New FHA Rules! (How Does This Affect Portland?)
Posted On: January 20th, 2010 by James Posted In: Government Actions • Mortgage Insurance • Mortgage Programs • Portland Real Estate
I’ve been hearing rumors about the FHA needing to increase its cash position and lower their risk profile for about a year now. I heard rumors that the down payment would increase from 3.5% to 5% down. All of these things make sense because the FHA is just being pushed beyond the brink of fiscal sanity right now. Now that the subprime mortgage universe has been sucked into a black hole, the only “low down payment” mortgage option, or “relaxed credit” mortgage option for borrowers has been the FHA mortgage.
Now, the FHA is not a bank, they are merely an insurance provider for banks. Other banks make the mortgage with knowledge that the FHA will cover a certain amount of possible loss incurred, thus alleviating a lot of the risk associated with making that loan to begin with. So, now that FHA loans make up over 30% of all mortgages being currently written, this pool of insurance is being massively stressed by all of the poor performance of mortgages of late.
This pool of insurance is being spent RAPIDLY! In order for the FHA to maintain the appropriate levels of capital needed to continue to exist, they are raising their fees essentially.
The existing amount of “up front mortgage insurance premium” paid to the FHA at close is 1.75% of the loan amount. The proposed increase is to make that upfront MI to be 2.25%… a full half point increase. This fee has never been one that has had to be collected from the buyer/borrower at close, but is customarily “financed” into the full loan amount, so it’s paid over the 30 year term of the mortgage. So the good news is that this fee increase won’t affect purchasers that dramatically at first, BUT- this will certainly increase the cost of borrowing reflected in that borrowers APR.
I’m not exactly certain when these fees take effect, but I expect them to happen sooner than later.
** Actual HUD press release about new FHA rules
6 Responses
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James says:
That is a great question! Not sure, but I just sent an email to a great Reverse Mortgage Rep that I work with. Stay tuned, hopefully I can get some clarity for you shortly.
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Ok, here’s the scoop: NO CHANGE on reverse mortgages with regard to the FHA MI changes coming. They’re still at the flat 2% up front MI premium at close. I hope that helps!
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[...] been an option in the last 18 months, and these borrowers were all being pointed to FHA loans. And come April 5th, FHA loans are about to get more expensive as that FHA mortgage insurance is scheduled to [...]
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Nice post… Does anyone have any updates on Obama’s plans for FHA in 2010? I heard they were supposed to be making changes.
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We’re really definitely not 100% certain that credit card debt negotiation is the way to go nevertheless I have been starting to think a lot more about it based mostly upon what I’ve been reading through. I will declare the fact that eleminating forty% of my debt or so would have been a great relief of pain.
Do you have any details regarding how the new proposals will affect FHA Reverse Mortgages (HECMs)? I can’t seem to find much information, HUD seems oddly reticent about it.