HUD Announces Changes with FHA

Posted by Rich E. Blanchard on January 30, 2013

FHA TAKES ADDITIONAL STEPS TO BOLSTER CAPITAL RESERVES

FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by 0.10 percent. FHA will increase premiums on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05 percent, to the maximum authorized annual mortgage insurance premium. These premium increases exclude certain streamline refinance transactions.

FHA will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan. Commencing in 2001, FHA cancelled required MIP on loans when the outstanding principal balance reached 78 percent of the original principal balance. However, FHA remains responsible for insuring 100 percent of the outstanding loan balance throughout the entire life of the loan, a term which often extends far beyond the cessation of these MIP payments. FHA’s Office of Risk Management and Regulatory Affairs estimates that the MMI Fund has foregone billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this automatic cancellation policy. Therefore, FHA will once again collect premiums based upon the unpaid principal balance for the entire period for which FHA is entitled. This will permit FHA to retain significant revenue that is currently being forfeited prematurely.

FHA will [also] require lenders to manually underwrite loans for which borrowers have a decision credit score below 620 and a total debt-to-income (DTI) ratio greater than 43 percent. Lenders will be required to document compensating factors that support the underwriting decision to approve loans where these parameters are exceeded, using FHA manual underwriting and compensating factor guidelines.

My initial thought: With the elimination of the 78% LTV MIP cancellation, FHA will be an expensive proposition vs a conventional loan.

Mortgage Rates Remain Aggressive

According to Mortgage News Daily, Kansas City mortgage rates remain aggressive.

Home loan borrowing costs are still hovering near six-month lows but forward progress continues to be challenging. We’ve described the recent behavior of mortgage rates as “sideways” after running into “The Wall”. This was the case once again today as there is no change to report in borrowing costs. Take a look at THIS CHART for a visual of how rates have hit  “The Wall.” 

CURRENT MARKET: The “Best Execution” conventional 30-year fixed mortgage rate remains a state of flux between 4.75% and 4.625%. Several lenders are currently quoting C30 loans at 4.625% with no origination points (see disclaimer below).  If you are looking to move down from there, you’ll be assessing the trade-offs between higher closing costs and lower monthly payments.  This could be worth it to applicants who plan to keep their new mortgage outstanding for long enough to breakeven on the extra upfront costs.  On FHA/VA 30 year fixed “Best Execution” is also a moving target roughly centered on 4.375% with adjacent rates (even 4.25%) being logical in some scenarios. 4.50% is a no-brainer for most FHA 30yr fixed scenarios. 15 year fixed conventional loans are best priced at 3.875%. Five year ARMs are best priced at 3.25% but the ARM market is more stratified and there is more variation in what will be “Best-Execution” depending on your individual scenario. 

PREVIOUS GUIDANCE:  The rally has gone sideways, that skews risk unfavorably in the short term. This will continue to be the case until “The Wall” comes tumbling down or proves unbreakable. Borrowers with a 10-15 day lock/float timeline should be defensive of recent cost improvements, especially if lenders are quoting rates in the lower-side of our “Current Market” Best-Ex listing. Floating is still an option for borrowers who have a longer lock/float timeline as well intermediate-term scenarios.  Stay tuned for further developments. 

CURRENT GUIDANCE: There is still justification for floating if you have an intermediate to long-term scenario or a more aggressive/flexible stance and don’t mind locking later, at a loss  if “The Wall” proves unbreakable.  But for short termers, the very existence of “The Wall” suggests locking is the smart decision, especially if you’re on a 10-15 day timeline or are less flexible with respect to changes in closing costs or note rate.  Additionally, if you’re being quoted the lower of the two Best Execution rates mentioned above in the “current market” section, floating is even more risky as those rates can vanish in one bad day, whereas it would take several days of uncommonly good performance in bond markets to get you down to the next rung on the mortgage rate ladder. 

 What MUST be considered BEFORE one thinks about capitalizing on a rates rally?

   1. WHAT DO YOU NEED? Rates might not rally as much as you want/need.
   2. WHEN DO YOU NEED IT BY? Rates might not rally as fast as you want/need.
   3. HOW DO YOU HANDLE STRESS? Are you ready to make tough decisions?

ECON EVENTS CALENDAR: THE WEEK AHEAD

FHFA Extends Refinance Program

Federal officials just announced an extension to the refinance program aimed at helping homeowners who owe more on their mortgages than their homes are worth.  The program (HARP) expands access to qualified Kansas City homeowners whose homes have loss value. 

The Home Affordable Refinance was set to expire June 30 but has been extended to June 30, 2012, said the Federal Housing Finance Agency. The program covers Freddie Mac and Fannie Mae loans, and since its inception two years ago, HARP has enabled 623,000 homeowners to refinance their mortgages. 

Press Release

Kansas City Mortgage Rate Update

Mortgage Rates are still under 5% according to Mortgage Daily News

CURRENT MARKET: The “Best Execution” conventional 30 year fixed mortgage rate has fallen BACK to 4.875%.

For those looking to buy down their rate to 4.75%, this quote carries higher closing costs. The upfront cost of permanently buying down your rate  to 4.75% is not worth it to many applicants. We would generally only advise the permanent floatdown if you plan to hold your new mortgage for longer than the next 10 years.  Ask your loan officer to run a breakeven analysis on any origination points they might require to cover permanent float down fees.

On FHA / VA 30 year fixed “Best Execution” is still 4.75%. 15 year fixed conventional loans are best priced between 4.125% and 4.25%, but 4.25% is more efficient in terms of the floatdown breakeven cost.

Five year ARMS are best priced at 3.625%.

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