Tuesday, June 15, 2010
6/15/2010 01:35:00 PM | Posted by
Arbor Mortgage
On June 10, the House of Representatives passed the Federal Housing Administration Reform Act (HR 5072) in a practically unanimous vote of 406-4. This law is intended to boost the reserves held by the FHA, which now insures roughly a third of the nation's mortgages.
This vote just finishes what was started back in April 2010, when the up front mortgage insurance was increased from 1.75% to 2.25%. The passage of the bill allows FHA to increase the annual mortgage insurance premium, which is paid monthly, from .50% or .55% to 1.5% maximum. However, FHA says they only intend to raise it to .9% at this time.
There are some serious pros and cons to this increase. Plain and simple, FHA needs to the money. They went from insuring only 4% of home loans just 4 years ago to almost a third of all home loans today. The reserve fund has plummeted well below the required 2% of all loans, to a miserable .53%. Without some sort of infusion, this program wouldn't last, and housing needs FHA. The passage of this bill is key to stability of this program.
But, at the same time, when it's harder than ever to qualify for a loan, raising mortgage insurance premiums just makes housing less and less affordable for the little guy. In the Midwest, median home prices in April of 2010 were $146,400 according to www.realtor.org. Currently, if you put down 3.5% on a home at that price, you would pay $66 per month in monthly mortgage insurance premium. Under the new guidelines, if it raised to .9% as FHA reports, the monthly premium raises to $108 - a difference of $42. That doesn't sound like much, but it can severely cut back what a buyer qualifies. A person that qualified for a maximum loan of 200,000 now will be cut back to 189,000.
One pro to this bill passage is actually what wasn't said. The House actually defeated the proposal to raise the minimum down payment on FHA loans to 5%. It also shot down an amendment to lower the FHA loan limits, and an amendment to limit FHA's market share.
The proposal to increase the down payments was the most hotly debated. The Mortgage Bankers Association, National Association of Home Builders, and the National Association of Realtors all made efforts to successfully squash the proposal. In compromise, a provision was injected into the bill that would require FHA to reexamine down payment requirements annually and submit the findings to Congress each year.
The big questions now is what will become of the up front mortgage insurance premium? FHA is saying that with the annual premiums raised, they can afford to slash the up front costs; possibly to as little as 1%. Since this fee is almost always financed on top of the loan amount, reducing it by this much will help take back some of the affordability that is lost by increasing the monthly payments.
Only time will tell. If you'd like to learn more about FHA changes, Contact Us.
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- Arbor Mortgage
- Arbor Mortgage is a Michigan based mortgage lender that has been providing mortgage solutions for more than a decade. Since 1998, Arbor Mortgage has helped more than 20,000 people purchase or refinance their homes. Arbor offers a variety of mortgage programs including FHA, USDA Rural Development, VA, Conventional and Alternative loans.
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