That was quick....
New premium structure for 30- and 15-year loans will help private capital return
WASHINGTON – As part of ongoing efforts to strengthen the Federal Housing Administration’s (FHA) capital reserves, FHA Commissioner David H. Stevens today announced a new premium structure for FHA-insured mortgage loans increasing its annual mortgage insurance premium (MIP) by a quarter of a percentage point (.25) on all 30- and 15-year loans. The upfront MIP will remain unchanged at 1.0 percent. This premium change was detailed in President Obama’s fiscal year 2012 budget, also released today, and will impact new loans insured by FHA on or after April 18, 2011.
“After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said Stevens. “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.”
The proposed change was announced last week as part of the Obama Administration’s report to Congress, which outlined the Administration’s plan to reform the nation’s housing finance system. The Administration’s housing finance plan also recommended that Congress allow the present increase in FHA conforming loan limits to expire as scheduled on October 1, 2011. LEARN MORE HERE
This premium change enables FHA to increase revenues at a time that is critical to the ongoing stability of its Mutual Mortgage Insurance (MMI) fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010. The change is estimated to contribute nearly $3 billion annually to the Fund, based on current volume projections. It is vital that HUD take action to ensure that FHA will continue to serve its dual mission of providing affordable homeownership options to underserved American families and first-time homebuyers while helping to stabilize the housing market during these tough times.
On average, new FHA borrowers will pay approximately $30 more per month. This marginal increase is affordable for almost all homebuyers who would qualify for a new loan. Existing and HECM loans insured by FHA are not impacted by the pricing change.
FHA will continue to play an important role in the nation’s mortgage market in 2011. President Obama’s FY 2012 budget projects the FHA will insure $218 billion in mortgage borrowing in 2012. These guarantees will support new home purchases and re-financed mortgages that significantly reduce borrower payments.
The FHA already has the authority to do this: READ MORE
WHAT YOU NEED TO KNOW: The increase in Annual Mortgage Insurance Premiums for forward mortgage amortization terms is effective for case numbers assigned on or after April 18, 2011. The new procedures for requesting case numbers are effective on April 18, 2011. Automatic case number cancellation is effective for all case numbers not insured prior to April 18, 2011.
HOW DOES THIS ENCOURAGE THE RETURN OF PRIVATE CAPITAL TO THE HOUSING MARKET?
"FHA is still the way" in the purchase market. The modest increase in monthly payment will undoubtedly upset some folks, especially Originators and Realtors, but a positive perspective can be taken...
We've been complaining about over-tightened risk management policies and irrational lender overlays for two-years now. It's gotten worse and worse as more "onesy-twosy" reforms have been implemented with no uniformity.
Beefing up FHA's reserve fund might pave the way for a modest relaxation of underwriting regs though. Perhaps instead of saying "relaxation" we should describe the move to bolster the FHA's reserve account as a forward looking indication of common sense FINALLY creeping back into the home loan underwriting process. Seems like a few targeted initiatives are in the works.....
If housing is ever to get back on its own two feet, we'll need viable construction financing vehicles. Right now funding sources are scarce for rehabilitation projects. This is where FHA can encourage the return of private investment in the housing market: By giving private investors a funding vehicle aimed at REBUILDING REMODELING and REHABILITATING the glut of deteriorating housing inventory currently on the market (and shadow inventory). This will get the ball moving in the right direction when it comes to a believable stabilization of home prices in America. This will help stop the negative feedback loop.
What am I getting at?
Plain and Simple: In terms of a targeted initiative, allowing investors to participate in the FHA 203K loan program would be a step toward recovery in the housing market.
It seems like we'll be seeing more of these "targeted initiatives" in the future. We can't fix it all once.....