Brian Leibowitz, CEO and Owner of Affordable Financial Services LTD, says there will be fewer homes being purchased once the Federal Housing Administration’s plans to increase mortgage insurance premiums on homeowners and request from borrowers a larger down payment on a home are implemented. He also said that these changes will also place an additional financial burden on both homeowners and borrowers.
The FHA recently announced that it is increasing mortgage insurance premiums by 0.10% for most new mortgages and 0.05% for loans of $625,500 or more. In addition, mortgage holders are expected to continue paying the premiums, based on the unpaid balance, for the life of the loan. Premiums will no longer be cancelled when the homeowner has repaid 22% of the loan’s principal.
For prospective homeowners who apply for loans of more than $625,500, they will now have to place a minimum down payment of 5% instead of the current 3.5%. The FHA will also make it more difficult for those with low credit scores and high debt-to-income ratios to get a loan.
The FHA also announced that, beginning April 1, it will consolidate its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed Rate pricing options for its reverse mortgage programs. Those looking for a fixed-rate mortgage will only be afforded the Saver Fixed Rate, which, the agency says, will save the borrower on upfront closing costs. This will apply to loans that close on or before July 1.
“These changes brought about by the Federal Housing Administration will mean that fewer people will be able to buy a house because of the higher costs and more stringent requirements involved,” Mr. Leibowitz said. “This will negatively impact the housing market, which has been improving steadily over the past few months.”
The FHA stated it needs to increase these premiums and implement changes to its reverse mortgage programs in order to protect its single-family insurance programs. The FHA’s insurance fund had a reported deficit of $16.3 billion at the end of fiscal year 2012, many of the losses coming from mortgage loans insured by the agency between 2007 and 2009.
“This is the fifth time since 2009 that the agency has raised its premiums,” Mr. Leibowitz said. “The FHA has made a series of errors in judgment when they insured these risky loans. Now, in order to recoup their losses, they are asking homeowners and borrowers — who are also taxpayers — to foot the bill. This is not the way to fix the mortgage mess.”