A Death Blow to FHA Loans

On July 9th on Friday night a senior staffer at Ginnie Mae, the guarantor of mortgage bonds for FHA and VA issued a new edict on capital requirements for mortgage companies who service FHA loans. If this edict or rule goes into place I am reading and hearing of several severe consequences.
· First, this could put many small and medium-sized independent mortgage banks out of business almost immediately due to the new capital requirements.
· Second, over 75% of FHA loans are originated and serviced by independent mortgage banks or REITs who would be subject to these new rules as they are not a traditional bank.
· Third, only banks would be servicing FHA loans going forward and big banks like Chase and Wells Fargo have very little appetite for doing so especially with the new Sheriff in town at the CFPB.
· Next, the number of FHA loans closed will shrink dramatically and only borrowers with 720+ fico scores may get a FHA loan.
· Fifth, FHA rates will increase dramatically. I am thinking by at least ½% to ¾% to meet the new capital requirements if a lender chooses to still offer FHA loans.
· Low income borrowers, less than perfect credit borrowers, and many minorities will be shut out from buying a home with this new rule.

We need to write Congress immediately and tell them about the damage Ginnie Mae’s new rule titled “Eligibility Requirements for Single Family MBS Issuers” would be.