When do new FHA mortgage rules kick-in? TODAY!

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The Federal Housing Administration (FHA) recently announced new qualification rules for homeowners applying for FHA-backed mortgages. Pundits and journalists alike are debating these new rules and their possible effects when they go into effect sometime next year. What nobody seems to realize, however, is that lenders are already applying the new rules and the effect is going to be an almost immediate housing DE-stimulus from the government.

I'm not at all saying that these changes aren't appropriate for FHA, which had become the last bastion of sub-prime lending. I am saying that raising downpayment requirements above 3.5 percent, increasing minimum credit scores, and increasing premiums for mortgage insurance can only have a chilling impact on the low end of the market -- the only segment other than foreclosures or short sales to see much action lately.
FHA loans, historically about three percent of U. S. mortgages, had in the past year grown to more than 30 percent of a much smaller market.

While FHA hasn't yet applied the new rules, most major lenders have. Many lenders will even override an FHA approval based on the old rules with a local disapproval based on the new rules.

So much for the housing recovery, eh?

It would be interesting for a mortgage applicant to challenge this too-soon use of the new rules, but the lenders are so good at delaying and dissembling that I doubt anyone will get satisfaction.

Perhaps Congress should take a look.

Sales and closings will soon begin to drop as the current inventory of loans locked under the old rules subsides. that's why the lenders are proactively applying the new rules, to make sure they are well and truly in effect by the time they officially kick-in. The only thing continuing to prop-up the lower end of the market will be the $8000 or $6500 home buyer tax credits which, too, are slated to expire later next year.

Uh-oh.
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