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STOP TAXATION? - The new changes for FHA loans are being called : The New Homebuyer Tax

By Jeff Belonger

Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

August 10, 2010 01:40 PM

fha loan changes being call new homebuyer tax

Just last week, Assistant Secretary for Housing and Federal Housing Commissioner David Stevens announced that FHA was changing their annual mortgage insurance plan. - FHA announcement - I wrote about it here : HR Bill 5981 - FHA mortgage insurance.

We now have some groups and people announcing these FHA Loan changes as a tax. Think Big Work Small released their version in this video on Monday. New Homebuyer Tax Starts September 2010 - 08.09.10 - Brian Stevens, from TBWS states this... "A tax that furthers HUD's Agenda." Sounds scary, right? Because it sounds like the government is taxing us more. But this kind of wording irks me and can make it sound a lot worse than it is, or a lot more expensive. Let me further explain.

UPDATE : as of 8/10/10 - HUD has announced to make this new change effective October 4th, 2010 -

I do know where Think Big Work Small is going with their argument in regards to what HUD stated. HUD made this statement in January 2010.

fha loans mortgage insurance being twisted as less of an impact to borrowers

In regards to HUD's statement above, I think I was one of first to question HUD's statement back in January and then I argued this in more detail in this post. HUD - Don't insult my intelligence about new FHA Loans changes - We can argue HUD's statements until we are blue in the face.

But my concern with others stating that this is a Homebuyer Tax is that I call this a 'spin on words'. Can we call it a tax? Sure, I will give everyone that. But why are we calling it a tax. Are we trying to make the government look bad? Is that person or group trying to make a name in the news by coming up with an interesting subject line or title? Hey, I will admit, I love stirring the pot, to get recognized. But one thing I dislike are those that stir the pot but offer no solutions. If you read many of my posts over the years, I might knock on something, but I try to look at it from both sides and come up with solutions.

economic recovery

So let's take it a step further. Could I make this statement and be 100% correct? If FHA loans were to disappear tomorrow, would our economy crumble to the worst ever? I would say yes and I think many would agree with me. I wrote many reasons why FHA loans should not be abolished. - Should we abolish all FHA loans? - So FHA has raised their monthly mortgage insurance premiums and lowered the upfront mortgage insurance premium. Should we tax the tax payer? Should the government print more money to pay for this? Or should we just pass this along to the borrower? I would say no, no, and yes. My question to you... aren't we trying to stimulate the economy? Yes, and to allow FHA mortgages to crumble would defeat this easily.

grass is always greener when it comes to acusing the government about FHA loans

Summary : In many cases, the grass is always greener on the other side. Yes, we can complain that the new changes on FHA loans will hurt buyers than help them. But if the mortgage insurance fund wasn't replenished and we lost the ability to do FHA loans, then what would happen? How about this question. How come many haven't complained about the extremely high pricing hits on conventional loans with LTV's less than 80% and credit scores below 720? If I put 5% down and have a credit score of 679, my penalty would be 1.75 pts. And don't forget that the mortgage insurance factor on that scenario is much higher than on FHA loans. That is if you could even qualify for mortgage insurance. Most won't go below a credit score of 680.

FOOD for thought : Remembering the '90s. Many of you might not know or remember, but the one time mortgage insurance premium was once 300 basis points while the monthly mortgage insurance was 50 bps. Really quick.....

fha loans being changed with the monthly mortgage insurance

As you can see, your total loan amount would be even more prior to 2000. Now, if I had to choose on how to make some of these changes to FHA mortgages, I would go back to the old, because as you can see, your total payment wouldn't be as much. But FHA is hoping that people hold onto these newer mortgages longer, to recoup more money. As I mentioned in this post, HR Bill 5981 - FHA mortgage insurance, FHA would add about $2,500 more if you held onto the loan for 7 years.

So how do you look at this? Which would you prefer? What would you call this whole traffic jam of mortgage information?

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Don Sabinske

Don Sabinske, Sabinske & Associates Inc. - Zimmerman, MN

Sabinske & Associates Inc.

I am not a mortgage expert, but I don't have to be. That's what you are paid to do. But, I understood what you are arguing even though I didn't click all the links. (I had followed along earlier.)

I can see the point. Prior to 2000, we all paid more in PMI if it was required. And, we do need to replenish the pool for funds for FHA. Provided, of course, that it stands as it is.

You have written a fairly comprehensive and understandable course in economics and loan orgination on behalf of FHA in only what I would say would be one page of type. Great work. "Suggested".

