FHA Commissioner Explains Logic Behind Insurance Premium Hike
________________________________________
by Adam Quinones
Last week the FHA announced it would increase annual mortgage insurance premiums by 0.25% to "bolster capital reserves", effective for case numbers ordered on or after April 18, 2011. Naturally the sudden spike in fees led to a chorus of Bronx cheers from inside the housing industry. Originator, Realtor, and Borrower feedback was generally themed along the lines of comments like "GREAT TIMING. REDUCING THE POOL OF QUALIFIED HOMEBUYERS WILL DEFINITELY BOOST THE HOUSING RECOVERY".
Please note sarcasm. And yes, capital letters were intended to imply yelling. Beyond the frustrated muttering that emanated from the trenches, a deeper explanation of this move was requested as this move seemed to make no sense at all. So in the spirit of transparency and open communication from industry leadership, FHA Commissioner David Stevens decided it was time to pen another letter offering more perspective on the issue. The following words are his, not MND's....
A Letter from the Desk of David Stevens
On February 14, I announced a new premium structure for FHA single-family mortgages, increasing the annual mortgage insurance premium (MIP) by a quarter of a percentage point (.25) on all 30-year and 15-year loans.
It is important for everyone in the industry to understand the reason for this action.
After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster our capital reserves and to help private capital return to the housing market. As many of you are aware, FHA has a Congressionally-mandated obligation to maintain a two percent capital reserve ratio in its Mutual Mortgage Insurance (MMI) fund, and to take swift and necessary actions if the reserves fall below that level.
The MMI fund has been below the two percent threshold in our last two annual actuarial reports to Congress. The FY 2010 actuarial report, submitted in November, projected that in the base case we would not get above two percent again until 2015. FHA has suffered greatly from poorly performing loans originated in years 2006 - 2008, especially seller-funded loans.
Raising the annual premium will enable FHA to increase revenues and have a positive effect on the ongoing stability of the MMI fund, which had capital reserves of approximately $3.6 billion at the end of FY 2010. Based on current volume projections, the annual MIP increase would generate an additional $2.5 - $3 billion annually.
We must balance this premium adjustment with the need to support the overall housing recovery. This quarter point increase in the annual MIP is a responsible step towards meeting the two percent threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments.
The changes we have implemented since I became Commissioner in July 2009 have, so far, helped shelter FHA from any external intervention which could have a negative impact on the business. Though there has been talk by some of eliminating all Government guarantees, I believe that responsible management of FHA will eliminate the need for intervention.
I recommended this increase based on FHA’s obligation to get the capital reserves back to the two percent level. And I understand the concerns of those in the industry about this increase. While I do not expect all to agree, we have made these moves to protect FHA so that it can continue its vital mission.
The monthly payment for an average loan in the FHA portfolio will increase by approximately $30 due to the increase in the annual MIP. The change impacts new loans insured by FHA on or after April 18, 2011. The upfront MIP will remain unchanged at one percent. HECM loans are not impacted by the pricing change.
For more details,
read Mortgagee Letter 11-10
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Wednesday, February 23, 2011
Tuesday, February 22, 2011
Why You Should Buy That Home Now
Real Estate by AnnaMaria Andriotis (Author Archive)
Why You Should Buy That Home Now
The Obama administration's proposals this morning to extricate the government from mortgage lending sounded the death knell for Freddie Mac and Fannie Mae. They weren't good news for homebuyers, either. In the proposals were changes that will mean more expensive mortgages, with higher fees and, probably, higher interest rates, larger down payments and, in the near term, fewer lenders to choose from.
No Money Down? Not Anymore
As housing prices drop, mortgage lenders are requiring larger downpayments on homes. Kelsey Hubbard talks to WSJ's Mitra Kalita about what the changes mean for consumers. ( Watch video .)
The changes aren't effective immediately, and, some, if passed by Congress, won't go into effect for several years. Even so, they pose a dilemma for today's would-be homebuyers: loans are cheaper today than they're likely to be in the future – but one of the unintended consequences of the proposals could be another drop in home prices should higher mortgage costs dampen demand. Unfortunately, there's no single right answer, experts say. "Buyers shouldn't rush in – but there's no reason in most markets to delay waiting for something better to come along – it probably won't," says Barry Zigas, director of housing policy at the Consumer Federation of America.
