New FHA Proposed Changes Are Now A Reality

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

I was hoping that FHA would reconsider the proposed changes that they anounced in November, but as many of you know by now that did not happen.  HUD has announced that the two biggest changes that were propose will be implemented in the first half of the year.  Since we now know that the New FHA Proposed Changes Are Now A Reality we are going to have to adapt to them, or focus on other loan programs.

Personally I think that FHA's decision to implement these changes is a huge mistake, and a further step backwards for both the Real Estate Market, and the Lending Industry.  In a time that we are hoping to start to see the Real Estate Market turn around, the New FHA Changes will present a barrier to the recovery.  First Time and Lower Income Buyers will mostly feel the impact of these changes the most, which is ironic because the present administration claims to be an advocate of lower and medium income households.  Strange way to show support.

The change that will have the biggest impact on Buyers is the Monthly Insurance Premium (MIP) going up by another 10 bps.  This will effect Debt-To-Income Ratios and prevent many Buyers from qualifying for loans that they qualified for prior to this change

The second change will eliminate the cancellation of the MIP on FHA Mortgage with Terms greater than 15 years, and increase the number of years before the MIP can be eliminated on FHA Mortgages with Terms less than or equal to 15 years.  This change will have a long term impact, but in the short term will not be felt.  What this change means is that homeowners with an new FHA Mortgage keep the property for 5 years or less, they will not be impacted by the change, but if they keep the property for longer than 5 years they maybe impacted by the change depending on what the Loan Amount, Loan-To-Value, and Term.

Both changes will not be implemented at the same time.  Most of the changes to the increase in MIP will go into affect with FHA Case Numbers assigned on or after April 1, 2013.  The elimination of the cancellation of the MIP, and one of the increases in the MIP, will go into affect with FHA Case Numbers assigned on or after June 3, 2013.

There are several variations of what the MIP increase will be depending on Loan Amount, Term, and Loan-To-Value (LTV).  Below are two charts with the different combinations, and the MIP assigned to each.

The first chart shows the previous and the new MIP rates by Term, based on loan amount and LTV ratio.  These changes will be effective on all FHA Case Number assigned on or after April 1, 2013


The second shows the previous and the new MIP rates by Term, based on loan amount and LTV ratio.  This change will be effective on all FHA Case Number assigned on or after June 3, 2013

The third Chart shows the previous and the new cancellation time period for MIP based on Term and LTV ratios at the time of origination.

The charts at times can be a little confusing, so feel free to ask me for clarification on any of them.  However one thing that you will clearly see is that longer term loans with a high LTV, the MIP will be on the loan for the duration of the loan.  On loans with terms less than or equal to 15 years, and less than or equal 90 LTV, the MIP will cancel at 11 years.

Like it or not the New FHA Proposed Changes Are Now A Reality, and we should take the next couple of months before they start to be implemented to prepare our Borrowers/Buyers for these changes.

 

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 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Lenn Harley 02/05/2013 07:48 PM
  2. Bob Baesmann 02/05/2013 08:02 PM
  3. Rosemary Brooks 02/05/2013 08:05 PM
  4. Pamela Seley 02/06/2013 01:48 AM
  5. Rain Silverhawk 07/01/2013 12:06 AM
Topic:
Mortgage / Finance
Location:
Connecticut
Groups:
Realtors®
Mortgages
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1st Time Buyers
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fha changes

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Show All Comments
Rainmaker
1,254,132
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, the incentive for getting an FHA loan is no longer there. First time buyers have to look elsewhere.

Feb 05, 2013 09:31 PM #6
Rainmaker
407,057
Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Executive Loan Advisor, Marin Mortgage Pro

Gutting the golden goose.  The problem they're trying to solve is solvency of the insurance fund.  And the way they hope to do it is by taking on fewer premiums.  You would think the example of Social Security would serve as a stark lesson, but maybe not.

Great post.  Thanks.

Feb 05, 2013 09:41 PM #7
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, after having to bail out the Federal backed programs, the government is trying to prevent doing the same in the future, without the help of anyone that actually knows how the system works.

Feb 05, 2013 10:18 PM #8
Rainmaker
1,081,778
Paula McDonald
Magnolia Realty ~ Granbury - Granbury, TX
Magnolia Realty ~ Granbury, TX 936-203-0279

It is too bad that they made these changes as FHA was really getting a lot of kudos a few years ago.  What a shame.

