium decreased to 1.0 percent.

Funding for FHA's government backed loan programs was secured through the end of 2010 when President Obama signed into law H.R. 3081 on September 30.

FHA's Administration General and Special Risk Insurance Funds were allocated $20 billion by Congress ensuring that the FHA is on sound footing to continue backing home loans for the rest of the year.