Homebuyers must come up with more cash up-front to secure one of the government’s Federal Housing Agency loans, which could raise the minimum down payment from its attractive 3.5-percent level.

That’s just one of the new rules announced today by Housing and Urban Development Secretary Shaun Donovan for the loans that make up a significant chunk of new lending locally.

More on that decision, in Donovan’s own words from his testimony in a hearing today:

… we have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan — to make sure that FHA borrowers have more “skin in the game” and a stronger equity position in their loans. There are several ways to accomplish this, and so we are currently analyzing various options to determine which is the most effective and consistent with our mission.

Calculated Risk summed up the key points from Donovan’s announcement:

  • Focus on enforcement and lender accountability
  • Reduce the maximum seller concession from 6% to 3%.
  • Raise the minimum FICO score.
  • Increase the up-front cash for borrower (it isn’t clear if this is an increase in the downpayment, currently a minimum of 3.5%, or requiring the borrower to pay more fees).
  • Increase FHA insurance premiums.
  • The proposed changes will be announced by the end of January.

FHA loans have the corner on a growing share of the market for mortgages in San Diego County. Nearly 30 percent of the homes bought with loans here in October were FHA-backed. In 2007, FHA had less than 1 percent of the loans.

The LA Times includes a breakdown of how much of the market these loans have captured elsewhere in Southern California:

In Southern California, the number of FHA-backed loans has soared, becoming a crucial source of financing for first-time home buyers, particularly those snapping up foreclosed homes. FHA loans made up 38.3% of all Southland purchase loans in October, up from 32.5% a year earlier and just 2% two years prior, according to MDA DataQuick, a San Diego real estate research firm. Riverside County had the region’s highest rate of FHA loans, at 49.2% of the market.

— KELLY BENNETT

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