Yesterday HUD Commissioner Stevens announced changes to the costs associated with obtaining an FHA loan that will affect all new case numbers initiated September 7th and beyond. The are some good news and some terrible news.
The good news is that HUD has decided to reduce the Upfront Mortgage Insurance from 2.25% to 1.0% So, for example, on a loan amount of $250,000 under the current plan would require an addition to the closing costs, that can be financed by adding it to the balance of the loan, of $5,625. Under the new rule that amount would be reduced to $2,500.
Now to the not so good news. Under the current plan for a loan amount of $250,000 and the current annual factor of 0.55%, the borrower/consumer has to add to his monthly payment $114.58 for Private Mortgage Insurance or PMI. Under the new plan the the factor will go up t0 0.8%-0.9% or $187.50 PER MONTH. That is a 64% increase in the monthly mortgage insurance premium payment.
Who are most affected by these changes?
- First and foremost the first time home buyer.By increasing the monthly PMI, a significant load to the borrower is added, which in most cases will diminish their purchasing power. The higher the monthly payment, the lower the loan amount the borrower qualifies for.
- Every homeowner that is currently in an FHA loan that would seek an FHA streamline refinance. One of the greatest perks in obtaining an FHA loan is the homeowner’s ability to refinance, in most cases without the need for an appraisal, as long as their interest rate is reduced. In addition, as the term describes, it is a truly streamlined process that requires very little documentation. So under the current plan, it is very easy to contact past clients that bought homes locked at low 2009 rates of 5.5% and lower them to today’s 4.5% with no out-of-pocket expenses. The problem under the new plan is that with the increase in the Mortgage Insurance, the payment will go up for the most part, making the transaction senseless.
The most troubling fact about Mr. Stevens’ move is that it was clearly stated that there would be a “commentary” period. This time was open so industry leaders could appear in front of the Financial Committee headed by Mr. Barney Frank. With the announcement of the changes yesterday, our democratic system has suffered a fatal blow, and chances are that this new fee schedule will go into effect September 7th.