Congress will ultimately decide whether Fannie and Freddie have a future, and whether the other changes could go into effect as soon as this fall. Here are the big three:
Smaller mortgages
In October, the maximum size of mortgages backed by Fannie and Freddie will shrink. (That's when the current limits are set to expire, and the president's report is calling for them to not be extended.) Currently, in high-cost cities like New York and San Francisco, homebuyers can borrow up to $729,750 for a single-family home; that amount drops 14% to $625,500. The $417,000 amount for more moderately priced areas will remain the same. The new limitation would, for example, render 10% of homes in San Francisco County ineligible for financing backed by Fannie or Freddie, according to analysis by the California Association of Realtors. It could also crimp refinancing for borrowers who try to get a home loan beyond these limits.
Higher fees
In November, the Federal Housing Administration could raise annual mortgage insurance premium fees by 0.25% for all borrowers, according to proposals. The hike comes out to an extra $250 per $100,000 of mortgage per year, which borrowers can pay upfront or have rolled into their mortgage. The new premium could be as high as 1.2%, up from a previous maximum of 0.95%. Over the life of a 30-year $300,000 mortgage, the higher rate means at least an additional $12,000 more in payments. Separately, two of the administration's proposals would provide mortgage insurance for some mortgages -- for a fee, which would be passed along to the borrower.
Bigger down payments
Currently, borrowers can try to get a mortgage from a bank with just 5% down by taking on mortgage insurance – mostly because that mortgage is then sold off to Fannie Mae or Freddie Mac. That requirement would gradually increase to 10%, according to the proposals, but a Freddie Mac spokesman says no implementation details are available at this time.
There are other government groups with a similar agenda, and similar effects on homebuyers. Housing regulators are currently considering making it harder to get a mortgage – higher down payments are possible, as are other hurdles – and are expected to offer specifics in April. Around the same time, mortgages backed by Freddie Mac (starting March 1) and Fannie Mae (starting April 1) will get more expensive by 0.25% to 0.50%. Later in the summer, the Consumer Financial Protection Bureau, which is expected to make mortgages a top priority, could make the process of originating a mortgage more expensive for the lender by requiring, for example, more personnel to check documentation, says Keith Gumbinger, vice president at HSH Associates, which tracks the mortgage market. And those costs will likely be passed along to borrowers as well.
Long term, consumer advocates worry that if the government stops backing private mortgages, as Fannie Mae and Freddie Mac do currently, lenders will get out of the market and consumers will have fewer options. But for now, it's simply possible that mortgages will become more expensive, as lenders react to the uncertainty that's just been introduced to the market. As it is, mortgages have already become more difficult to obtain. In August 2010, the most recent data available from mortgage data firm CoreLogic, the average mortgage borrower had a credit score of 767, higher than the average score of 761 six months prior.
And in the long term, should these proposals go into play, a healthier housing market could ensue, says Stu Feldstein, president at SMR Research, which tracks home loan data. The most sweeping message of the proposals is that the government won't help every American buy a home, especially if they can't afford it. "Houses will be sold to people with financial wherewithal to buy them and will reduce foreclosures going forward," he says.
Why You Should Buy That Home Now
The Obama administration's proposals this morning to extricate the government from mortgage lending sounded the death knell for Freddie Mac and Fannie Mae. They weren't good news for homebuyers, either. In the proposals were changes that will mean more expensive mortgages, with higher fees and, probably, higher interest rates, larger down payments and, in the near term, fewer lenders to choose from.
No Money Down? Not Anymore
As housing prices drop, mortgage lenders are requiring larger downpayments on homes. Kelsey Hubbard talks to WSJ's Mitra Kalita about what the changes mean for consumers. ( Watch video .)
The changes aren't effective immediately, and, some, if passed by Congress, won't go into effect for several years. Even so, they pose a dilemma for today's would-be homebuyers: loans are cheaper today than they're likely to be in the future – but one of the unintended consequences of the proposals could be another drop in home prices should higher mortgage costs dampen demand. Unfortunately, there's no single right answer, experts say. "Buyers shouldn't rush in – but there's no reason in most markets to delay waiting for something better to come along – it probably won't," says Barry Zigas, director of housing policy at the Consumer Federation of America.
