Thanks for visiting The Mortgage Reports. To stay absolutely current on mortgage markets and important guideline changes, be sure to take my free daily email alerts.

Life as an FHA borrower is getting tougher.

In an effort to shore up its flailing balance sheet and dwindling capital reserves, the Federal Housing Authority is rolling out sweeping financial changes. FHA borrowers have to look better on paper and be better credit risks.

Mortgage insurance premiums are rising, too.

Changes Effective April 5, 2010

In its official announcement, the FHA said its trying to better position itself to "manage its risk while continuing to support the nation’s housing market".

The changes are effective with case numbers assigned starting April 5, 2010.

One widely speculated change wasn't made -- the increase of the FHA minimum downpayment.  Homebuyers in Cincinnati, Chicago and elsewhere can still buy with just 3.5 percent down.  However, the group did roll out a number of other changes, including:

• An increase in Upfront MIP from 1.75 percent to 2.25 percent
• A reduction in maximum seller contributions from 6 percent to 3 percent
• A Congressional request to increase monthly mortgage insurance premiums

Furthermore, the FHA's new guidelines institute a minimum FICO requirement of 580 to make the minimum 3.5% downpayment, requiring 10 percent for any applicant whose credit score falls below that level.

2010: The Year Of Investor Overlays

But, just because the FHA allows 580 FICOs, banks don't have to allow it.

The official term here is "investor overlay". It's when that banks use Federal Housing Authority guidelines as a starting point for their own set of underwriting rules which are often more strict.

And banks have a good reason for making investor overlays.

In January, the FHA subpoenaed 15 lenders -- including the well-respected 1st Advantage Mortgage in Lombard, Illinois -- because of abnormally-high FHA default rates.  The act was a shot across the bow, it appears, because more lenders have been shut down since.

The FHA made a loan performance benchmark and if a  bank's defaults exceed the mean by x number of sigmas, said bank loses its FHA license. Period.

Expect FHA investor overlays to be a running theme of 2010.

A Mortgage Denial May Not Be Permanent

Guidelines will vary from bank-to-bank as lenders take a more active role in managing their originated mortgages.  What gets FHA-approved Bank of America, for example, may not be FHA-approved at Wells Fargo.

Many FHA loans will be denied in 2010 simply because the applicant applied at the wrong bank.

If your mortgage has been denied or you just want to have the best chance of being approved possible, call or with some notes on your situation. I work for Waterstone Mortgage -- a HUD-approved lender.  We underwrite and fund FHA mortgages from our own accounts, and work with the nation's largest investors as an approved conduit.

In other words, apply once and you'll be automatically aligned with the bank with the best pricing plus least amount of overlays. That's what I do for you as your loan officer.

I gave a television interview with Beejal Patel of First Business this week and we covered a lot of ground topics like housing, mortgage rates, and the FHA.

In this 5-minute spot, I answer:

• What will happen to mortgage rates after the Fed's market withdrawal?
• How will rising mortgage rates impact the housing market?
• What will happen to home prices after the tax credit expires?
• How does the jobs report relate to mortgage rates?
• What changes are coming down the pipe from the FHA?
• What are investor overlays and why do they matter to home buyers?

Like I said, we cover a lot of ground.  Thankfully, it's easy to digest.

If after watching the piece, you have some follow-up questions for me, and I'll reply back to you.