Yesterday the U.S. House of Representatives passed H.R. 5072, the FHA Reform Act of 2010 which might good news for home-buyers that may need to rely upon an FHA loan for a home purchase but, not so good for taxparers. The bill will still need to be passed by the Senate and then signed into law by the President, but a big first step toward this was taken by the House passing it.

Highlights of the bill that I think are important to home-buyers are:

• The down-payment requirement for FHA loans will remain at 3.5 percent. There was an amendment to the bill that would have increased the down-payment requirement to 5 percent but was defeated, leaving the down-payment requirement at the present 3.5 percent level. The National Association of REALTORS estimated that, if the down-payment was increased to 5 percent, there would be 300,000 potential home-buyers removed from the market as a result.  This is not a big deal though because this is the current situation.  If lenders will even touch borrowers below a 580 credit score they are required to put more money down.
• FHA will lower it’s up-front fee it charges borrowers for FHA mortgage insurance to 1 percent but will increase the annual premium they charge (which is added on to the payment) to 0.85 percent. This will help borrowers by lowering the up-front “out of pocket” expenses they incur, but will help FHA’s financial stability by increasing overall revenue from the premiums.  This is a touch one as this will increase the debt ratio of the buyer and if they default then HUD doesn't get the revenue stream.  Personally I like a tired FHA MIP schedule.  Those with stonger credit get cheaper insurance than those with lower credit.  Simple risk allocation.
• FHA’s loan limits will be increased for multifamily elevator buildings and in extremely high-cost areas, thus opening up the option of FHA financing in more markets.