Commissioner David Stevens announced big changes Wednesday, at Federal Housing Administration’s (FHA), the government mortgage insurer, meant to shore up its beleaguered balance sheet, as a result of backing almost half of all home loans to minorities groups.

The up-front Mortgage Insurance Premium (MIP) paid by borrowers, will be raised for the second time in two years, from 1.75% to 2.25%, including the legislative authority requested for increasing the maximum annual MIP FHA can charge.

Commissioner Stevens in a written release stressed the critical importance of striking the right balance between managing FHA’s risk, providing access to underserved communities and supporting the nation’s economic recovery.

As well, new borrowers will now require a minimum FICO score of 580 to qualify for the 3.5% down payment programme, those with a score lower than the requisite amount will need to put down
10% minimum.

Allowable seller concessions or how much the seller can help the buyer will be reduced from 6% to 3%. This will give borrowers a greater financial stake in their home buys, including conforming FHA to industry standards on seller concessions.

Rising defaults have place the FHA, which not only lends but also insures home mortgages, below its required reserves. A significant player in housing market’s weak recovery, it has gone from insuring barely 3% of all home loans during the latest housing boom to now backing 35 to 40% of new loans.

The more-stringent lending requirements and higher borrower fees are an attempt to cushion FHA against rising defaults, including staving off the need for the agency to be bailed out on taxpayer money.