Tough times call for tough measures.
The Federal Housing Administration (FHA) recently announced a series of changes to the FHA loan program.

A congressional mandate requires the FHA to maintain capital reserves above a certain level, in order to cover foreclosure-related losses. By law, the Federal Housing Administration must maintain capital reserves equaling, at a minimum, 2% of its insured loan portfolio.Last year marked the fourth consecutive year that they have failed to meet this requirement.

A few changes you will see in 2013:

• FHA Mortgage Insurance Premiums are Going Up
  
• Manual Underwriting for Borrowers with Credit Scores Below 620
  
• Larger 5% Down Payment Required on FHA Loans above $625,500
  
• FHA Loans after Foreclosure: Three-Year Rule + Good Credit
  

So just like any entity that is in the red, where you either cut spending or increase revenues, the FHA is trying to help its bottom line and long term solvency. After four years of being below the minimum, this should come as no surprise. It is raising premiums in an attempt to avoid asking the Treasury department for a bailout. But will it be enough? The Washington Post notes that the FHA’s predicament is worse than the $16.3 billion figure suggests since if interest rates remain low more high-quality loans will be refinanced out of the FHA’s portfolio, leaving the agency with the dregs.

And no one should be surprised if the FHA raises its annual mortgage premium to possibly 2.05% – it can do that now. In 2013, HUD will once again raise mortgage insurance premium charges an additional 10 basis points, which will result in a $13 per month increase for the average FHA borrower. New borrowers early next year are likely to be charged slightly higher annual mortgage insurance premiums: 1.35% of the loan balance rather than 1.25% at present. On loans above $625,500 in high-cost areas such as California and metropolitan Washington, D.C., the annual premium will go to 1.6% from 1.5%. Conventional lenders don’t mind these changes at all.