FHA vs PMI
It’s definitely going to be a long drawn out process. The biggest group of new defaulters are FHA loans and since the government gets to decide foreclosure on those I expect to see many more years of free rent. FHA Foreclosures would come through HUD if there were any and as far as I know there’s virtually nothing coming out of HUD in San Diego.
It reminded me to include the changes in private mortgage insurance.
FHA now collects 1.75% up front (can be financed) and charges 1.25% of the loan amount for annual premiums (divided by 12 and added to monthly payment).
This has allowed the private mortgage insurance companies to modify their fee structure too. They have eliminated the monthly premium, and are collecting their entire fee upfront.
97% LTV = 3% premium up front.
95% LTV = 2.18% premium up front.
The buyers hope that they can find a seller who will pay the fee, and that way they dodge PMI altogether, unless they have to raise the purchase price to compensate.
The debt-to-income ratios are fairly strict, around 41%, and FICO scores need to be around 720-740. There are some cases where buyers with lower FICO scores can qualify too.
It makes the higher FHA loan amounts very unattractive, which could save taxpayers some money down the road. On a $500,000 FHA loan, the MI is $520/month, and with PMI it’s zero monthly.
The private mortgage insurance is for loans up to $546,250, the Fannie/Freddie high-balance limit here. The FHA loan limit is still $697,500 in San Diego.
An executive at one of the big PMI companies told me that they are looking favorably at the California market too, so hopefully these programs will stick around – and maybe get better?