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Below is a summary report from the National Association of Realtors on the FHA changes just announced on Wednesday.  The most notable changes for buyers and sellers are: (1) The upfront mortgage insurance premium will increase from 1.75% to 2.25%. (2) Buyers with a credit score below 580 will have to make at least a 10% down payment.  The down payment requirement will remain at 3.5% for other buyers. (3) The amount of closing costs sellers are allowed to pay on the buyer's behalf will decrease from 6% to 3% of the purchase price. (4) FHA will ask for legislative authority to increase the annual premium.  It is currently capped at 0.55%.

Here is the report from NAR...

On January 20, 2010, FHA announced major changes to ensure its long-term financial soundness. FHA is trying to balance three fundamental objectives: 1) financial soundness of the FHA insurance fund – ensuring that its capital ratio returns above 2 percent, 2) fulfilling its mission of serving borrowers not adequately served by the private sector and 3) facilitating the recovery of the housing industry and the over-all economy. What follows is a brief description of the changes and a table with the expected timeline of the announced changes.

FHA announced changes in the following areas:

The upfront mortgage insurance premium (UFMIP) will increase to 2.25 percent up from 1.75 percent. Contrary to reports, FHA will continue to allow the financing of the UFMIP.

Borrowers with a credit score below 580 will be required to have at least a 10 percent down payment. The minimum down payment will remain at 3.5 percent for all other borrowers.

FHA will seek legislative authority to increase the annual premium (currently capped at .55 percent). Over time, increasing the annual premium may allow FHA to reduce the upfront premium.

Seller concessions will be reduced to 3 percent from 6 percent.

FHA will make the following lender enforcement changes:

FHA will implement credit watch terminations at lender underwriting.

Public reporting of lender performance through Neighborhood Watch scorecard system will be implemented.

FHA will implement, through notice and comment, indemnification against lenders through Credit Watch. Indemnification will be expanded beyond fraud and misrepresentation.

FHA will seek legislative authority to enforce indemnifications against direct endorsed (DE) lenders.

FHA will seek legislative authority to sanction lenders nationwide based on performance of local branch.

Summary of FHA Changes and Implementation Schedule FHA Credit/Risk Management Action	Announcement		Announcement Date		Implementation Date
Upfront MIP increase to 2.25%	Mortgagee Letter		January 21, 2010		Spring 2010
Increase Annual Premium		Requires legislation		February 2010
FICO Score and Down Payment Requirement	Federal Register		February 2010		Summer 2010
Seller Concessions	Federal Register		February 2010		Summer 2010
Neighborhood Watch	N/A		N/A		February 1, 2010
Credit Watch	Mortgagee Letter		January 21, 2010		Effective immediately
Enforce Indemnification	Federal Register		March 2010		Summer 2010
Increase Enforcement			Requires legislation