FHA Home Loans - FHA Monthly Mortgage Insurance to increase - OUCH

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc
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FHA Loans - FHA Home Loans - FHA Mortgages

 

The cost of FHA loans could increase before the end of the year is over with.  Right now, depending on your LTV (loan to value), the FHA monthly mortgage insurance is either .50% or .55% of the base loan amount.  We could see increases any where from .90% to 1.55%. That is a significant increase. Michael LaFido gives more details in this post : FHA mortgage insurance premiums approved to triple in cost

 

 

FHA Monthly Mortgage Insurance Premiums  (with less than 5% down)

Current premium                    -   .55% monthly

Expected increased premium  -  .90% monthly

Maximum increased premium  - 1.55% monthly

 

 

As in the article mentioned above, it can be established that monthly payments on a $200,000 mortgage could increase any where from $59/month to $167/month. Two things happen here.

1. Yes, the borrowers payment increases and even $150 extra a month could impact the borrowers ability to pay

2. But it also would reduce the purchase price by $20,000 or more.

 

 

Below is an excerpt from what Mr. LaFido stated in his post.

fha upfront mortgage insurance and fha monthly mortgage insurance

 

 

 

 

 

 

 

Here is my problem with this kind of statement, in which HUD has even stated the same thoughts. I call it smoke and mirrors. Here is how I break it down.

First off, he stated that it would reduce closing costs by $2,500.  Even though the Upfront Mortgage Insurance is considered closing costs, it does not have to be paid in cash at settlement. It can be rolled into the loan amount. With that said, the difference alone in payment is only $14 a month if you reduce the loan amount by $2,500.  So even  if they raised the monthly percentage to the next tier, that is a difference of $59/month. So if you reduce the upfront, that is a difference of $45 more a month.  And if you went to the highest tier, that is a large difference of $167 a month, minus the $14, gives you a difference of $153 a month. Just in 16.33 months, you paid off the difference of the $2,500.  So if you stayed in the house for just 3.2 years, you doubled your costs, paying an extra $2,500.  Think about it, FHA says they will give you a break on the upfront. In reality, they are receiving money pretty quickly in a short time, to help the depleted mortgage insurance funds. I really don't have a problem with that, because FHA is a vital part of the housing industry and we need to make every effort to sustain this type of financing.

 

 

Here is an excerpt from what HUD stated in January of 2010 which can be found here : FHA Announces Policy Changes to Address Risk and Strengthen Finances

FHA upfront mortgage insurance

 

 

 

 

 

 

 

 

 

Notice what they said..... "with less impact to the consumer". Come on, please don't insult my intelligence. $100 to $150 wouldn't have an impact on the average borrower?

 

 

Conclusion : As I mentioned, don't so much have a problem with what needs to be done to help with FHA mortgages, but I do feel that they could reduce the monthly percentages by at least a 1/4 of a percent. As I showed above, just in 3.2 years on a $2000,000 loan, FHA would recapture an additional $2,500 in that time period. And just for the fact that FHA has realized that it's funds have been depleted for a few years, why couldn't they have looked at this seriously a few years ago or even a year ago, and made a slight change instead of what I feel is a drastic change.  Yes, FHA loans are vital to home buying, but at what cost? What are your thoughts?  We need to let the government hear our voices on this subject.

 

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

 

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For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

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For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Experience & Knowledge at its BEST !!!

 

 

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______________________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 7 times:

Re-Blogged By Re-Blogged At
  1. Joe Jackson 06/12/2010 05:54 AM
  2. Joe Jackson 06/12/2010 05:54 AM
  3. Lori Mode 06/12/2010 06:20 AM
  4. Marzena Melby 06/13/2010 05:22 AM
  5. Lyn Sims 06/13/2010 09:16 AM
  6. Lewis Poretz 06/14/2010 12:49 AM
  7. Guy Adams 06/14/2010 02:55 AM
Topic:
Lending / Financial
Location:
Florida Palm Beach County Wellington
Groups:
Realtors®
Mortgages
All About Mortgages/Mortgage Networking
1st Time Buyers
The FHA Mortgage Group
Tags:
fha loans
mip
fha mortgages
fha home loans
fha upfront mortgage insurance
fha monthly mortgage insurance
fha mip changes

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Ambassador
1,296,348
Dagny Eason
Dagny's Real Estate - Wilton, CT
Fairfield County CT, CDPE Homes For Sale and Condo

This feels like it will eliminate several of my buyers who think they can purchase a house......   What a shame!

Jun 13, 2010 04:55 AM #12
Rainmaker
920,697
Larry Brewer - Benchmark Realty llc
Benchmark Realty LLc - Nashville, TN

I wonder where that extra money will be spent? We know it won't go where we would hope.

Jun 13, 2010 05:02 AM #13
Rainmaker
522,122
Mike Carlier
Lakeville, MN
More opinions than you want to hear about.

