Sen. Bob Corker, R-Tenn., said the administrative changes that HUD secretary Shaun Donovan and acting FHA commissioner Carol Galante have agreed to implement will put FHA on a more sound financial footing.
In a letter to Corker, Galante said she will place a moratorium on fixed-rate standard HECM loans that allow borrowers to take a full draw of their equity at closing. This FHA-insured reverse mortgage product has been linked to many technical defaults where seniors have exhausted their funds and can no longer pay their property taxes, homeowners insurance and other necessities.
HUD officials also agreed to tighten FHA’s underwriting standards when it comes to insuring loans for borrowers who have gone through a foreclosure in the past three years.
On jumbo loans, FHA will raise the downpayment requirement by 150 basis points to 5% on loan balances above $625,500 and increase its insurance premium by 25 bps to 150 bps.
HUD also agreed to impose a maximum debt-to-income rate of 43% on borrowers with FICO scores below 620. “If a borrower’s DTI exceeds 43%, lenders will be required to manually underwrite the loan,” Galante says in a Dec. 18 letter to Corker.
In the letter, the acting FHA commissioner pledged to the Tennessee senator that FHA will act these changes by January 31.
In accepting her commitments, Corker signaled that he will support Galante’s confirmation by the Senate.
“Given the reforms she is committed to, I believe that having an accountable commissioner with her resolve and expertise will be in the best interest of the taxpayer,” the Senate Banking Committee member said.