Why FHA Mortgage Insurance Premiums Are Going Up - RJ Baxter, First Mortgage Corp
As you probably already know, FHA mortgage insurance premiums are going up this spring, on a date not yet specified. Rumors have been swirling about this for months, but now it is a reality.
This change will undoubtedly make it harder for consumers to qualify to buy a home. So why in light of a struggling housing market are FHA mortgage insurance premiums going up?
The reason is fairly straight-forward. FHA now insures close to 30% of the nation's mortgages, up sharply over the past couple of years as conventional loan have become very difficult for many people to qualify for. This high level of insured debt has put a stress on FHA's reserves that are required in order to maintain their portfolio. For that reason, in order to keep lending, which is critical in today's market, FHA has devised this idea of increased FHA mortgage insurance premiums in order to raise capital to insure more mortgages.
Makes sense, right? But what will be the effect on the consumer? Part of the proposal is to increase the up-front mortgage insurance premium (UFMIP) to 2.25% this spring from the current level of 1.75%. This is an increase of $1000 on a $200,000 mortgage. In addition, a proposal is in the works to increase the monthly MIP from the current .55% (.55% x loan amt / 12 months = monthly). This would mean an increased payment and more difficulty qualifying for some.
This coupled with the inevitable rise in mortgage rates has me concerned. With the housing market showing some signs of life, will increasing FHA mortgage insurance premiums add to the factors putting a damper on the housing coming-out party? Increased rates and borrowing costs along with the end of the first-time homebuyer tax credit could be a serious crunch on any housing recovery we are hoping for this year.
Good read on this topic: FHA Loans Get Dramatically Costlier - from MSN Money Online
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