FHA MIP Premium increases may be a bit too much!

FHA MIP premium increases may be a bit too much!

During the first half of fiscal year 2012, the origination of Veterans Affairs (VA)-backed home mortgages soared 40% while production of Federal Housing Administration (FHA) loans fell 24%. The comparison is to the same period in 2011.

Both of these government-backed programs offer low down payment loans and some additional/looser/expanded underwriting guidelines than the main GSE's FNMA & FHLMC. However, FHA has been raising mortgage insurance premiums almost every other month, seemingly, as of late, in an effort to rebuild cash reserves and cover loan risks.

As recently as 9/2010 FHA monthly mortgage insurance premiums were calculated at a factor of .55 it then took a massive jump to .90 and since has taken 2 more jumps to 1.15 and now sits at 1.25 (these are all based on the highest MIP factor for loan to value ratios of 95.01% and higher). When doing the factor conversion into real dollars and cents (please do not confuse cents with sense or scents lol) Washington has little (sense) and what they do have doesn't have a pleasant odor (scents). This equates to a homeowner with a 200,000 mortgage paying the old rate of just under 92/mo to the new rate of almost 210/mo! Does HUD really need and extra 120/mo for the exact same loan?

To see the bigger picture - for every 1M in loans they insure they are netting an extra 600/mo and the average lifespan of MIP is over 10 years on these loans! That's 72,000 (estimated lifetime) for every 1M in production or in the case of their real production that would be a staggering 3,600,000(+-) /mo! Annually its 43,200,000 (this number is based on a low estimate of 6B/mo) then we take our final step of the just 10 years of MIP and that gives us a grand total 432,200,000!!! that's four hundred thirty two million two hundred thousand (for those wondering) and that's just the increase to monthly premiums for 1 year of current levels of production for refinances only!!!

Is this amazing or what $432,200,000 and that is just the increase over old levels from 09/10!

So back on topic... what does this mean for FHA in reality?

The higher premiums appear to be stifling FHA financing's in particular. FHA refis fell 37% to $37.7 billion in the first half, while VA refis jumped 68% to $35 billion.

Is this needed? I guess we shall see how HUD reacts in the coming months. If we see a shift (as whats coming down the pike keeping premiums for loans originated pre 06/09 at the old rate of .55) might be enough to rebuild the coffers but you have to ask... whats so special about 05/09 and prior FHA insured loans?

1. Do those customers really deserve a break that loans closed in 06/09 and later do not?
2. Isn't it the FHA model to NOT discriminate?
3. Isn't it part of the FHA mandate to provide affordable access to housing and to help home ownership?
4. Isn't part of all this HARP 1.0 and HARP 2.0 and the new FHA portion designed to HELP struggling homeowners avoid default and save money?
5. Isn't all of this desgined to benefit those who have NOT walked away and stood by their commitment?

So why the drastic shift in policy? Don't get me wrong we are already so busy its crazy but there is nothing that hurts more than to tell a borrower who qualifies to save money... NO I am sorry your loan closed in June 09 or in my recent case today 9/09 so you dont save 250/mo your savings is a little over 30??? Yeah I dont get it but then again I am SURE I have only limited facts in the matter as I have not made it on the HUD "need to know" list as of yet.

The moral of this is "its easy to sit back and critique things I like or dont like but the harsh and cold reality of it is, I dont know all the facts, reasons and numbers behind this. Similar to being an armchair QB its a lot easier to watch a game from your chair and say what should have happened versus being on the field and smack in the middle of the action." I may not like and agree with all decisions being made but I do appreciate the fact at least something is being done and I, and all who benefit, are very glad at least some are getting REAL and tangible help and benefit!

Anyway if you are the fortunate owner of an FHA loan opened 5/09 or prior you could save thousands of dollars each year for FREE!!!!

Colorado FHA loan holders reap great benefit from this new program so ACT NOW before another change removes it as fast as it arrived!