General Real EstateHome BuyersHome Sellers

FHA Update

On January 9,  2017 Julian Castro, Secretary of the U.S Department of Housing and Urban Development under President Obama, announced that Mortgage Insurance Premiums on FHA backed loans would be lowered by 25 basis points which would have started on the January 27, 2017.  On January 20 2017 that was immediately rescinded by the newly inaugurated Trump administration. That move cost 750,000 to 850,000 homebuyers and average of $500 a year according to NAR President Bill Brown, who sent the new HUD secretary Ben Carson a letter on January 30, 2017. In the letter, Brown said suspension of the premium reduction had created uncertainty and confusion for borrowers, sellers, lenders, and underwriters.

While a reduction to MIP on FHA loans would be helpful to home buyers a bigger and better move would be to  apply the same Primary Mortgage Insurance rules that apply all other loans and existed for FHA loans prior to June 2013. All other loan products available drop PMI completely once the loan hits a <= 80% LTV ratio (Loan to Value). FHA loans with a >90% LTV are required to charge PMI for the life of the loan. Since the majority of FHA borrowers are first time home buyers with minimal funds available for a down  payment most FHA loans fall into the >90%LTV. Homebuyers with and FHA loan have an easy decision to make at the  point  their loan hits the <= 80% LTV  to refinance out of their current loan into a conventional product dropping the PMI, meaning seasoned low risk loans leave the FHA pool.

I applaud NAR president Bill Browns attempt to make homeownership a little more affordable by fighting for the MIP reduction to be reinstated but we also need to fight for the return of dropping PMI all together once the<= 80% LTV has been reached on FHA loans.

 

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