On Friday, FHA announced plans that will tighten many lending standards, some outline below. This action is thought to be a pre-emptive effort as FHA will soon notify Congress that its capital reserve ration is dropping below 2% - the minimum threshold mandated in the legislature.
Under the announced changes:
- Refinance loans will require tighter income & asset verifications and quality controls
- Appraisals will be required whenever a borrower wants to add closing costs to the transaction.
- Mortgage brokers will be prohibited from ordering appraisals, but will not be required to use appraisal management companies. (changes here are consistent with the Home Valuation Code of Conduct, or HVCC).
- Appraisal reports will only be valid for 4 months, down from 6.
- Appraisals will be portable (a borrower can ask one firm to turn over an appraisal report to another if he/she decides to change lenders. In some circumstances, they will be allowed to order a 2nd appraisal.
- FHA approved lenders must will have to prove more than $1,000,000; up from $250,000.
- FHA supervised lenders will be required to submit annual audited financial statements to assure their financial stability (WAIT - they don't already require this?)
- Mortgage brokers on the other hand, will not have to file financial statements, meet net worth requirements or register directly with the FHA. Instead, the FHA direct endorsement (approved) lenders they deal with will have guaranty all brokered loans.