Reduced FHA Mortgage Insurance makes home ownership more affordable for FHA Mortgagees.
FHA (Federal Housing Agency), the government agency who has insured loans for over 34 million homes since inception in 1934 (www.hud.gov), has announced they are lowering their annual Mortgage Insurance Premiums from 1.35 percent down to 0.85 percent.
The move was announced by President Obama in Phoenix, AZ on Wednesday, January 7th. Appropriate, considering Phoenix was one of the hardest hit markets during the housing downturn in 2009.
Julian Castro, the current Secretary for the U.S. Department of Housing and Urban Development stated, “This action will make home ownership more affordable for over two million Americans in the next three years…By bringing our premiums down, we’re helping folks lift themselves up so they can open new doors of opportunity and strengthen their financial futures.” This is just another step the Obama Administration, in conjunction with HUD have made to help the recovery of the housing market since 2009.
So what does lower Mortgage Insurance mean for the typical consumer?
FHA reports that the average household will save approximately $900 per year with reduced Mortgage Insurance Premiums. This equals about $75 per month, which for most people is a pretty good chunk of money. Homeowners and home buyers at higher loan amounts could save as much as $200 per month.
New FHA Mortgage Insurance rates are for Purchase loans, as well as Refinance.
The move will likely trigger a large refinance boom of FHA loans early in 2015 as the rules go into effect January 26th. FHA also offers an FHA Streamline Refinance that can be closed without an appraisal, and reduced income and asset documentation. Lenders are also allowed to waive all third party fees making Streamline Refinances make sense for nearly all FHA loans closed in the past few years.
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Mortgage and Real Estate Professionals across the nation praised the move by the Administration as a good step towards the full recovery of the still struggling housing market. CEO of the Mortgage Bankers Association David Sterns said of the move, “February is the beginning of the spring market. I think it will have a definitive impact particularly in the first-time home buyer market.
FHA has described their strategy as a way to increase their market share, competing with the GSE’s Fannie Mae and Freddie Mac. This move was announced just a few weeks after Fannie Mae announced a 97%LTV loan product for qualifying first-time home buyers. FHA feared the lost revenue would stifle their progress to making good on their promise to congress to have their fund reach a 200 basis point reserve. As of the announcement, FHA is still well short of the required reserves.
As far as the projected risk that low down payment mortgages inherently have, President Obama said, “Now that we’ve made it harder for reckless buyers to buy homes that they can’t afford, let’s make it a little bit easier for qualified buyers to buy homes they can afford.” This would imply that the risk has been evaluated by the Administration and deemed within tolerance for moving forward with the reduction. This is not to say lenders won’t have their own opinions on the risk and apply overlays to their products.
Time will tell if this reduction in Mortgage Insurance will be beneficial for the FHA. But in the meantime, there is a great opportunity for buyers on the fence to get into a home without breaking the bank. Or for current FHA mortgage holders to significantly lower their payments.