As a result of the mortgage market crisis, VHDA’s first-time homebuyer loan production has shifted dramatically. We’ve gone from primary reliance on self-insured taxable bond and tax-exempt bond loans insured by both private and government insurers, to a mainly FHA-insured product mix dominated by our FHA Plus down payment assistance loans.
However, the government’s need to stem mounting losses to the FHA insurance fund is resulting in changes to federal program requirements. Some newly proposed changes, including increased mortgage insurance premiums and restrictions on seller contributions, could make attaining homeownership more difficult for VHDA’s borrowers. The changes will also increase demand among borrowers who previously would have had sufficient cash to qualify for a traditional FHA or conventional loan. These borrowers will now require the down payment assistance offered by VHDA through FHA Plus.
Since VHDA faces the same risk of loss as FHA, we too must continue to take prudent steps to manage risk. In light of anticipated continued weakness of home values—and in some markets, continued price declines—we believe it is appropriate to tighten the loan-to-value (LTV) requirements for our FHA Plus loans.
As of May 1, 2010, eligibility for down payment and closing cost assistance is based on the borrower’s credit score. This change, in addition to the stricter qualifying ratios we imposed in August 2009, means that borrowers with:
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credit scores of 680 and above will continue to be eligible for the current maximum 5% second mortgage to cover the down payment required by FHA as well as closing costs.
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credit scores of 620 to 679 will be restricted to a smaller 3.5% second mortgage to cover the down payment.
Reducing the average loan amount will increase the total number of FHA Plus loans we are able to make.
Since the risk in offering a high LTV mortgage is not insignificant, VHDA is working to ensure that:
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First-time buyers seeking VHDA loans are able to afford their mortgage payments.
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Funds are lent in the most reasonable and prudent manner possible.
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Incentive remains to use the product.
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A predicted larger demand can be met.
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