Friday, March 23, 2012

FHA Changes MIP Premiums

On 4/9/12, President Obama's Temporary Payroll Tax Cut Continuation Act of 2011 is requiring FHA to increase the mortgage insurance premiums for newly originated loans. Currently, 30 Year Fixed FHA Mortgages require 1% of the loan amount paid upfront as mortgage insurance. This figure can be financed into the loan amount and is rarely seen on the borrower's bottom line. In addition to this, there is a 1.15% annual mortgage insurance premium that is paid monthly.
These fees have been going up at various intervals over the last few years. The demise of "sub-prime" lending has allowed FHA insured loans to flourish with their low down payment requirement of 3.5%.
The changes that are going to occur on 4/9/12 will make a big impact on the affordability of FHA loans. The upfront mortgage insurance premium is going to 1.75%. A whopping 75% increase. The annual mortgage insurance paid monthly will increase to 1.25%. .10% on $100,000 equals an $8.33 increase in monthly payment. This is quite low compared to the last increase of .25% in April of 2011.
What does this mean to you? - With the ample availability of 5% down payment conforming loans, not too much at the moment. FHA loans drive a very important sector of our housing economy right now. This sector is allowing the nation's banks, GSEs (Fannie and Freddie) and other holding companies to get out from under the massive amount of properties they own as a result of foreclosure and default. For these institutions, increasing the difficulty for borrowers to obtain FHA financing, is not good and results in a longer term holding non-performing assets. Fortunately, we are starting to see REITs coming alive again and buying up these non-performing assets due to the strengthening rental market. As investors step up to make up for the shortfall of FHA buyers, look for prices and interest rates to head north.