The Federal Housing Administration has just announced plans to raise premiums on most new mortgages by 10 basis points (0.1%), meaning that the average borrower can expect a $13 increase on their monthly repayments, according to reports.
Announcing the changes yesterday, the FHA said that the move was necessary in order to reduce its exposure to risky loans. The organization, which is the largest insurer of low down payment mortgages, is reportedly suffering from depleted financial reserves caused by the wave of mortgage delinquencies we’ve seen over the last few years.
CNN Money reports that those with ‘jumbo loans’ valued at $625,000 or higher will also see a rise in their premiums, albeit by only 5 basis points (0.05%). In addition, the FHA is also raising the minimum down payment it requires on jumbo loans, up to 5% from the current 3.5%.
Another change will see borrowers being required to pay insurance on their loan for the entire life of the debt, meaning that it’s no longer possible to cancel premium payments once the level of debt owed on the mortgage dips below 78% of the principal balance. Those who can make a down payment of 10% on more will be excluded from this requirements however.
There are changes for lenders too, with the FHA requiring documentation as to why mortgage applicants with a credit score of less than 620 and a total debt-to-income ratio over 43% have been approved for a loan. Lenders will be asked to document such facts as a higher level of reserves or larger down payment in order to justify these loans.
Carol Galante, FHA Commissioner, explained that the changes were necessary to ensure the financial health of the organization:
"These changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American home buyers.”
The FHA has not yet given a date for the changes to come into effect.
$13 a month times 30 years = $4680 on top of the thousands an FHA borrower already has to pay in fees.
FHA has sold it's soul to the subprime devil. We can thank the NAR for this. They rolled out a full blown political movement in 2008 and 09 to make sure that FHA would continue to fund borrowers who were very risky, and now, with a delinquency rate approaching 20%, this is the result. Higher costs for borrowers. No incentive for private capital in this mortgage pool.