Congress will ultimately decide whether Fannie and Freddie have a future, and whether the other changes could go into effect as soon as this fall. Here are the big three:
Smaller mortgages
In October, the maximum size of mortgages backed by Fannie and Freddie will shrink. (That's when the current limits are set to expire, and the president's report is calling for them to not be extended.) Currently, in high-cost cities like New York and San Francisco, homebuyers can borrow up to $729,750 for a single-family home; that amount drops 14% to $625,500. The $417,000 amount for more moderately priced areas will remain the same. The new limitation would, for example, render 10% of homes in San Francisco County ineligible for financing backed by Fannie or Freddie, according to analysis by the California Association of Realtors. It could also crimp refinancing for borrowers who try to get a home loan beyond these limits.
Higher fees
In November, the Federal Housing Administration could raise annual mortgage insurance premium fees by 0.25% for all borrowers, according to proposals. The hike comes out to an extra $250 per $100,000 of mortgage per year, which borrowers can pay upfront or have rolled into their mortgage. The new premium could be as high as 1.2%, up from a previous maximum of 0.95%. Over the life of a 30-year $300,000 mortgage, the higher rate means at least an additional $12,000 more in payments. Separately, two of the administration's proposals would provide mortgage insurance for some mortgages -- for a fee, which would be passed along to the borrower.
Bigger down payments
Currently, borrowers can try to get a mortgage from a bank with just 5% down by taking on mortgage insurance – mostly because that mortgage is then sold off to Fannie Mae or Freddie Mac. That requirement would gradually increase to 10%, according to the proposals, but a Freddie Mac spokesman says no implementation details are available at this time.
There are other government groups with a similar agenda, and similar effects on homebuyers. Housing regulators are currently considering making it harder to get a mortgage – higher down payments are possible, as are other hurdles – and are expected to offer specifics in April. Around the same time, mortgages backed by Freddie Mac (starting March 1) and Fannie Mae (starting April 1) will get more expensive by 0.25% to 0.50%. Later in the summer, the Consumer Financial Protection Bureau, which is expected to make mortgages a top priority, could make the process of originating a mortgage more expensive for the lender by requiring, for example, more personnel to check documentation, says Keith Gumbinger, vice president at HSH Associates, which tracks the mortgage market. And those costs will likely be passed along to borrowers as well.
Long term, consumer advocates worry that if the government stops backing private mortgages, as Fannie Mae and Freddie Mac do currently, lenders will get out of the market and consumers will have fewer options. But for now, it's simply possible that mortgages will become more expensive, as lenders react to the uncertainty that's just been introduced to the market. As it is, mortgages have already become more difficult to obtain. In August 2010, the most recent data available from mortgage data firm CoreLogic, the average mortgage borrower had a credit score of 767, higher than the average score of 761 six months prior.
And in the long term, should these proposals go into play, a healthier housing market could ensue, says Stu Feldstein, president at SMR Research, which tracks home loan data. The most sweeping message of the proposals is that the government won't help every American buy a home, especially if they can't afford it. "Houses will be sold to people with financial wherewithal to buy them and will reduce foreclosures going forward," he says.
Friday, February 18, 2011
5 Reasons To Buy Now!
Selling Your House? 5 Reasons To Do It NOW!
by The KCM Crew on February 15, 2011 •
The conventional wisdom when selling a home has always been to wait until the ‘Spring Buying Season’. Over the years, that has seemed to make sense and is now accepted as a good strategy for those who want to sell their house and receive the best possible price. This real estate market has shattered many previously held beliefs. The wisdom of waiting for a spring market is another belief that is about to fall. Here are five reasons why?
1.) Interest Rates Are On the Rise
Interest rates have spiked up rather dramatically over the last ninety days and are now over 5%. Initially, an increase in rates has a positive effect on the market as it forces buyers off the fence. However, it also eats into a buyer’s purchasing power. As rates increase, the mortgage amount a buyer qualifies for decreases. This will eventually have a negative impact on prices.
2.) Your Dream Home Will Never Be Cheaper
If your family goal is to sell your current house and take advantage of the fabulous selection of properties currently available to buy the home of your dreams, DO IT NOW! Prices will continue to soften in most markets. However, if you are buying, COST should be more important than PRICE. Cost can be dramatically impacted by rising mortgage interest rates. Do the math and decide if now is the time.
3.) Buyers Are Out Early
There is mounting evidence that buyers are coming out earlier this year. A belief that now is a good time to buy coupled with the increase in interest rates has started the buying season early.
