The Federal Housing Administration is increasing fees and tightening lending standards. The government agency has observed its losses increase as its reserves have declined below the minimum level required by Congress.

It is important that the FHA is in good shape for the housing market because it insures about 30 percent of new loans, and is the largest mortgage backer for first-time buyers.

The changes, which will go into effect in the first half of the year, "are among the most significant steps to address risk in the agency's history," FHA Commissioner David Stevens said in a prepared statement.

The FHA does not make loans, but rather offers insurance against default. Borrowers are willing to pay for the insurance because FHA loans only require down payments of 3.5 percent of the purchase price

With the changes, homebuyers will:

Insurance premium Pay an upfront mortgage insurance premium of 2.25 percent of the total loan amount, up from the current level of 1.75 percent. A borrower taking out a $200,000 mortgage would pay a $4,500 fee. Borrowers will still be able to wrap these fees into the total amount borrowed. FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.

Credit Score

A credit score of at least 580 is required to qualify. Borrowers with score lower than 580 will need to pay at least 10 percent down payment.

The changes come as borrowers with loans backed by the agency have increasingly been defaulting in their payments. More than 18 percent of FHA borrowers are at least one payment behind or in foreclosure as compared to all loans at 14 percent according to the Mortgage Bankers Association.