BluefoxToday blog : FHA boosting mortgage insurance premiums

FHA boosting mortgage insurance premiums

FHA has made a remarkable comeback in the last several months. Many of the creative home loan products that fueled the recent boom, especially those under the banners subprime and Alt-A, are rapidly being swept into the dustbin. FHA has stepped into the vacuum, offering low down payment options to borrowers who are itching to buy a property while prices are still as attractive as they are. FHA's market share in 2006 was about 2%, rather trivial number, and now it's around 23% and is expected to climb to 30% by the year's end, according to Inside Mortgage Finance.

But FHA is facing challenges, too, as it's seeking to restore its place in the huge mortgage market. The near future at least, and probably longer than that, is going to be dominated by an unhealthy amount of foreclosures. FHA, as an insurer that home loans will be paid, is projecting that it'll have to pay substantial sums of money to mortgage lenders and investors in the coming years as loans keep going bad.

To cope with that prospect, the agency just announced that it'll raise the upfront premium for most borrowers from 1.5% to 1.75%, starting October 1, 2008. It comes to $3,500 for a $200,000 mortgage and $5,250 for a $300,000 loan. That is a substantial sum of money for many buyers and refinance candidates. The current annual premium is scheduled to stay at 0.50% to 0.55% of the existing loan balance.

FHA is forced to do this to shore up its reserves so it can meet the upcoming payout demands. By doing it, though, it'll also risk pricing itself out of reach for many borrowers. Its role as the main player to help out struggling homeowners to find affordable financing could now be jeopardized. There is already talk in Washington that FHA may need to ask Congress for money in case current mortgage default pace persists for several more months. Either that, or push the premiums even higher and possibly watch its market share start dwindling again.

The agency has to walk a fine line now and keep a keen eye on the market. It's possible that its sudden rise to prominence could stall.

 

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 10 commentsEsko Kiuru • August 28 2008 06:53PM

Comments

Esko,

This increase is actually less than I had expected.

Richard

Posted by Richard Byron Smith, NMLS #184479, Mortgage Loan Officer (Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289) about 10 years ago

Esko, it use to be simple, one upfront multiplier, and one FHA insurance multiplier.  Now I have to look at my little chart for the right multipliers until I get use to them.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 10 years ago

Esko,

This doesn't sound too positive of news but I'm not the mortgage expert. I'm just wondering how many more buyers won't be able to purchase due to this increase. I'll leave that to George to tell me:)

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (eXp Realty) about 10 years ago

Thanks for the insight...I didn't realize this!

Posted by Diane Aurit, Lake Norman Real Estate (LKN Realty, LLC) about 10 years ago

Richard,

Hopefully there won't be any more.

Posted by Esko Kiuru about 10 years ago

George,

It's getting a tad complicated.

Posted by Esko Kiuru about 10 years ago

Neal,

Unfortunately the fees are just going up for now. They'll come down again, one of these days.

Posted by Esko Kiuru about 10 years ago

Diane,

The mortgage business is nowadays in constant adjustment mode.

Posted by Esko Kiuru about 10 years ago

The FHA loan is still a bargain!

Posted by Renée Donohue, Las Vegas Real Estate Broker - www.urLVhome.com (Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate) almost 9 years ago

Renee,

How did you find this blog? It's from over a year ago, I just realized.

Posted by Esko Kiuru almost 9 years ago

Participate