Pete Flint, CEO of Trulia:
“We’re seeing a national resurgence of buyer and seller activity on Trulia.com. In January alone, we experienced an unprecedented level of site traffic including 11 million unique visitors – which is more than 70 percent year-over-year growth. We’ve are now experiencing 100,000 property views per minute.”
The National Association of Realtors just reported that the number of house sales increased 12.9% over last month.
4.) Inventory Increases Every Spring
Every year there is an increase of inventory which comes to market as we approach the spring. Here is the number of listings available for sale in 2010.
• February – 3,531,000
• March – 3,626,000
• April – 4,029,000
We believe there will be an increase in these numbers in 2011 as there is a pent-up selling demand created by the weak market of the last few years. You won’t have to worry about this increasing competition if you sell now.
5.) We Are in the Eye of the Foreclosure Storm
While banks are trying to rectify their foreclosure procedures, there is a large supply of discounted properties which has been delayed coming to market. This inventory will be released sometime in the next few months. Foreclosures sell on average at a 41% discount. When released they will be competing with your house for the buyers in the marketplace. If you are looking to sell in 2011, you want to sell before this inventory becomes your competition.
CNN Money quoted the leadership Of RealtyTrac on this issue:
“We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James Saccacio, CEO of RealtyTrac.
“Unfortunately,” he added, “This is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.”
“We expect a spike in the first quarter,” said Rick Sharga, a RealtyTrac spokesman.
Bottom Line
These are five strong reasons to sell now instead of waiting until later in the year. Sit down with a local real estate professional today and decide the best options for you and your family.
by The KCM Crew on February 15, 2011 •
The conventional wisdom when selling a home has always been to wait until the ‘Spring Buying Season’. Over the years, that has seemed to make sense and is now accepted as a good strategy for those who want to sell their house and receive the best possible price. This real estate market has shattered many previously held beliefs. The wisdom of waiting for a spring market is another belief that is about to fall. Here are five reasons why?
1.) Interest Rates Are On the Rise
Interest rates have spiked up rather dramatically over the last ninety days and are now over 5%. Initially, an increase in rates has a positive effect on the market as it forces buyers off the fence. However, it also eats into a buyer’s purchasing power. As rates increase, the mortgage amount a buyer qualifies for decreases. This will eventually have a negative impact on prices.
2.) Your Dream Home Will Never Be Cheaper
If your family goal is to sell your current house and take advantage of the fabulous selection of properties currently available to buy the home of your dreams, DO IT NOW! Prices will continue to soften in most markets. However, if you are buying, COST should be more important than PRICE. Cost can be dramatically impacted by rising mortgage interest rates. Do the math and decide if now is the time.
3.) Buyers Are Out Early
There is mounting evidence that buyers are coming out earlier this year. A belief that now is a good time to buy coupled with the increase in interest rates has started the buying season early.
Pete Flint, CEO of Trulia:
“We’re seeing a national resurgence of buyer and seller activity on Trulia.com. In January alone, we experienced an unprecedented level of site traffic including 11 million unique visitors – which is more than 70 percent year-over-year growth. We’ve are now experiencing 100,000 property views per minute.”
The National Association of Realtors just reported that the number of house sales increased 12.9% over last month.
4.) Inventory Increases Every Spring
Every year there is an increase of inventory which comes to market as we approach the spring. Here is the number of listings available for sale in 2010.
• February – 3,531,000
• March – 3,626,000
• April – 4,029,000
We believe there will be an increase in these numbers in 2011 as there is a pent-up selling demand created by the weak market of the last few years. You won’t have to worry about this increasing competition if you sell now.
5.) We Are in the Eye of the Foreclosure Storm
While banks are trying to rectify their foreclosure procedures, there is a large supply of discounted properties which has been delayed coming to market. This inventory will be released sometime in the next few months. Foreclosures sell on average at a 41% discount. When released they will be competing with your house for the buyers in the marketplace. If you are looking to sell in 2011, you want to sell before this inventory becomes your competition.
CNN Money quoted the leadership Of RealtyTrac on this issue:
“We’ve now seen three straight months with fewer than 300,000 properties receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” said James Saccacio, CEO of RealtyTrac.
“Unfortunately,” he added, “This is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.”
“We expect a spike in the first quarter,” said Rick Sharga, a RealtyTrac spokesman.
Bottom Line
These are five strong reasons to sell now instead of waiting until later in the year. Sit down with a local real estate professional today and decide the best options for you and your family.
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