Aug 10, 2010 02:02 PM

Tim Bradford

Cleveland, OH

NMLS 250013

Jeff, Suggest for Feature also. I like how you point out that it is easy to criticize any change as no one likes change. FHA as become the "BEST DEAL IN TOWN" in so many cases. I believe I have seen a number of posts asking for increases in the FHA loan Limits to allow more expensive homes to take advantage of the "Best Deal In Town". I believe you and I had wished FHA had kept the current upfront MIP ( or even Increase it) and not have made as large of an increase in the monthly premium because of the higher payment the new MIP. I believe you have seen they delayed the New MIP implementationtill 10/6/2010. I am waitingto see the published rules. Because of today's low rates many people can justify refinancing with the .55% Monthly MIP, with an increase to .90% fewer will qualify for the Streamline Refinance program. I hope they make some allowance for this when the Final/Final Rules are published.

Aug 10, 2010 02:23 PM

Roland Woodworth

Blue Cord Realty - Clarksville, TN

Blue Cord Realty

Jeff: You make great points here.. Over all in the long run it will cost more for the FHA loan. Unfortunately this is what it is. I would never say to get rid of the FHA Loan. This is another great option second to the VA Loan. Of course only a select few qualify for the VA Loan and the FHA Loan offers a lower payment than the Conventiona Loan.

You do a great job to explain the different loans. Also suggested :)

Aug 10, 2010 02:40 PM

Dagny Eason

Dagny's Real Estate - Wilton, CT

Fairfield County CT, CDPE Homes For Sale and Condo

Jeff - as usual, a fabulous explanation! Without FHA loans, I would not have sold many homes this year or last.... Thanks for explaining the new stuff so nicely for me.

Aug 10, 2010 03:09 PM

Patricia Kennedy

RLAH@properties - Washington, DC

Home in the Capital

Great job on this one Jeff. You write about complex things and make them easy enough for me to understand.

Aug 10, 2010 03:34 PM

Sheldon Neal

Bergen County, NJ - RE/MAX Real Estate Limited - Maywood, NJ

That British Agent Bergen County NJ

FHA loans IMHO may have been a bigger stimulus than the first time buyer tax credit ! FHA loans certainly allowed more people to buy than many other incentives did.

Aug 10, 2010 04:05 PM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

DON.... . I get paid? lol.. I don't think I get paid enough. Maybe I need to have gimicks like so many others. But I do love sharing my opinions and try to look at things from a common sense approach. Overall, I am glad that you have followed this, because I am sure it has all made sense and tied in with each other. And I truly thank you for your support and for your kind words. thanks

TIM... . hey, I criticize easily from time to time. But what I hate are those that complain, yet they ignore the positives... and just blame the gov't... that is the easy way out in my opinion. And yes, you and I both agree that we would have both liked to have seen FHA raise the upfront and not the monthly. Thanks for suggesting this and for the compliments.

ROLAND.... . you stated this... "Over all in the long run it will cost more for the FHA loan." Well, only if you compare FHA loans to USDA loans and to VA loans.... but in most cases, FHA loans will be much cheaper than conventional loans. Only a select few could do USDA or VA... so that leaves you with 2 other options.. FHA or conventional. .. which you mentioned some of this. Overall, thanks for the polite compliments.

DAGNY... . I think the housing market, besides many realtors and loan officers, would be completely dead... thanks for the kind compliments.

PAT.... . if I can get you to understand this, then I could get a piece of drift wood to understand this... lol <teasing> seriously, that's a very nice compliment.. so thanks and thanks for the kind words.

SHELDON... . hey my British agent... that is an excellent point and statement..... you said...

"FHA loans IMHO may have been a bigger stimulus than the first time buyer tax credit !"

Excellent statement.... thanks for your input.

Aug 10, 2010 04:23 PM

Vicki Pedersen

Pedersen Real Estate - Riverside, CA

Providing Exceptional Real Estate Service

Jeff, I saw the Think Big Work Small video on the new changes in FHA. It did a pretty good job of getting one riled up with the so called "tax". It is really good to read your perspective. Thanks - really good post - as usual.

Aug 10, 2010 05:48 PM

William Collins

ERA Queen City Realty - Scotch Plains, NJ

Property and Asset Management

Jeff,Thanks for the post. Clearly one has to always understand he motivation behind what is written in the way of commentary. However, those of us in the trenches understand the importance of FHA as a mortgage product and its sustainability, which is clearly conveyed in your blog post. Thanks!

Aug 10, 2010 09:57 PM

Ginny Gorman

RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI

Homes for Sale in Southern RI and beyond

Jeff, thanks for elaborating on your post & costs on fha from the other day...the perspective of prior to 2000 is important for all people to remember...i for one want the borrower to shoulder what they need to....i too suggested

Aug 10, 2010 11:58 PM

Margaret Woda

Long & Foster Real Estate, Inc. - Crofton, MD

Maryland Real Estate & Military Relocation

I don't care what they called the new costs (tax or fee), I loved their video. My attention span isn't that great when it comes to reading the details of this kinda stuff (except, of course when you write it, and then I at least skim the whole thing) but that video kept my attention for four whole minutes. It did serve as a wake-up call that buying today is better than buying next month. Maybe it will get a buyer off the fence or a seller to accept today's offer instead of holding out for a better one tomorrow.

