From dsnews.com:
House lawmakers overcame election-year gridlock on Tuesday to punt their version of a bill that would shore up the Federal Housing Administration, whose embattled Mutual Mortgage Insurance Fund falls short of the capital required by law.
The lower chamber passed the Federal Housing Administration Fiscal Solvency Act by a sweeping vote of 402 -7.
If it becomes law, the bill would strengthen HUD’s ability to do away with lenders that fail important lending criteria and allow the federal agency to avoid losses on defaulted loans underwritten by non-compliant lenders.
The law would allow HUD to charge up to 2.05 percent in annual insurance premiums, establish an annual fee for lenders at 0.55 percent, and deepen repayment requirements for lenders that commit fraud or violate other FHA criteria.
Rep. Judy Biggart (R-Illinois), who first introduced the bill, said in a statement that “FHA’s declining financial position could cost taxpayers millions, and it threatens the stability of our housing market.
“We cannot afford another Fannie- and Freddie-style bailout, and mortgage holders don’t need any more market uncertainty driving down their home values,” she added.
FHA Acting Commissioner Carol Galante lauded the bill in a separate statement, saying that the provisions “will allow FHA to continue its efforts to strengthen its enforcement capabilities in order to protect its insurance fund and American taxpayers.”
Analysts have long flagged the FHA for its undercapitalized mortgage insurance fund in the wake of the financial crisis. Flattened home prices and loan defaults siphoned funds away from the agency, slashing capital on hand to 0.24 percent – far below the 2 percent capital buffer required by federal law.
Joseph Gyourko, a real estate and finance professor at the University of Pennsylvania, brought the issue to bear with research last fall that predicted the FHA would need some $50 billion to $100 billion in Treasury bailout funds – an unprecedented crisis, if so, for the nearly 80-year-old agency.
Since then, the FHA has taken steps to replenish the fund. Earlier this year the agency increased annual mortgage insurance premiums by one-tenth of 1 percent for loans under $625,000, effective for lenders by April, and upped the annual premium by 0.35 percent for loans above that figure. Upfront premiums went up by 0.75 percent.
This is a great way to phase out FHA, and push buyers to private mortgage insurance companies.
$500,000 loan x 2.05% annual premium/12 = $854 per month.
Buyers aren’t going to look at that favorably.
What the lowest down you can get away with on a non FHA loan? $500K*3.5% = 16,500 down vs $500K*10% = $50,000 down. I’d guess the bulk of FHA buyers are using the program because of a lack of a down payment, or at least as a I’ll walk away if things go don’t well.
I can think of a couple of people who recently went for the 3.5% down so that they would be able to walk away with less in the game if the house’s value decreased.
That increased premium is pretty steep. It would put current rates at somewhere above 5%.
The anti-fraud measures in the bill are long overdue and are at least a step in the right direction to help curtail some of FHA’s losses. FHA’s total delinquency rate is currently more than 16%!
FHA Watch DenialDial –
http://tinyurl.com/93xkky4
I have said for years–loans with Higher LTV’s should have HIGHER interest rates, and tougher underwriting standards, loans with Lower LTV’s should have LOWER interest rates and lower underwriting standards.
The private MI companies will insure 97% mortgages (lower down payment than FHA) with a minimum 700 Fico score.
The 700-720 FICOs get monthly premiums at a 1.10 rate or $500,000 x 1.1% = $5,500/12 = $458.33 per month (less than half of FHA).
From 720-759 Fico, .88 monthly, and 760 or better, .81 monthly.
You can see why PMI is becoming more popular…