FHA Mortgage Costs Rising

Why would HUD decide to raise FHA mortgage costs at a time when the economy and the housing sector nationally are struggling so much? Just a few years ago, FHA home loans were considered a financing dinosaur.  FHA loans were nearly considered obsolete because they were time-consuming and more regulated, and sellers were usually not comfortable with FHA financing being written into the sales contract, because they knew at the time that the appraisal requirements and timeline for underwriting would drag out the process for closing the loan. Times have changed, and FHA has automated the FHA home loan process.

Today, an FHA mortgage remains the only low down-payment lending product, requiring just 3.5% from borrowers. Just five years ago, FHA loans had a market share of only 5%.  In 2010, FHA lending accounts for about 30% of all home loan originations nationally. This surge of mortgage loan volumes has increased the pressure on the FHA Mortgage Insurance Fund. FHA is required to maintain this emergency fund of reserves above 2% based on all of its insured mortgages.  This year we saw the reserves fall well below the 2% minimum and HUD has been forced to take drastic steps, like tighten the FHA guidelines.

FHA Mortgage Lending Back in Style

In an effort to preserve the sacred FHA loan program, HUD announced it will be raising its annual mortgage insurance premium from 0.55 % of the mortgage amount to 0.90% (for loan to values higher than 95%) or 0.85% (for LTVs lower than 95 %). This insurance premium hike will go into effect, October 4th, 2010.  In an effort to save face, FHA will be lowering their upfront mortgage insurance to compensate homeowners for their rising monthly payments. This is good news for new homebuyers because the fees are dropped to 1% of the loan amount from 2.25%.  Overall, it looks to add $300 million a month to the insurance fund by taking these actions.

FHA Borrowers to Pay More Monthly

So what does that mean to FHA buyers come October? It means they will be paying more each month.  For example, let’s take a $250,000 purchase. Under the current FHA mortgage insurance framework, the upfront premium would be $5,428 for a total loan amount of $246,678. The monthly mortgage insurance would be $110.57. Take an interest rate of 4.625%, and the principal and interest payment would be $1,268.27. Add the $110.57 and you get $1,378.84.

Under the new FHA requirements, the new upfront amount would be about $2,500 on a FHA mortgage loan amount of $250,000. However, the monthly insurance jumps to $180.94. Take the same interest rate, and the principal and interest payment decreases to $1,252.76. But with the higher premium, that total payment comes in at $1,433.70, an increase of almost $55 a month.  To a borrower who is just barely qualifying, that can have an effect. It also puts into play taking another look at private mortgage insurance as an alternative for the borrower.  These types of adjustments shouldn’t be surprising as FHA tries to adjust to the marketplace. It recently released its quarterly report to Congress, and it shows just how much FHA has become a part of the mainstream when it comes to mortgage lending.

Is FHA Mortgage Lending Seeking a More Limited Role?

Posted on August 3, 2010 by admin 
Filed under FHA Articles, FHA news, Published Articles · Tagged:

The FHA Loan Pros suggested that former Treasury Secretary Hank Paulson was in favor of limiting FHA mortgage lending to lower income Americans that were seeking with reduced home loan amounts. They believe he wants to keep the price of the insurance commensurate with the risk being taken on the FHA loans. In other words, take FHA back to where it was only a few years ago, when private lending was as attractive or more attractive to most borrowers and FHA had a relatively small part of the market. Today, most FHA lenders are willing to take on the kind of risk FHA does would have to pay its investors a lot more to make those loans than FHA currently pays its investors. The playing field must be leveled and our infatuation as a society with home ownership must end.

Over 900 FHA Mortgage Lenders Lose Certification

Posted on August 2, 2010 by admin 
Filed under FHA Mortgage Articles, FHA news · Tagged:

HUD continues to make significant effort to clean up FHA mortgage lending. With FHA rates reporting all-time lows and flexible FHA guidelines, now is not a good time for a mortgage company to lose their ability to origination FHA mortgage loans. Recently, the FHA Mortgage Review Board pulled its approval stamp from 905 national FHA mortgage lenders for 12 months.   That means those FHA lenders cannot sell low-interest, FHA-approved mortgages to home buyers over the next 12 months or until their FHA certification has been restored.  “Lenders should know by now that FHA will not tolerate fraudulent or predatory lending practices,” said David Stevens, FHA commissioner.  “Any approved FHA lender that does business with us must follow our standards. If we determine that our partners are not playing by the rules, we will take action – it’s that simple.”

According to DSNews.com, So far this year the MRB has taken action against nearly1,500 approved FHA mortgage loan companies who failed to meet FHA loan requirements.  A notice was published in the Federal Register with cited actions that included reprimands, probations, suspensions, withdrawals of approval, and civil money penalties.  The board said it voted to immediately withdraw its approval because the 905 lenders were not in compliance with the department’s annual recertification requirements.

An additional 147 FHA lenders were said to have failed to timely meet requirements for annual recertification of HUD/FHA approval, but are now in compliance.  The board voted to give these FHA lenders an opportunity to settle the matter by paying a $3,500 civil money penalty without admitting fault or liability.

The HUD Reform Act of 1989 established the MRB. The board’s primary purpose is to monitor approved FHA mortgage lenders for violations of the agency’s program requirements.  The question is — Will the lenders survive for a year without the ability to originate FHA home mortgage loans?