Remember when the FHA monthly mortgage insurance premiums rose from .5%(annual) to .9%(annual) ? The NAR kicked and screamed about housing affordability but the move was made to shore up the ailing HUD reserves. What many folks missed was that HR 5981 allowed for an increase for an annual premium of 1.55%:
The bill has already passed the house. The bill (H.R. 5981) allows FHA to raise its annual premium to 1.55% from 0.55%. Approved by unanimous consent, the legislation now goes to the White House for the president’s signature.
I haven’t decided that this is a good thing to happen to mortgage lending or a bad thing. One of the determining factors for me will be how much of the authorized increase FHA determines they will actually take. If they take the full 1.55%, it will literally take about 25% of the buyers out of the market.
According to the National Mortgage News, “With this new authority, FHA will lower its 2.25% upfront premium to 1%, but then raise the current 55 basis point annual premium, basing the hikes on loan-to-value ratios. FHA wants to raise the annual premium to 85 bps for loans with LTVs of up to, and including 95%, and to 90 bps for loans with LTVs above 95%.”
Well, it looks like HUD Secretary Shaun Donovan has decided to raise the FHA premium again:
Higher FHA Insurance. "As Fannie Mae and Freddie Mac's presence in the market shrinks, we will encourage program changes at FHA to ensure that the private sector – not FHA – picks up this new market share," states the Treasury plan. In addition to the change in loan limits, the Administration will put in place a 25 basis point increase in the price of FHA's annual mortgage insurance premium, which is paid in 12 monthly installments. FHA just increased the annual MIP payment to .85 percent last October. The new rate will be 1.10 percent. FHA currently accounts for 30 to 40 percent of all new purchase mortgages, and more than half of all mortgages taken out by first-time buyers.
What does that mean to the average FHA borrower, taking out a $300,000 loan in San Diego County?
- Six months ago, the FHA mortgage insurance premium would have been $125.00.
- As of October 1, 2010(and currently), that FHA monthly premium would be $225.00
- After April 1, 2011, expect that FHA monthly insurance premium to be $287.50.
It's more than doubled. Can you blame HUD though? As Greg Swann writes, while the Obama Adminsitration says they want to wind down the government's role in housing finance, it appears they just want to shift the responsibility to a growing agency. That's not helpful for a sustainable recovery in mortgage financing. Until the government completely withdrawals from housing finance, private lenders have no incentive to come up with a solution.