T Nation

FHA Loans About to Triple in Costs

Summary - Entry into housing market about to get much more expensive. Please contact your congressman and/or sign the petition.

Find your congressman: http://www.house.gov/representatives/find/

Petition: http://wh.gov/fGs7

http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf[1]

See the above link for the official document. If you are young and planning to buy a house ever, this affects you!

Starting June 3, 2013, the FHA will be extending mortgage insurance premiums. Loans with more than 10% down will be extended to 11 years; while those with less than 10% down will be extended through the full loan term. As it stands at the moment, monthly mortgage insurance is canceled when you have more than 22% equity (<78% LTV) A few examples of what this means:

$100,000 house; 3.5% down; 30 year term Old: MIP cancels after ~9 years: MIP=$12,150 New: MIP does not cancel: MIP=$40,500 Difference: $28,350 (nearly 3x)

$100,000 house, 5% down, 15 year term Old: MIP cancels after ~3.5 years: MIP=$2,450 New: MIP does not cancel. MIP=$10,500 Difference: $8,050 (more than 4x)

$100,000 house, 22% down, 15 year term Old: No mortgage insurance New: MIP cancels after 11 years. MIP=$4,950 Difference: $4,950

I think this unfairly punishes those who do not default on their loans and makes FHA loans fairly impractical for many many cases. If the issue for the FHA is that they need to make up for too many defaulted loans, then they should focus on restricting loans on the riskiest borrowers. They are currently making changes to this as well, but I don’t think they are nearly strict enough.

Another option would be to make a tiered system where the riskier borrowers have more mortgage insurance. Currently, a young professional with a stellar credit score that needs FHA to buy a very modest starter home bc he hasn’t been able to save up 20% is grouped together with the same young professional who lives far outside his means and has racked up tons on credit cards and wants to buy a house he can’t afford. A tiered system could alleviate this problem to some degree.

Like I said, I am pretty upset about the issue because I am currently looking for homes. This puts a lot of pressure on me to find one before June 3. Hopefully buying season has a lot of opportunities for me, but I also wrote a letter to my congressman. I started a White House petition as well. I’m not sure how much interest there will be, but I think it’s worth a shot to get an official answer from the White House, especially since this will cost a lot more than buying an unlocked cell phone!

Lending needs to be more expensive. 3.5% down loans at a 600 credit score are a joke, that is the same garbage paper that got us into this mess. Last time FHA & Fannie were 50% of the lending volume, they are now over 95% of the lending volume, what do you think will happen this time?

I’ve already seen foreclosures started from FHA borrowers since the fall out. At 3.5% down most buyers aren’t financially prepared for the costs of homeownership, what happens if there’s a major repair that needs to be made? With tiny reserves they default fast.

The Feds “FHA, Fannie, Freddie” are holding foreclosed properties off the market to control the supply and are writing easy loans to high risk borrowers all to create the “real estate recovery”.

My advice, save up 20%+ get a conventional mortgage with no MI. With rates as low as they are financing can’t get much cheaper… If you can afford a 15y fixed do it. But what do I know.