The ability to refinance into lower rate loans in an easier and cheaper way can be granted to borrowers with a number of federally insured mortgages through a plan made public on March 06, 2012 by the Obama administration.
President Obama declared the cut of upfront fees for refinanced loans the Federal Housing Administration already insures.
Borrowers with FHA loans issued before June 01, 2009 are the new fees’ target. The savings could be used by the approximately 2 to 3 million borrowers. As stated by the current administration, this could decrease mortgage payments for the usual FHA borrower by around a thousand dollars.
President Obama said, “It’s like another tax cut in people’s pockets.”
An upfront insurance premium equivalent to 0.1%, which is the lowest available rate, of the mortgage amounts amount — $100 for a $100,000 loan — with an additional annual fee of 0.55% shall be paid by borrowers refinancing their own existing FHA loans.
Jaret Seiberg, an analyst with the Washington Research Group, stated that there is an opposing idea between the new refinancing fees and the cost of acquiring an FHA loan. A borrower paying a 3.5% for the down payment for purchasing a home from April 1 shall pay 1.75% as upfront fee and 1.25% as annual fee. Purchase fees mentioned were introduced only just three weeks ago, so as to improve the capital reserve of FHA.
Has the housing policy set by Obama flunked?
However, according to Seiberg, lowering refinancing fees “should be broadly positive for housing and the economy by reducing foreclosures and freeing up income for consumers to spend on other goods and services.”
Since the new policy directs FHA to not count the loans toward the “compare ratio” of the lenders, it makes it easier in the part of the banks to refinance the loans. This way computes the loans’ performance, as issued by the lenders, and then relates it to the other lenders’ performance.
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