Will The FHA Down Payment Rise?
April 5th, 2011
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- How Can The FHA Raise More Cash?
- Why you want an FHA refinance now
- What FHA Obama reforms would really man
- Will You Benefit From The New FHA Insurance Premiums?
This is the month when the annual FHA mortgage insurance premium will rise and you have to wonder if the same thing will happen to the FHA down payment requirement, currently 3.5 percent for most borrowers.
On April 18th the annual mortgage insurance premium will rise for new FHA loans from .90 percent to 1.15 percent for most borrowers. The change will cost a new FHA borrower about $30 a month or $360 a year and is entirely unnecessary.
The increased insurance premium is unnecessary for the very simple reason that FHA reserves are growing, not falling. HUD tells us that the FHA’s Mutual Mortgage Insurance fund — it’s reserve account — should grow by $9.76 billion in fiscal 2011.
So why would FHA guidelines be changed if the FHA is doing so well? Don’t higher costs hurt borrowers?
Working For The Private Sector
It is critical, says HUD Secretary Shaun Donovan, “that we pave the way toward a robust private mortgage market. This was a central goal of the Administration’s recently released report on Reforming America’s Housing Finance Market, which proposed to wind down Fannie Mae and Freddie Mac, fix fundamental flaws the mortgage markets, better target the government’s support for affordable housing, and provide choices for longer-term reforms.
“Taking steps to bring private capital back is a process that HUD began many months ago — and I want to thank you for passing legislation in the last Congress to provide more flexibility to FHA’s mortgage insurance premium structure. With this authority, FHA announced a premium increase of 25 basis points last month.”
Actually, I don’t think it is critical at all for HUD to pave the way toward a robust private mortgage market. I think that’s the job of private-sector lenders and Wall Street.
HUD, after all, ought to be doing what it was designed to do, to help entry-level purchasers and those in the lower and middle income brackets.
“We project that FHA will continue to support the housing market,” says Donovan, “insuring $218 billion in mortgage borrowing in 2012. These guarantees will support new home purchases and re-financed mortgages that
significantly reduce borrower payments. Over the last two years, FHA has helped over 2 million families buy a home – 80 percent of whom were first-time buyers. FHA also has helped nearly 1.5 million existing homeowners refinance into stable, affordable products, with monthly savings exceeding $100 in most cases. FHA financing was used by 38 percent of all homebuyers, insuring, along with the VA and federal farm programs, 81 percent of all loans to African Americans and 73 percent to Hispanics in 2009.”
You can see the basic conflict: On one hand HUD correctly crows about fulfilling its historic mission while on the other with higher insurance costs it’s plainly not acting to further borrower interests.
You have to wonder why HUD suddenly feels compelled to make it’s own products less attractive with an unnecessary insurance increase. You also have to wonder what’s next.
If I were guessing I can see a situation where there will be a need to raise the basic FHA down payment from 3.5 percent to, say, 5 percent. That would make FHA loans less attractive and for many borrowers no different than private-sector financing.
Now that’s some real paving….
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