November 9, 2010 by MSI
The recent changes in the Federal
(FHA) insurance premium could put the ‘American Dream’ on
hold for even more potential homebuyers. The FHA reserve fell to a dangerously
low level of only 0.53% of its insurance guarantees, far below the 2% required
and the 3% that it carried as recently as last year. These reserves
are meant to be used for covering the increasing amount of defaults, currently
14% of all FHA loans as of 9/30/10.
The change in the mortgage
insurance premium charged to borrowers will bolster this guarantee fund and
bring it up to the federally mandated levels. However, this will impact buyers
financing through FHA as the annual premium charged to these borrowers will
increase by approximately 30% for those with loan to value ratios up to and
including 95%. Those borrowers with a loan to value ratio above 95% will see
the annual premium increase by nearly 50%.
The good news is that the upfront
mortgage insurance premium for both scenarios will decrease from 2.25% to 1.0%.
This move may actually help bring back the mortgage insurance premiums of the
past on conventional loans for low down payment buyers. As always, when there
is a demand, someone will be there to meet it with a product. In this case, it
may simply be dusting off one that had been shelved for a few years. Either
way, millions of Americans (both buyers and sellers) are hoping that this
latest FHA change will not deal another blow to an already weakened housing