Will Increasing the FHA Monthly Mortgage Insurance Cause MORE Foreclosures?

By
Real Estate Agent with Keller Williams Realty Louisville East (502) 664-7827

Raising mortgage insurance premiums raises borrowers payments.

Anything that raises the payment also lowers the purchasing power of the buyer.

Lower purchasing power means sellers have to lower sales prices.

Lower sales prices means more sellers move into a negative equity position.

More sellers in a negative equity position means more short sales and foreclosures.

More short sales and foreclosures mean greater losses to banks and mortgage insurers.

More losses to mortgage insurers means they have to raise mortgage insurance premiums, which starts the process all over again.

 

I'm just a simple real estate practitioner and I hope my above logic is wrong.

I really do understand why taking in more premiums is essential to offset losses. Companies are scrambling to survive in this environment. Robust lenders and a strong FHA enables survival of the housing market.

How do you think the increased FHA mortgage insurance premiums will impact the market?

All opinions, whether agreement or dissenting are welcome.

 

Posted by

 

 

Dave Halpern, Realtor

The Dave Halpern Real Estate Group

Keller Williams Realty Louisville East

Website David.DavidHalpernRealtor.com

(502) 664-7827

 

 

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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

I disagree.  Raising the MIP was actuarily sound and long overdue.  The MIP is still below historical highs from which they were lowered causing the deficiency. 

I prefer a higher MIP to an increase in the FHA down payment from 3.5% to 5% which has been proposed.

I prefer a higher MIP to a reduction in seller paid closing for the buyer from 6% to 3% which has been proposed.

Feb 16, 2011 10:39 PM #1
Rainmaker
432,131
Frances C. Rokicki
Fran Rokicki Realty, LLC - Bolton, CT
Broker-Mentor,CRS

I am with Lenn.  I don't believe that the pmi amount increase will hurt the buyers or their ability to own a home and manage the payments.  However, raising the downpayment monies needed and taking away the slosing costs, paid at closing by adding to the mortgage (aka seller's paying the closing costs), will definitely have a negative impact on the market sales.

Feb 16, 2011 10:50 PM #2
Rainmaker
565,710
Mike Saunders
Lanier Partners - Athens, GA

Dave - I don't believe that it will be quite the domino effect that you are describing. Yes, it will impact the price range of home that a buyer can afford, but, beyond that, I believe the impacts will be limited. This is the least negative impact of any of the other proposals, such as raising down payment minimums, etc.

Feb 17, 2011 02:08 AM #3
Rainmaker
526,160
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Lenn, Frances, Mike,

This is exactly why I call for opinions different from mine. I learn much more from your knowledge and perspectives than I do if I just have a monologue of my own.

Feb 17, 2011 02:37 AM #4
Rainmaker
2,191,638
Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

FHA loans are still the best thing going since sliced bread, so I don't think they are going away. In fact, we need to shore up the system to make sure this program remains a viable way for first-time home buyers to afford to buy a home.

Feb 17, 2011 03:29 AM #5
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Dave Halpern

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