MIP is insurance which is always experience rated.  Maybe it's just me, but without any personally collected scientific data, I'll make a WAG that recent experience has included a tad higher loss ratio for home loans.  Of course the rates have to increase to reflect the risk. 

Jun 13, 2010 05:42 AM #14
Rainmaker
225,558
Tim Bradford
Cleveland, OH
NMLS 250013

Jeff, 

A few additional points.   First I am tending to support Mike's comments (#15) that based upon losses the restructuring the MIP premiums needs to be done.  Exactly how to structure the changes is the question.  I do not believe that HUD plans on increasing the Monthly rate the 90BP across the board, possibly with a 580 Credit Score recieving a increase in the monthly premium and other Credit scores possibly having an increased monthly premium.  Like you, I like the ability to finance the upfront premium and would hate to see them lowing that to make up for any changes they make on the monthly.  This would hurt the ones that need it the most.  Higher monthly payments hurt the most for low to middle income buyers.  Striking the correct balance of upfront finance able premiums and monthly premiums will be difficult.   I assume any changes will be put out for public comment and that will be the time for everyone to express their views. 

I believe we are still waiting for HUD to request public comment on reducing sellers concession.  The principle I am talking about will apply with that as well.  Here in Ohio base closing costs can easily amount to 3,000(no points).  If HUD success in limiting the sellers concessions to 3%.   IT would create a burden on the low to middle income buyers in Northern Ohio because we do have many homes ideally suited for first time buyers below $100,000. 

Jun 13, 2010 06:19 AM #15
Rainer
374,107
Jana Holmstrup
Jana Holmstrup - CCO - Kings Mortgage Services, Inc. - Visalia, CA

Jeff,  I had not heard of these plans... wow :(  The contemplated solution seems counter to their goal.  If they need to increase their reserves, UFMIP would seem the obvious way to go since they receive those funds, well, Up Front!  And would result in a much smaller, manageable impact to the borrower.

Once again, the government is fixing our problems... Conventional PMI is looking more and more attractive all the time.  Thank you for the update!

Jana

Jun 13, 2010 06:49 AM #16
Rainmaker
229,831
Nathan Tutas
Tutas Towne Realty, Inc. - Davenport, FL
Your Central Florida Real Estate Expert

Ouch, it's starting to look like the last half of this year is going to be rough for US buyers. It sounds like the banks will be offloading a bunch more foreclosures soon as well. Here comes the aftershock I think.

Jun 13, 2010 07:04 AM #17
Rainer
45,296
Ceci Burklow
Pride of Texas Real Estate - Austin, TX

Jeff,

First of all, thank you for the easy way in which you write that makes the lending world be understandable to everyone, even prospective home owners.  I am planning to share your information with my prospects. Now is truly a great time to buy, don't wait!

Secondly, I too realize that money needs to be in the coffers and that FHA is a very valuable asset to the housing market.  I'm with you in thinking they could have used a bit of foresight and not had such a drastic jump at one time.

Scary as once again we lower our percentage of qualified buyers!

Jun 13, 2010 07:28 AM #18
Rainer
201,518
Debbe Perry
Real Living Carolina Property - Morganton, NC
828.439.3084 Morganton/Lake James NC

Great, balanced treatment of good info in FHA - where would we be without it?

Jun 13, 2010 07:53 AM #19
Rainmaker
656,967
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

It was very nice of Brent to post his $600,000 listing as an example, :-), but it seems it will impact the lower-end buyers the most. The working class gets it again.

Jun 13, 2010 08:05 AM #20
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

DAGNY... . it certainly could... but if anything, they would just have to buy less.

LARRY... . it's just suppose to recoup FHA losses, to replenish it's fund.

E.J. aka Mike... . I know the percentage has to increase because of risk and because of the depleted funds.. but they have seen this happening for a solid year and some prior, going back to 2008.  Everyone seems to wait when it's too late or when they need to increase more than what they could have increased it to.

TIM.. .I have mentioned this in my post and in some of my comments... I agree 110% that it should be increased some, but I think the increase is too much. I would rather have them raise the MIP to the old days of 3.00% or 3.25% than raise the monthly.  Many of us know why, because they will get a lot more money in a 6 year period than if they just raised the upfront premium.

JANA aka Kings Mortgage .... . glad I could share something then... but conventional PMI is not going to be a concern of mine if you have credit scores less than 680 and putting even 5% down... FHA should still be better... but we will agree, that the gov't is always trying to fix our problems and lately, they seem to make things worse...  thanks

NATHAN... . I hope not, that business is still out there... I think it will depend on the interest rates staying low and consumer confidence...  and welcome to Active rain..

CECILIA... .  thank you very much for those kind words. And yes, FHa financing is very important, but at what cost?  As I mentioned, they should have acted sooner, and the increase might not have been as huge then.. thanks

 

Jun 13, 2010 08:16 AM #21
Rainmaker
1,543,625
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

I think that any changes are going to make a big impact on sales. It should have been decided earlier because they knew the 'depletion' was coming & seems too drastic a measure. Doesn't anyone have a calculator over at HUD?

