There has been a lot of news over the weekend about FHA attempting to avoid a taxpayer funded bailout.
There are many articles about the details of why FHA needs a bailout, here are a couple you can read later if you like:
I want to talk more about what you can expect as home owner or home buyer using a FHA mortgage.
talking about raising down payment requirements from 3.5% to 5%
There have been a few conversations about steps FHA can take to shore up losses which included talking about raising down payment requirements from 3.5% to 5%.
The good news is, this seems to be off the table and has been universally rejected as an option….for now. Once they start talking about it, just seems like a matter of time until somebody needs more money.
There are still a couple of things that will still damage the availability and reputation of FHA as being friendly to first time home buyers.
Increased Mortgage Insurance Premiums
It seems universally accepted that FHA mortgage insurance premiums will increase. Here are excerpts directly from the BMCD Annual Report to Congress last week:
“Consistent with FHA’s continued efforts to balance its countercyclical role in the nation’s mortgage market with its responsibility to manage the Fund, FHA will increase annual mortgage insurance premiums by an additional 10 basis points”
“This premium increase –$13 per month for the average FHA borrower – which FHA will enact in 2013 will add significant revenue to the Fund and ensure that FHA does not take on additional market share”
It sounds like we can expect this 10bps increase sometime in early 2013 – I would think sooner than later.
Federal Housing Administration Emergency Fiscal Solvency Act of 2012
What I don’t hear many people talking about the FHA Emergency Fiscal Solvency Act of 2012. The proposal is that Annual Mortgage Insurance Premiums (MIP) increases to 2.05%.
On September 11th 2012, the House unanimously passed the Federal Housing Administration Emergency Fiscal Solvency Act of 2012 which allows the annual mortgage insurance premium to increase to 2.05%.
We are yet to see how the FHA Emergency Fiscal Solvency Act of 2012 affects these new talks about raising money. When the minimum 10bps kick in has not been definitively identified.
I would hope we don’t see annual mortgage insurance increases to 2.05%. This would be devastating for first time home buyers that are currently eligible for FHA streamline refinancing or a new home purchase.
Keep in mind that FHA is not the only game in town. As a direct mortgage lender in California, I’m becoming a huge fan of conventional financing with private mortgage insurance.
Here’s an article that compares FHA and Conventional financing if you have a low down payment: