After experiencing an approximately thirty percent (30%) increase in market share of the single-family mortgage market (up from 3 percent in 2007) coupled with a significant increase in dollar volume of insurance written (from the $56 billion issued in 2007 to more than $300 billion in 2009), FHA will likely sustain significant losses from mortgage loans made prior to 2009 based on an independent actuarial study.  These losses are attributable to, among others, a high mortgage insurance claim rate that has resulted in FHA's Mutual Mortgage Insurance Fund (MMIF) falling below its statutorily mandated two percent (2%) ratio.

To restore the MMIF capital reserve account, HUD has published a notice in the Federal Register, soliciting public comment on three proposed initiatives: (1) FHA proposes to reduce the amount of closing costs a seller may pay  on behalf of a homebuyer purchasing a home with FHA-insured mortgage financing for the purposes of calculating the maximum mortgage amount ("seller concessions"); (2) FHA proposes introducing a credit score threshold as well as reducing the maximum loan-to-value (LTV) for borrowers with lower credit scores, who represent a higher risk of default and mortgage insurance claim (This will be the first time that FHA has ever instituted an absolute lower-bound for borrower credit scores for loans with loan-to-value ratios of 90 percent or less.); and (3) FHA will tighten underwriting standards for mortgage loan transactions that are manually underwritten. 

The comment due date is August 16, 2010.  To view a copy of the Federal Register notice, click here. To view a copy of HUD's impact analysis of its three proposed initiatives, click here.