Jun 13, 2010 09:12 AM #22
Rainmaker
85,945
Debbie Durkee
Coldwell Banker Select, Realtors -- Tulsa, Oklahoma - Tulsa, OK
ALC, CRS -- Land & Country Estates near Tulsa

I guess we're just going to have to start encouraging our clients to save up for the down payment like we used to do years ago.  After all, it worked.

Jun 13, 2010 11:38 AM #23
Rainer
56,003
Manny Gonzalez
Negotiable Realty LLC - Chicago, IL

Just what our industry needs...another kick in the ^!#$%

Jun 13, 2010 12:22 PM #24
Rainer
77,926
Ronda Densford
Magnolia Properties - Jacksonville, FL
Realtor - Jacksonville and Northeast Florida

Finally! An explanation that I understand. I have struggled with the right terminology to use with my young buyers. I could see this coming but didn't know exactly how to explain it. Thanks for the GREAT post!  I'll share it with my buyers.

Ronda Densford, REALTOR Jacksonville FL

Jun 13, 2010 03:53 PM #25
Ambassador
749,666
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

DEBBE.... . thank you for the polite compliment and for stopping by.

JOETTA... .  I agree 110%... the only thing about Brent's comment is for those in that kind of market where even small houses cost that much. But yes, overall, the small priced home buyer will be affected more.  thanks

LYN... . a calculator?  What's that?  lol  Seriously, I agree... it wasn't like this all happened in late 2009.. they have been talking about it for almost 2 years.  Why does it take so long? Yet, when the President wants a stimulus package signed, it takes less than a few weeks.

DEBBIE.... . well, I would have to semi disagree about that, because a $10,000 extra down payment is not going to change the monthly payment by that much... I will do a blog on this in a few days.  But back to your statement... what era would you be referring to, that it worked?  In my opinion, it's hard to compare the past, say 5 years ago or so, because the last few years are totally different and don't compare as much. thanks.

MANNY.... .    well, I just think they could have planned better...thanks

RONDA.... . well, thank you very much for those kind words... I try.  I hope your buyers can understand it and if you need any further assistance, please don't hesitate to call me.  thanks

 

Jun 13, 2010 04:58 PM #26
Ambassador
668,508
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Jeff: Government is everywhere in our lives these days. The only thing that might change that is regime change and we'll need to wait a couple more years at a minimum for that. My thoughts? As with everything else, it won't impact the market that much. Let's face it. Sourcing and getting loans done these days is tougher than ever. The only thing that will make it easier is an upturn in our economy and, frankly, I don't see that happening in the next year. Not to be completely gloomy as there is always opportunity. It's just that the American psyche is severely bruised. Until the public's confidence returns I expect challenging times. Thanks for the post!

Jun 14, 2010 03:14 AM #27
Rainmaker
99,135
Gerry Suarez Jr.
Jet Home Loans NMLS 1660135 - Maitland, FL
FL Mortgage Guru

Great post Jeff, and a very effective breakdown of the real costs involved. It took me a while to find this but check out this link especially the "Restructuring FHA Mortgage Insurance Premiums" section about 1/3rd down. There we have what number is actually being budgeted:

"As noted in the proposed budget, while HUD is moving to increase the upfront premium to 225 basis points we are ultimately planning to reduce that premium to 100 basis points, offset by a proposed increase in the annual premium to 85 basis points for loans with loan-to-value ratios (LTV) up to and including 95% and to 90 basis points for LTVs above 95%."

Let's see once the authority is granted if FHA sticks to these numbers!

Gerry Suarez, Jr.

Your FHA Loan Pro!

Jun 14, 2010 04:14 AM #28
Rainmaker
782,828
Mike Bjork
Pinnacle Home Loan - Redondo Beach, CA

Hi Jeff,

I agree with your assessment with the Monthly MI.  I know that they were trying to increase the monthly, but laws/regulations were preventing them; so they raised the Upfront in the mid-term.  Personally, I'd like them to go back to th Risk-base Pricing (before Oct. 2008).  This way, the people with good credit aren't being categorized with the less-than-stellar credit profiles.  Unfortunately, we have people in Congress, Barney Frank, who state misconceptions that this practice discriminates against the Low-Income people.  Since when did Credit Scores know the difference between a high- and low- income person, in order to discriminate?  That's my 2 cents, keep up with the great blogs.

Jun 14, 2010 06:00 AM #29
Rainer
75,276
John Cassels
Sterling Savings Bank - Tacoma, WA
NMLS #197076

Jeff your insight is always greatly appreciated.

Jun 14, 2010 07:17 AM #30
Ambassador
2,299,461
1~Judi Barrett
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Jeff,

Thanks for the post.  I appreciate the post by someone that works in these mortgages on a daily basis.

Jun 25, 2010 12:18 AM #31
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