Federal Housing Administration Commissioner David Stevens said a Congressional-mandated timeline for the FHA capital ratio to return to 2% would force actions from his staff that could have “unintended impacts.” Congress mandates that the FHA’s secondary reserves meet 2% of the total amount of its insurance guaranteed. Currently, it is at 0.53%. Last year, the FHA forecast it would be three to four years before that 2% ratio would be reached, and that he remains committed to that timeline. “We should all have a concern of FHA, and I am concerned about it. 2007 and 2008 were terrible books that were originated with limited scrutiny, and we are going to pay the price on those books for some time to come,” Stevens said. “We are absolutely not out of the woods.” The FHA has taken steps to get the program back to good health, and some future actions are still pending Congressional action. On Oct. 4, FHA will cut its upfront premium to 1% from 2.25%, while the monthly yield was increased to 0.90% from 0.55%. Earlier in the month the FHA lowered its credit-score floor to a 500 FICO score. FHA borrowers with scores lower than 580 must now make a 10% downpayment, and only those with a higher score can make the traditional 3.5% downpayment. “The average credit score on current insurance endorsements has risen from 634 in 2007 to nearly 700 today,” Stevens said. Stevens said the FHA has also promised to reduce seller concessions, which can create incentives to inflate appraised value, pushing more borrowers underwater and eventually leading to more defaults. FHA has proposed to Congress that the maximum seller concession be reduced from 6% to 3%. But in July, the FHA seriously delinquent mortgages, those behind by 90 days or more, increased 31.5% from a year ago. However, it is down from a 35% year-over-year increase in June. A Senate bill introduced in August would give the FHA even more tools to manage risk and protect the FHA fund. The bill would allow third-party FHA loan originators to close those loans in their name and would allow the FHA to hold them accountable for any detected misrepresentation or fraud. “I believe a timeline would be the wrong way of approaching the FHA reform. To be clear, we shall do everything he can to get it back to 2%. Those steps are in process,” Stevens said. Write to Jon Prior.