Aug 11, 2010 12:29 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

VICKI... . I just think sending that message out to the public and using such phrases as "homebuyer tax", will get more people angry and or to think that FHA is a bad loan. It's bad enough that some realtors still have their sellers turn down offers that are backed by FHA financing. Trust me, I understood what they were saying in the video and yes, they keep everyone's attention... but shouldn't we also be careful on how we project things to the public, when in reality, FHA is one of the better games in town? Thanks and thanks for the compliment.

WILLIAM.... . I am always leery by ones motivation at times, no matter how nice someone comes across. Not saying that they are bad... but I just didn't care for the title, because now you have other realtors looking at it this way, as a tax, when HUD makes specific changes all the time... yet we don't compare them to the past, but criticize in the present. Just my outlook on things... thanks for your input and feedback.

GINNY.... . thanks for recognizing what I was pointing out, in regards to the old FHA standards... it's easy to harp on the new changes, yet we forget the old ways... but yes, who in the end will take care of these changes? You? Me? The gov't? Or should we pass it along to the buyer? Which is still cheaper than doing a conventional loan. Thanks for suggesting this and for understanding this.

MARGARET.... . yes, videos usually catch people's attention much better than a blog post. And yes, their videos are done very nicely, can be entertaining, and informative. But that is where some focus can be lost when listening to a charged up video and not the real message. I agree with them 100% on what they stated about FHA making it sound like this new change is cheaper overall for the borrower... but it's just the notion of proclaiming this as a tax. I just think it's a bad way of putting this out there to the public and to the real estate community. And sure, buying now will be better than buying in a few months... but at least FHA will still be around. There could be many hidden agendas, but unless you are inside HUD, you can only speculate... and look where that has gotten us over the years, until we wake up and it hits us in the face. I just wanted to keep everyone's focus on the larger picture and not claiming that this is another gov't ploy for more money. Just my opinion.. thanks for your feedback.

Aug 11, 2010 01:54 AM

Larry Bettag

Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL

Vice-President of National Production

Jeff....I'm not going to rant on this even though I read the entire post. Let me just say "well said." I hope that the government gets this right, but let's be honest.....it's the government and in spite of claims that they want to stimulate the economy, their actions are such that they really don't want to. Pisses me off. Great call here bud. GREAT CALL!

Aug 11, 2010 02:18 AM

Larry Bettag

Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 - Saint Charles, IL

Vice-President of National Production

By the way Jeff. I re-read this again. I am suggesting this for a feature dude. It's spot on!

Aug 11, 2010 02:23 AM

Rebecca Gaujot, Realtor®

Lewisburg, WV

Lewisburg WV, the go to agent for all real estate

Jeff, also suggested for a feature...a great explantion on FHA mortgages.

Aug 11, 2010 06:04 AM

Cari Anderson

Danville, CA

Jeff: what a thorough treatment of this hot-button issue. Just when we get used to an FHA change, they trow another one at us. It's really going to hinder a would-be buyer's buying power. Hope this gets the feature. Best wishes!

Aug 12, 2010 09:42 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

LARRY..... well, in my opinion, I truly don't think the gov't needs to make this their focus when stimulating the economy.... sure, this could raise someones mortgage payment and reduce what they can buy... but only by like 10k... what they need to focus on are jobs.. But in any case, thanks for the kind words and for the compliment... and for suggesting this.

REBECCA.... . thanks for the compliments and for suggesting this as a feature. I guess it was to bland and boring for the AR gods, even though this is a hot topic. thanks

CARI... . thank you very much, that coming from another loan officer. I think we will see many changes in the next 12 to 18 months. Again, thanks and thanks for the compliment.

Aug 12, 2010 09:58 AM

Max Boehmer

Tampa, FL

My question is does this really strengthen the cash reserves of FHA ? If we are in immediate need of funding for the preservation of the program then how does reducing the UFMIP make sense ? The break even on the change happens 4 years out. Average duration is based of 5-7 year assumptions so I feel like we should have considered keeping the UFMIP at the same rate and adjusting the monthly premiums to help reserves.

If you are trying to avoid bankruptcy do you want your income today or 4 years from now ? Seems like another silly policy decision.

Aug 17, 2010 04:33 PM

Dave Sullivan

Real Estate One - Birmingham, MI

Michigan Realtor with an investor viewpoint

I did a quick interview with Brian Stevens and Frank Gureay on video bloging you can view it here

Aug 21, 2012 05:07 AM