The proposals are among a series of steps aimed at fortifying the FHA's reserves and easing lawmakers' concerns about the possible need for a taxpayer bailout of the big mortgage insurance agency.
The up-front insurance premium paid by borrowers would increase to 2.25 percent under the proposal. Home buyers seeking FHA-insured mortgages would be required to have a FICO credit rating score of 580 in order to qualify for a loan with just a 3.5 percent down payment.
New borrowers with lower credit scores would have to put up a down payment of at least 10 percent. In addition, the maximum concession sellers could offer would be decreased from 6 percent to 3 percent, based on concerns that the higher level leads to inflated home appraisals.
The FHA will need Congress to increase the statutory cap on annual insurance premiums paid by borrowers, which is currently 0.55 percent. Once the annual cap is raised, FHA Commissioner David Stevens said borrowers are likely to be required to pay less up front, which he said "will be more beneficial to consumers."
FHA will also ask for new statutory authority aimed at ensuring lenders are held liable for the loans they originate and underwrite, and to make it easier to target national parent companies of local subsidiaries of lenders.
Stevens said the overall goal is "striking the right balance between managing the FHA's risk" and "continuing to provide access to underserved communities."
Historically confined to the lower end of the mortgage market, the FHA's share of the market rose dramatically during the financial crisis as the government loosened lending strictures and increased the amount of new loans the agency could offer.
But the higher volume of loans stretched the FHA's reserves. An actuarial report released last November indicated its capital reserve ratio had fallen to 0.53 percent, well below the congressionally mandated 2 percent threshold.