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FHA Mortgage Insurance Changes for 4th Time in 3 Years!!

Orange County, CA – It’s deja vu all over again. FHA mortgage insurance changes again! The Department of Housing and Urban Development  decided to increase the Up-Front Mortgage Insurance Premium and annual FHA mortgage insurance rates on all loans with case numbers assigned on or after April 9, 2012.

Mortgagee Letter 12-4 outlines the specifics of the change. The FHA mortgage insurance changes differ based on the term of the loan, LTV and loan amount.

Currently the Up-Front Mortgage Insurance Premium is 1.000%. When April 9th, 2012 rolls around that premium will go to 1.750%. Annual FHA mortgage insurance on conforming county limits will go up an additional 10%. This is the mortgage insurance that’s included in your monthly payment.

The annual FHA mortgage insurance on high balance loans will go up another 25%. This is important in high cost areas like Orange County, CA. Check the limits in your county here.

 

HUD says this move is being made to recoup losses that they’ve incurred over the past 7 years AND to push lending back towards traditional lenders. Making FHA home loans more expensive does make other alternatives more attractive. However, FHA home loans will remain a nice option for many borrowers based on their low down payment requirements, guaranteed mortgage insurance and generous underwriting guidelines.

There are many signs that the economy is changing. Unemployment is decreasing. Short sellers are entering back into the market after waiting on the sidelines for the past 2 years and interest rate and prices are still incredible. Some regions have housing inventories less than 6 months.

In Orange County, CA the housing supply stands at 7,189 which is 33% fewer than the same time last year. This does not mean that we’re in the clear but the dwindling supply is encouraging.

Conventional lenders aren’t relaxing guidelines as quickly as we’d like. But HUD’s move may create  open market share that conventional lenders seek to fill. This may require conventional lenders to start relaxing guidelines.

On the flip side, if conventional lenders don’t budge, this move by HUD may cause some stagnation in the housing market as less people are willing or able to buy homes. Only time will tell if this was a clever or foolish move.

The silver lining of Mortgage Letter 12-4 is that HUD is reducing the FHA mortgage insurance rates for the FHA Streamline refinance effective June 11, 2012. The move reduces the Up-Front Mortgage Insurance premium by 99%! For the 3 million homeowners that will qualify the new Up-Front Mortgage Insurance Premium will be a mere 0.01%. Annual mortgage insurance will be 55 basis points regardless of the loan amount.

This will allow homeowners to lower their mortgage payment regardless of their equity position. By taking advantage of today’s low interest rates, this program may be just what some homeowners need to stay in their homes.

Who qualifies? Homeowners with FHA loans endorsed by FHA on or before May 31, 2009. This is the date that FHA insures the loan and it doesn’t necessarily happen immediately after the home is purchased. However, if the mortgage began prior to May 31, 2009 then it’s worth checking the endorsement date.

The best way to know is to ask your lender to check FHA Connection. This is FHA’s web portal. It should take a matter of seconds to search. If the loan has been archived then homeowners will need their FHA Case ID number to access the information.

If you think you may qualify and want to know your endorsement date we can help. Just contact us with your FHA Case ID number and we’ll look into it.

Scott Storace

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