The financially strapped Federal Housing Administration is looking at raising credit score requirements and lowering loan limits as possible solutions to reducing risk at the agency.
Currently, mortgage applicants must have a minimum FICO of 580 to qualify for a FHA-insured loan with a 3.5% downpayment.
“We are looking at adjusting the FICO [score],” HUD secretary Shaun Donovan told the Senate Banking Committee Thursday morning.
He also testified that he would like to go back to pre-2008 days when the maximum FHA loan limit was $363,000. Today, the maximum loan limit is $729,750. However, the secretary stressed that he cannot lower the loan limit administratively. It requires congressional action.
Committee Republicans pressed the secretary on when he expects the FHA insurance fund to exhaust its cash reserves, a scenario that would force the agency to seek a draw from the U.S. Treasury to pay claims and other expenses.
Secretary Donovan said the White House budget office is currently working on an estimate that will be part of the president’s fiscal year 2013 budget, which is due in early February.
“Our best projection will be contained in the president’s budget,” Donovan testified.
However, he noted that FHA currently has $30.5 billion in cash reserves. And the independent auditors estimate there is less than a 5% chance FHA will run through those funds during FY 2013, which ends Sept. 30.
The secretary also noted the auditors estimate FHA will collect $11 billion in new premiums in FY 2013.