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National Mortgage Rates 25 May 2012
| Loan Type | Today | +/- | Last Week |
|---|---|---|---|
| 15 yr fixed | 3.03 |
|
2.87 |
| 30 yr fixed | 3.72 |
|
3.50 |
| 5/1 ARM | 2.75 |
|
2.50 |
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New Bill Could Make FHA Loans Less Appealing
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- Peter King - MortgageLoan.com
New legislation intended to shore up FHA finances could end up making the agency’s home mortgages a lot less attractive to the people they’re supposed to help.
The FHA Reform Act, passed by the U.S. House, would allow the agency to increase the annual premium it charges borrowers to as much as 1.55 percent of the loan value, up from 0.55 percent currently. In essence, the full increase would raise the interest rate borrowers pay by a whole percentage point – it doesn’t much matter if you’re paying an additional percent in interest or fees, it’s still the same amount of money.
If enacted, the change could take the wind right out of the sails of FHA mortgages. The government-backed home loans are presently the hottest thing going in the home loan market, accounting for as many as half of all first-time homebuyers, largely because they’re seen as affordable and available.
With a minimum down payment of only 3.5 percent of the loan amount, FHA mortgages don’t require a lot of cash up front, a major consideration for young people who may not have a lot of savings. And the interest rates are competitive as well, particularly for borrowers with flawed credit, who would normally pay higher rates for lower scores.
The legislation is intended to help rebuild the FHA’s reserve fund, which has fallen well below 2 percent of its outstanding loans, the minimum established by Congress. The FHA has already raised the onetime fee it charges borrowers to 2.25 percent of the loan amount, up from 1.75 percent previously. The legislation is also intended to weed out risky borrowers , as the FHA suffered has heavy losses from mortgage defaults as a result of economic downturn.
Some lenders unhappy
The reaction from lenders has been mixed.
“Basically, what they’re going to do is kill the real estate market, because government loans are about all that’s left these days,” said John Arvanitis, president of Sunrise Vista Mortgage in Citrus Heights, Calif., near Sacramento.
Arvanitis, who said his company currently does about 80 percent of its business in FHA and VA loans, said it would make more sense to increase the upfront fee than to effectively triple the premium customers pay every year.
“Every little bit they chip away at affordability, that’s just one more knife in our gut,” he said.
Others, however, regard the move as necessary.
“My initial thought is we do need to shore up (FHA) reserve funds, as the general idea is it’s a worthy cause and good, because we want FHA around,” said Robert “Hutch” Hutchinson, president of Adams Mortgage LLC in Colorado Springs, Colo.
Maximum increase may not apply to all
Hutchinson said he suspects that FHA will not simply charge everyone the maximum premium, but instead use a sliding scale where borrowers with lower FICO scores pay higher annual premiums. He said that presently, the FHA does not vary its interest rates depending on a borrower’s credit.
“FHA is, I think, positioning itself to be more in line with the conventional marketplace and I’m not sure that’s all good, being that the government program is supposed to be a stopgap for the conventional one,” Hutchinson said.
Hutchinson is concerned the changes might discourage the type of borrowers the FHA is supposed to assist, those with modest credit scores and finances. He said he’d rather see the agency put further limits on debt-to-income ratios as a way of ensuring borrowers can afford their mortgages, rather than boosting the cost of borrowing itself.
The industry trade group, the Mortgage Bankers Association, has been supportive of the legislation, noting that it will help stabilize FHA finances.
Senate still needs to act
The legislation still needs to be passed by the Senate, which is likely, given the overwhelming majority by which it passed the House. The Senate could still make changes in the bill, which would have to be reconciled with the House, but it appears a substantial increase in the ceiling on the FHA annual insurance premium is certain.
Once passed, the bill’s provisions will likely take effect this fall. Borrowers thinking of pursing an FHA loan for either a home purchase or to refinance an existing loan would likely seek to get their financing in place before the new insurance premiums take effect.
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| Loan Type | Today | +/- |
|---|---|---|
| 30 yr fixed | 3.72 |
|
| 15 yr fixed | 3.03 |
|
| 5/1 ARM | 2.75 |
|
Rates may contain points
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