FHA loan requirements to get stricter

Owing to growing concerns about FHA reserves (and a potential taxpayer bailout), in the near future those borrowers seeking FHA loans will have to pony up larger down payments (up from the current 3.5%) and have higher credit scores. From the L.A. Times:

Home buyers will have to pay more cash upfront to get a mortgage backed by the Federal Housing Agency -- including, possibly, coming up with a larger minimum down payment -- and will need to achieve higher minimum credit scores under changes announced today by Housing and Urban Development Secretary Shaun Donovan...

He wants to make those and other changes because a recent audit has shown that the FHA's reserves have fallen below mandated levels as the agency has become a larger part of the housing market. The percentage of mortgages insured by the FHA has soared from 6% in 2007 to almost 30% this year. The FHA insures mortgages made with as little as 3.5% for a down payment and has become vital in a housing market where credit remains tight and borrowers' bank accounts have been depleted by the financial crisis.

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...