If you have an FHA loan in process this month. you were "given a gift" only to have it "taken away" nine days later. It was a political stunt by past HUD Chairman Julian Castro and it's a darned shame it happened to you. Let me break it down for you:
The FHA charges borrowers money to insure their loan against default. It adds 1.75% to your loan and charges a monthly mortgage insurance premium in addition to that added 1.75%. You can avoid this by having at least a 20% down payment and getting a conventional loan (although FHA rates are lower than conventional rates)
The FHA monthly mortgage insurance premium WAS based on an annual charge of .5% of the loan amount prior to the Obama Administration taking office. During the housing crash, the FHA insurance pool (the money collected from the premiums) was depleted because of all the foreclosures. The first term Obama HUD Secretary (Shaun Donovan ) started to increase the monthly mortgage insurance premium cost, from the annual charge of .5%, to an annual charge of 1.4%. This increased the monthly cost of a new $400,000 FHA loan from $166/month to $466/month.
This was a bummer for new FHA borrowers because they were essentially paying for the failures of the past borrowers. Still, if FHA was going to be sustainable, it had to do something so they opted this approach. It worked. The FHA insurance pool grew from being depleted to sustainable. As the size of the FHA reserve pool increased, the HUD Secretary during Obama's second term (Julian Castro) started reducing the monthly mortgage premium from an annual charge of 1.4% to its current annual charge of .8%. This reduced those monthly mortgage costs (on a $400,000 loan) from $466 to $266.
A few months ago, HUD Secretary Julian Castro floated another premium cut from its current .80% annual cost to .55% annual cost. This would reduce the monthly cost (on a $400,000 loan) from $266 to $183. This move was met with vocal opposition from career HUD bureaucrats and the Republicans in Congress. The prevailing thought was to leave the annual FHA mortgage premium be for now and let the reserve fund grow more.
HUD Secretary Castro ignored the advice of career HUD bureaucrats and issued the order to cut the FHA monthly mortgage cost anyway. He issued this order on January 11, 2017 to take effect for loans FUNDED after January 27, 2017. I thought this was suspicious when he issued it because all previous HUD orders were effective for loans STARTED after the effective date. This seemed "too good to be true".
If it looks too good to be true, it usually is untrue. HUD Secretary Castro's order, breaking with normal HUD policy on effective dates, was a legitimate HUD order anyway. We (like other lenders and REALTORS) delayed closings so that borrowers would benefit from the monthly cost reduction. Here's what you need to know:
Castro's FHA order to reduce costs was never gonna happen and Castro knew it when he issued it on January 11, 2017.
Castro was playing politics with borrowers' money. His intention was to put the new HUD Secretary (Dr. Ben Carson) and the new President into the tough spot of saying "Sorry. This was never a good idea". As such, Castro timed the repeal of the January 11, 2017 FHA order to come out just an hour before the new President was inaugurated. Castro was quick to release this repeal order to the media so that it could run with the story that "The New President RAISED FHA monthly mortgage costs".
Let me give you a simple analogy:
I am the principal of a school and you are taking my job next Friday. Last month. I asked all the teachers if we could cut the dismissal time from 3PM to 2PM, The teachers said "this is a bad idea" and you (the new principal) agreed with the teachers. Last week, I ignored the teachers advice and sent an email to all of the pupils saying that the new dismissal time would be 2PM, effective the Monday after you become the new principal. My last act as principal, before I hand you the keys to the school, will be to send an email to the pupils saying "Sorry, the new principal might be a meanie so I can't keep that 2PM promise to you". Guess who won't be popular with his new pupils next Monday? You.
It's political scheming and it's garbage. The Obama Administration took a parting shot at the incoming Trump Administration and, if you have an FHA loan in process, you are the loser in this political game. In my opinion, the incoming Administration should honor the reduction for 30 days and restore the (higher) premium for loans funded after February 28, 2017. They might not have time to do that and I don't make policy so, if you have an FHA loan in process, expect to pay the original (higher) amount.
