News You Can Use

The Obama Administration has sent its FY 2013 budget to Congress.  It includes two mortgage insurance increases and raises the prospects for additional premium increases if that becomes necessary (i.e. because of additional increases in seriously delinquent loans).  

The increase that affects buyers in the Charlotte area is that the annual premium goes to 1.25% (a 10 basis point increase).  The annual premium is what borrowers pay monthly in MI on FHA loans.   So for a $135,000 purchase price with a 3.5% down payment, the monthly MI is currently $123.80.  Under this change the MI would increase by about $11/mo. 

When will these increases be implemented?
The Budget indicates these changes will be implemented “soon”.  Based off previous increase announcements we expect the mortgagee letter with implementation details to be published within a few days with an effective date in mid-April. 

What are the prospects for further increases?
FHA has left the door open for future increases to compensate for defaulted loans.  While FHA defaults are on the rise (from 584,822 loans in June 2011 to over 711,000 loans in December 2011) only about 6.5% of FHA’s seriously delinquent loans were originated in the last two years.   The New York Federal Reserve Bank William Dudley recently addressed this when he said “But the guarantee fees (referring to the GSEs) for new purchase mortgages should be based on the expected losses on these mortgages – not the realized losses on loans of earlier vintages.”    So while the opportunity for future increases remains, we’re hopeful FHA doesn’t penalize future buyers for previous buyers’ defaults.

Please make any clients aware of this upcoming change if they intend to use FHA to buy in the next few months.  The mortgage insurance rate is determined by when their case number is ordered for their loan so it behooves clients to make loan application before the upcoming MI change date.