According to the California Association of Realtors, administration (FHA) has confirmed that as of Sept. 30 it will fall short of its legal requirement to maintain supplementary reserves of 2 percent of the loans it insures, FHA Commissioner David Stevens says that it will not be seeking a taxpayer bailout. Instead, to help mitigate losses, the FHA will tighten credit standards to rebuild the cushion to 2 percent or more, without raising the premiums borrowers pay or seeking an increase in its down-payment requirement of 3.5 percent. Under the new rules, lenders making FHA-insured loans would need to show net worth of at least $1 million, an increase from $250,000. The agency is seeking to ensure that lenders have funds available to compensate the FHA if their loans fail to meet quality standards. The FHA also will impose a maximum loan value of 125 percent of the current estimated home value on refinanced loans, in line with Fannie Mae and Freddie Mac. Appraisals will be valid for no more than four months, a decrease from the previous six to 12 months validation period. The FHA also plans to implement appraisal changes adopted earlier this year by Fannie and Freddie. Mortgage brokers or bank employees paid on commission won’t be allowed to order appraisers.

According to the California Association of Realtors, homeowners who find themselves struggling with mortgage payments and unsure how to handle the situation—short sale, foreclosure, or walk away—are advised to consider the impact of each on their credit scores. Loan modifications that roll late payments and penalties into principal debt owed on the house can actually increase borrowers’ scores modestly, while refinancing underwater mortgages may have little or no negative effect on credit scores, according to Vantage Solutions, a scoring company created by the three national credit bureaus. Short sales on the other hand can trigger large declines in credit scores, according to researchers. A homeowner with an excellent credit score might see a 120 to 130 point decline after a short sale. Homeowners who choose to walk away from the home and stop payments altogether should expect their credit scores to fall 140 to 150 points, plus negative marks on their credit bureau files for up to seven years. People filing for bankruptcy protection covering all their debts will get hit with an average 355- to 365-point drop in their scores. Bankruptcies remain on borrowers’ credit bureau files for 10 years. But there is good news. Homeowners facing financial stress can experience minimal declines to their scores if they contact their loan servicer or lender when they first discover that they may have trouble making their monthly payments.

According to the California Association of Realtors, despite home buyers being advised to issue down payments of at least 20 percent, many home buyers are finding that smaller down payments result in better interest rates—but also higher payments.

Rules put in place in late 2008 by Fannie Mae and similar rules adopted by Freddie Mac are less favorable to borrowers who put down 20 percent to 25 percent–partially because the GSEs consider these borrowers to be more of a credit risk since they are not required to purchase private mortgage insurance.

According to Fannie Mae, borrowers benefit from this industry practice because they are able to leave themselves a financial cushion by not issuing larger down payments, and can instead save the extra money for emergencies.

It is important to note though that smaller down payments mean higher monthly payments because the loan itself will be larger.