FACTBOX - FHA measures to improve loans, raise capital

NEW YORK Dec 8 (Reuters) - The U.S. Department of Housing and Urban Development has announced numerous steps since September to improve the quality of residential loans guaranteed by the Federal Housing Administration.

The FHA is also in need of additional capital after an actuarial report found the agency's secondary reserves have fallen below the required 2 percent, to 0.53 percent, as losses from borrower defaults rose.

The housing agency insures nearly 30 percent of all purchase mortgages and 20 percent of refinanced loans, according to HUD Secretary Shaun Donovan.

Proposed changes or new guidelines announced by Donovan on Dec. 2 include:

-- HUD will increase "up front" cash required on a home purchase, giving the buyer more "skin-in-the-game." FHA said it can tap several options, and analysts say it will mean some increase to the current minimum down payment of 3.5 percent.

About 31 percent of purchase loans done in the first eight months of 2009 had the maximum 96.5 percent loan-to-value. Another 55 percent had 95 percent to 96.5 percent LTVs.

-- HUD might increase the 1.75 percent up-front premium and/or annual mortgage premiums. It is asking Congress to raise annual premiums since that would raise capital with the lowest borrower impact, Donovan said.

-- HUD cut allowable seller concessions to 3 percent from 6 percent in a move to limit incentives to inflate appraised values. The move reduces the money the seller can contribute to a buyer's closing costs, discount points and other concessions without impacting the buyer's mortgage.

-- The FHA will raise the minimum credit score for new borrowers. The FHA has yet to determine the minimum "FICO" and may factor in the down payment.

-- It will boost enforcement and hold lenders accountable for losses associated with loans that do not meet FHA standards. As of Dec. 8, the FHA this year has suspended eight lenders and withdrawn approvals for 270 others.

-- The FHA will develop a "lender scorecard" on HUD's website that summarizes performance of lenders that make FHA loans.

Other credit policy changes announced by FHA Commissioner David Stevens on Sept. 18 and Nov. 30:

-- FHA proposes to increase the required lender net worth to ensure accountability. HUD is proposing an initial increase in the net worth requirement, from $250,000 to $1 million in the first year, and at least $2.5 million after three years.

-- A proposed rule would hold approved FHA lenders responsible for loans originated by mortgage brokers. Brokers will no longer receive independent FHA approval for origination eligibility.

-- The FHA is requiring that lenders submit annual financial statements.

-- It is bringing "streamline" refinance transactions into line with other FHA origination guidelines. Changes include requirements for payment history, income verification and capping the loan-to-value ratio at 125 percent.

-- The FHA will reduce the period for which an appraisal is valid to four months from six to 12 months.

(Reporting by Al Yoon; Editing by Dan Grebler)