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Agents Comment on Changes Announced by FHA

By Sally Maison
Published: Friday, December 11th, 2009

Secretary of Housing and Urban Development (HUD) Shaun Donovan recently announced that the Federal Housing Administration (FHA) will be implementing sweeping changes next year. Earlier this week, Donovan informed Congress that FHA’s levels of reserve are almost 1.5 percent lower than mandated by federal law. In order to replenish funds, Donovan says several changes must be implemented by the first week of January 2010. The changes include raising the required down payment and credit score. Some real estate experts agree, but others cannot help but shrug their shoulders.

Agents Comment on Changes Announced by FHAJessica Horton says a credit score does not guarantee that a person will stay in his home but people with an excellent credit rating are less likely to let their property fall into foreclosure. Horton, who runs a consultancy firm in Georgia, believes it is only right for the Housing Administration to increase its lending standards to prevent another major real estate downfall.

Following examples earlier set by federal creditor Fannie Mae, FHA announced that it will require borrowers to have at least a credit score of 620 in order to qualify. It will also require borrowers to have a debt to an income ratio of 45 percent or less. It means that people who spend more than 45 percent of their income in debt payments will not be able to get FHA-backed loans.

Tim Maitske, a real estate agent in Atlanta, says FHA either has to raise fees or tighten its lending criteria in order to avoid draining its funds. Maitske adds that raising the credit score requirement will help in assuring that FHA will be around longer to help homeowners.

However, not all industry specialists are supporting the changes. Jason Crouch, an internet broker, worries that people who have a strong ability to pay may be eliminated if FHA raises its standards. He claims that there are many buyers out there who can meet their mortgages but may not be able to get FHA-insured loans if the Housing Administration increases the minimum down payment and credit score.

Kerry Lucasse of Atlanta supports Crouch’s assumption, saying any of the recommended changes will hurt the housing market. He notes that about 80 percent of his buyers could not put down more than 3.5 percent. If FHA raises its minimum down payment which currently stands at 3.5 percent, Lucasse projects that he will lose 50 percent of his business. He also believes that a credit score does not really tell whether a homeowner will walk away from his mortgage or not.

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