Up until now, the Federal Housing Authority (FHA) has required its borrowers to make a minimum down payment (also known as the Minimum Required Investment or MRI) of 3.5% of the purchase price on the house they want to buy. Family members, employers and “government entities” have been able to “contribute” to that MRI/down payment.
Now, however, the FHA is requiring that borrowers provide additional documentation on “contributors” for whom “governmental entities provide down payment assistance to qualified borrowers within the specific governmental entity’s jurisdiction,” as stated in an article by HousingWire. This newly required documentation on contributors is designed to lessen any “credit risks” presented by lower-income borrowers.
The Chief Risk Officer for the FHA, Keith Becker, said in a press conference announcing this new requirement that, “We have continued to endorse loans with more and more credit risk. We felt it was appropriate to take some steps to mitigate the risks we’re seeing.”
According to the Wall Street Journal, this new FHA documentation requirement is “a complete reversal of a 2016 decision to loosen underwriting standards…” such as a drop in the average borrower’s credit scores. The Journal indicated that this new “flagging” requirement would likely disqualify 40,000 – 50,000 people, or 4-5% of FHA mortgages insured annually.
On top of this new documentation requirement concerning FHA loans, the Department of Housing and Urban Development (HUD) recently proposed a new rule that would end public housing assistance for undocumented immigrants. This proposed rule, now being discussed in public comment sessions, is designed to “…ensure that only American citizens receive housing assistance.” According to Housing Wire. HUD would tap The Department of Homeland Security’s Systematic Alien Verification for Entitlements Program (SAVE) to verify documented or undocumented status. Those with undocumented status would have to leave that household and relocate within 18 months.
The New York Times estimated that such a rule would affect as many as 25,000 households if/when it goes into effect.