It's not official yet, but all the buzz is that we are about to get a Mortgagee Letter from HUD increasing both the upfront and monthly mortgage insurance premiums for FHA loans. Currently a consumer will pay 1% of their loan amount as a premium up front, typically rolled into their loan. As of April 1st, that will increase by .75% to 1.75%. Monthly Mortgage Insurance will also be increasing by .10%. On loans greater than a 95% LTV, that will take the monthly premium to 1.25% and for loans less than 95%, to 1.15%.
Not long ago, the up front Mortgage Insurance Premium was 2.25%, and the monthly .55% or lower. In an effort to boost reserves in their MI pool, they flipped the model, taking more monthly from a borrower, but less up front. Now though, the Federal Government wants out of the mortgage business. Simple as that. By increasing the up front premium, it will make FHA less and less desirable as a loan product, forcing borrowers to look at low down payment options from Conventional Banks and Mortgage Insurance Companies. The hope is that as the market improves, there is an increase in bank products, to fill this void.
It is also the long term goal that these products are actual bank products, and not mortgage products backed by Fannie Mae or Freddie Mac, further removing the Federal Government from the Mortgage market.
Effect on consumers? Well, short term, money is getting more expensive. The long term hope would be that more product, more competition is good for the consumer. But, we have a long way to go before that becomes reality.
Joe Burke
Your Chicago Mortgage Guy
773-742-6707
joe@yourchicagomortgageguy.com