Feb 05, 2013 10:26 PM #9
Rainmaker
2,155,475
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

the reason behind the changes may never be known....But the repercussions of it are coming to a deal near you soon enough

Feb 05, 2013 10:44 PM #10
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Harry F. D'Elia
Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

Thanks for bringing me up to speed with the new changes when it comes to FHA

Feb 05, 2013 11:25 PM #11
Rainer
130,786
Andrew Martin
REMAX Accord - San Ramon, CA

It wont affect my market at all right now. With 30+ offers on most lower priced homes $150-$500K, FHA buyers don't have a prayer to buy anything anyway. They were forced to the sidelines months ago in my area.

Feb 05, 2013 11:52 PM #12
Rainmaker
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Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

George...remind me the thank big brother for the real estate recovery package, once you get some steam going here comes another hill to climb. I have heard that the plan in the future is to require 20% down for every loan...there will be a lot more life time tenants in the country.

Feb 06, 2013 12:09 AM #13
Rainmaker
430,388
Frances C. Rokicki
Fran Rokicki Realty, LLC - Bolton, CT
Broker-Mentor,CRS

George, Who are the people who voted us into this mess?   For the first time I have had buyers use the conventional rate because the monthly payment was so much less, due to the higher pmi on the fha mortgage.  How is this, helping the middle class? 

Feb 06, 2013 06:29 AM #14
Rainer
128,015
Frank Iglesias
Working With Houses, LLC - Atlanta Real Estate Investments - Lawrenceville, GA
Atlanta, GA Real Estate Investor

And that is how they roll.  Complexity is bliss.  If you're broke, you have to take action too.  I guess that is how they look at it.

Feb 06, 2013 08:32 AM #15
Rainer
284,068
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

George -- there is one other thing that  will be impacted -- that is the APR.  People won't like the rate spread very much after these changes take effect.

 

Feb 06, 2013 08:51 AM #16
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joe my feeling exactly

Tamara good for you for being proactive, and those that did not listen are going to regret it.

Rosemary in this case it is not good at all.

Patricia it sure is

Kathleen, and this could end up being a big kink.

Michael unfortunately you are absolutely right.

Rob, that is the excuse that they are giving, but this will bring in far more money than needed.  So guess what will happen next?  It will be another source of money for them to raid, since there will be excess funds.

Ed, that seems to be the way they operate, and the mistakes of the past have not thought them anything.

Paula, now they will experience the opposite of the kudos.

Richie they are using the excuse of the projected shortage in the Fund, but these changes go way beyond the funds that are needed to make the Fund solvent.

Feb 06, 2013 09:54 AM #17
Rainer
194,397
Stephanie Stringer
First Choice Loan Services NMLS#210764 - San Antonio, TX
Mortgage Loan Originator

George-  I can deal with the .10 increase but when it comes to 11 years and then life of loan on the MIP, I am in shock.  So we want to help our consumers out so HUD is charging the buyers with $200- $300 monthly MIP for the term of the loan.  That extra could go towards the high price of gas or food cost.  Total shock!

Feb 06, 2013 09:57 AM #18
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Harry you are welcome

Andrew you are fortunate, but unfortunately those are not the market conditions in most of the country.

Steve, the 20% has been a proposal for a while, but it has gotten a lot of push back, so it is unlikely that it will see the light of day.  But having said that, we can never say never.

Frances it isn't helping the lower or middle class, the people that the present administrations claims to be on the side of.  Great way to repay those that voted for them.

Frank broke is where they are leading us to.

Steven, Yep that APR is going to spread wider and wider a part from the interest rate.

Feb 06, 2013 10:02 AM #19
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Stephanie, you are right, but that does not seem to concern them.

Feb 06, 2013 10:03 AM #20
Rainmaker
1,252,409
Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, I have to agree that many of my buyers will be looking at alternative financing.  FHA loans have progressivly been getting more expensive...not what we need right now and then couple that with the next impending fiscal cliff...

Feb 06, 2013 11:41 AM #21
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Nick, conventional loans are starting to look better and better, and PMI Companies seem to be seeking the business again.

Feb 06, 2013 11:51 AM #22
Rainer
144,695
Jeanne Kozak
RE/MAX In Action - Martinsburg, WV
REALTOR and Broker/Owner in WV and VA

One step forward and two steps backward...seems to me this is a very bad time to do something like this

Feb 06, 2013 12:47 PM #23
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Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

George - More changes that just aren't helpful. The chart is complicated and a bit confusing.

Feb 06, 2013 02:07 PM #24
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Jeanne, yes it does feel most of the time like we are going backward more than we are going forward.

Christine, I hope to come up with a better chart by the time these changes are implemented that maybe makes it a little clearer, but there are not a lot of options on the format

Feb 06, 2013 05:33 PM #25
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