There has been a lot of talk about Congress coming down hard on government financing with tighter 2013 FHA loan requirements in an effort to stem foreclosures and reduce delinquencies. In 2012 we witnessed the lowest interest rates ever recorded and importantly the housing sector has begun to turn the corner for the better.
Thousands of first time home buyers were able to utilize FHA to buy a home in their neighborhood. In most cases converting a renter to a home owner is good for the economy. Most of these consumers choose these government loans because the FHA down-payment requirements still only request a 3.5% from the borrower. Fannie Mae and Freddie Mac request 10 to 20% in most cases from first time home buyers.
Millions of struggling homeowners were able to refinance with government loans because the rates were low and the credit guidelines were more flexible. People like the FHA refinance requirements that only require 3.5% equity and a 96.5% loan to value ratio for underwriting purposes. People also like that 2013 FHA requirements still say the minimum credit score is only 500. Most lenders offering refinancing from Fannie or Freddie say that the minimum credit score is usually 680, with the rare exception allowing for scores as low as 640 for borrowers that have compensating factors.
We anticipate that there will be proposals from committees in Congress to raise the 2013 down-payment requirement to 5%, but our staff does not believe there is enough momentum to pass such legislation. The Federal Housing Administration has been helping consumers become first time home buyers since 1934 and we do not expect that to change in the next few years.
We do anticipate that there will be changes to FHA loan programs in the new year. We anticipate the minimum credit score will rise at some point in the coming year. We expect refinancing with FHA to remain aggressive as property values across the country are finally rebounding.