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.
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 firstname.lastname@example.org