In an effort to raise capital and avoid a taxpayer bailout, the Federal Housing Administration (FHA) will issue a series of changes to its mortgage programs this year. These changes will also impact potential home buyers, especially those will low credit scores.

What can a potential borrower expect? According to an article on InmanNews.com,  the changes will limit the chances of someone with a low credit score to qualify for a loan. The minimum down payment will be higher once the borrower is qualified, but only for those  taking out mortgages over $625,500.

How much is the deficit? The FHA reported a 16.3 billion deficit in a November report to Congress. For the first time since its inception, the FHA may require a bailout by next year.

In an announcement made this week by the U.S. Department of Housing and Urban Development (HUD), these regulatory changes will fulfill the commitments FHA Commissioner Carol Galante made in December. “These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs,” Galante said in a statement.

Below is a list of the few changes summarized by Inman News:

• As of April 1, 2013, FHA’s full drawdown reverse mortgage program, the Standard Fixed Rate HECM, will no longer be available to borrowers who seek a fixed interest rate mortgage. Such borrowers will only have access to the HECM Fixed Rate Saver, which “will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the (FHA’s) Mutual Mortgage Insurance Fund,” the agency said. The vast majority of HECM borrowers currently choose the Standard option.
• FHA will raise the annual mortgage insurance premium paid by borrowers on most new FHA loans by 10 basis points, or 0.1 percent, which the agency expects will add $13 a month to the average borrower’s monthly payments. FHA will also increase premiums on jumbo mortgages (those $625,500 or bigger) by 5 basis points or 0.05 percent, to 155 basis points — the maximum currently allowed by law. Certain streamline refinance transactions will be excluded from the premium increases, the agency said.
• FHA will reverse a policy that automatically canceled required premium payments after loans reached 78 percent of their original value. Most FHA borrowers will now have to continue paying annual premiums based on the unpaid principal balance for the life of their mortgage loan. The agency estimates it lost billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this cancellation policy.

To read the full article, click here.