GOOD NEWS FOR FHA STREAMLINE REFINANCES
Some good news for FHA refinances IF the loan was done prior to June 2009.
One of the problems in refinancing FHA loans to lower rates has been FHA has greatly increased MIP fees over the last few years. When trying to do a refinance it was a bit of a challenge for a borrower to justify paying higher up front MIP fees and or substantially higher monthly MIP fees. As a result many FHA refi's fell by the wayside.
With an announcement this week that FHA will offer streamline refinances with a very nominal .01% up front funding fee and the monthly MIP will be .55% some FHA refi's should open up. The monthly MIP fee is more in line with what the old FHA loan holders (prior to 06/09) are paying currently whereas the 1.10% fee on newer loans is prohibitive.
So, some good news for those in FHA loans and I don't see a downside of this program except it won't go into effect until June 2012.
We could use some good news on the FHA front since the latest news has FHA increasing the up front fee from 1% to 1.75% and the monthly fee to 1.25% (depending upon loan size). These fees could deter FHA financing on new loans going forward, but this week's announcement should help those with FHA loans better refinance to lower market rates.
THINK TWICE ABOUT LPMI (LENDER PAID MORTGAGE INSURANCE)
I would say this exact same thing about ANY loan product before accepting it!
I've run into several borrowers who want to refinance and now is a great time, but they have LPMI - lender paid mortgage insurance. LPMI was offered to borrowers who wanted to do 100% financing. The interest rate was about .750% higher, but the lender paid the PMI (private mortgage insurance) from the higher rate.
LPMI was touted as a good idea because PMI was not a tax deduction whereas interest was, so many borrowers signed up for it for that reason. I personally did not utilize this product because I had better products for zero down.
Fannie and Freddie bought the LPMI loans in their portfolio and most people are aware that if a loan is owned by Fannie or Freddie, HARP II may be available for refinancing even when borrowers are upside down.
But, wait a minute! LPMI is a special case for these borrowers. Many may be left out in the cold still because of the LPMI. It is not easily transferable it seems.
PMI became a tax deduction in 2007 greatly reducing the need for choosing LPMI. As is the case with all loan programs, know all the facts and compare products. The PMI deduction was not a permanent change but Congress can extend it.
Clearly the pro in a normal market for having LPMI would be if the tax deduction is not available for PMI along with the fact one may not stay in the home very long. The con is that you have it for the life of the loan vs regular PMI when you can drop it when you get at least 20 - 22% equity. Lenders still offer LPMI and in come case it may be a good fit. Sadly, many borrowers have lost so much equity LPMI may be adding to their woes.
FHA MORTGAGE INSURANCE PREMIUM INCREASE COMING IN APRIL
I can remember going years without FHA MI changes. FHA continues to struggle with defaults. Although the loans originated in the last two years have lower default levels, FHA still is not in a good place financially due to foreclosures. They announced the following change today. There was a period of time when the low monthly mortgage insurance made a lot of sense for a borrower to go FHA. It will not be so based on this change.
FHA Mortgage Increase Premium Announcement
FHA has just announced they are raising insurance premiums as follows (effective April 1st):
(We assume it will apply to case numbers assigned on or after April 1st.)
The increases are:
As you can see there are rather significant changes.
Streamline refinance change
Expect a reduction in the streamline refinance premium to be announced in the next week or so. It would apply to FHA loans made prior to May 2009. We expect there will be significant reductions in both the upfront and the annual premium for these loans. You can see where trying to refinance FHA loans that are performing and currently have mortgage insurance of .55% is a problem when the rate would go to 1.25%.
Implementation Schedule
The April 1st proposed deadline, if it is not changed, will be problematic for the reprogramming of systems. Hopefully, FHA will provide flexibility if and when lenders voice concerns about the unfeasibility of such a short deadline.
FHA Proposes Changes to Seller Paid Contributions
FHA Proposed Rule on Seller Concessions
Yesterday, HUD published a request for comments (due in 30 days, by March 26) on their revised changes to policies for seller concessions. The new proposal is to limit seller concessions as follows:
The notice also mentioned that HUD is getting closer to issuing another notice regarding tighter standards for manual underwriting.
Here is a link to the proposed rule - http://www.gpo.gov/fdsys/pkg/FR-2012-02-23/pdf/2012-3934.pdf
Comments are due March 26, 2012.
My feeling is that the change would not negatively impact the volume of business I could do in my market. Rarely can a borrower use the entire 6% that has been available. Other markets could see it differently.
FHA MORTGAGE INSURANCE RISING AGAIN
I just received a communication from one of my lenders Obama has submitted his budget to Congress. Included in this budge are two rate increases for FHA. They are as follows:
When will these increases be implemented?
The Budget indicates these changes will be implemented "soon". When the 25 basis point increase in the annual premium was implemented last year (from 90 bps to 115 bps), the Mortgagee Letter (2011-10) was published on February 14, 2011 with an effective date for case numbers assigned on or after April 18th, 2011. Accordingly, based on last years’ experience, we expect the new mortgagee letter to be published in the near future (possibly today) with an effective date in mid-April.
What are the prospects for further increases?
FHA has indicated that further increases are possible to ensure the solvency of the fund. While we hope that will not be necessary to raise premiums beyond the levels noted above, rising defaults are an ongoing problem.
Reportedly FHA is suffering from defaults caused by older loans made. Only 6.5% of the 711,000 delinquent FHA loans were originated in the last two years. Just like conventional loans where borrowers are paying loan level price adjustments because of older delinquencies, FHA will be charging more to the better borrowers to make up for lost ground.
Licensed in Kentucky. I have 13+ years experience in mortgage loan originations. I personalize service for each client with their goals in mind. Nearly ALL my business is referral!
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