Regarding the FHA mortgage insurance (MI) changes
effective this coming June 3rd, after several years in the mortgage
business I have never seen such a bone-headed move by FHA to do what they are
doing with MI. Think about it. Why would anyone do a FHA loan? The answer
is DTI (debt-to-income) is above the tolerance of Fannie and Freddie. Guess
where the majority of defaults come from. You got it.
The answer is, of course, that starting June 3, the FHA
will require most borrowers using its loan products to keep the insurance
for the life of the loan or, in cases with a 10 percent down payment, at
least 11 years. The FHA's new mortgage insurance cancellation policy is aimed
at shoring up the agency's reserves. The FHA insures its own loans, and the
fund registered a $13.48 billion shortfall last November. The shortfall was due
largely to loan defaults tied to the recession and housing bust, and altering
the cancellation policy and increasing the upfront insurance fees (already
done) should generate billions in revenue. Lenders and Realtors know, however,
that first-time homebuyers will be those most impacted by the FHA changes,
and it's hard for move-up home buyers to move up if someone else doesn't buy
their house.
Based on these changes, our FHA volume has dropped
markedly. The reason: If the borrower is looking to buy a home with 5% down,
and keeping his purchase price at or under $439,000, with a maximum loan amount
of $417,000, it would make more sense to go with a conventional
Fannie Mae or Freddie Mac mortgage. The savings to the borrower are huge,
in light of the recent Mortgagee Letter# 2013-04 (see attached). In addition to
the borrower having to pay the new higher UFMIP of 1.75% (up front mortgage
insurance premium of $7298 for a $417,000 loan amount), NOW borrowers must pay
the new higher annual MIP (Mortgage Insurance Premium) of 1.3%, up
from 1.2%. With a conventional conforming 5% down loan, up $417,000, the
borrower would NOT have to pay the increased upfront premium of 1.75%, but pay
only private mortgage insurance, but typically at HALF the RATE of FHA’s MIP.
I suggest if you are a first time buyer, you should get counsel from a licensed mortgage professional and know all of your options.
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