US HOUSING CRISIS: Federal Government to Increase FHA Loan Guidelines in Bid to Reduce Liability, Regain Lost Funds

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Released by Broadview Mortgage, a California based mortgage bank since 1988 that specializes in first time homebuyer education. Per a direct letter from the Federal Housing Commissioner to Senator Corker (R-Tenn.), first time and low income homebuyers will find themselves having to meet stricter credit standards and tougher underwriting guidelines in order to purchase a home.

With tightening guidelines, many homebuyers will not be able to qualify for an FHA loan.

It appears the chickens came home to roost... FHA is hemorrhaging capital.

Senator Bob Corker (R-Tenn.) received a letter from Federal Housing Commissioner Carol Galante in which she laid out a systematic plan to help keep the Federal Housing Administration (FHA) solvent.

The most glaring impact will come from Galante's insistance that the federal government's market share be reduced. "This means that people who don't have at least 5% down and stellar credit will not be able to afford a home loan. The government has been willing to take a gamble on people with less than perfect credit and very little skin in the game for a down payment. It appears the chickens came home to roost and FHA is hemorrhaging capital on bad loans and insurance claims," says Chris Apodaca, a licensed mortgage banker for Broadview Mortgage in Orange, California.

FHA insures home loans for low income and first time homebuyers. If an individual goes into foreclosure the federal government picks up the tab for the amount of the loan still owed to the bank. After the housing collapse, FHA has been on the brink of bankruptcy.

"The best thing to do is reduce your liability, like a smart business should. In this case, Commissioner Galante is doing just that. Her other points are moot since most lenders require a 620 middle score and already observe the 3 year waiting period for foreclosures," says Apodaca.

The current middle score for purchasing a home was set at 580 for FHA loans with only a handful of banks such as Wells Fargo, willing to lend to borrowers with such low credit scores.

FHA currently requires that someone wait at least 3 years after a foreclosure to be eligible to apply for another federal loan. In order to obtain the loan, according to the Commissioner's letter, the applicant must meet all other underwriting and qualifying guidelines.

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Chris Apodaca
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