Changes in F.H.A. Fees
By VICKIE ELMER, New York Times, March 22, 2012, link
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In a nutshell, here is what’s happening: Fees for refinancings will fall sharply, as the upfront mortgage insurance decreases to 0.01 percent of the base loan amount, from 1 percent, starting on June 11. For buyers, the upfront mortgage insurance premium will increase to 1.7 percent of the loan amount, from 1 percent, effective April 9, and annual insurance costs, paid monthly, will rise 0.10 percentage points. Those with so-called jumbo loans, those above $625,500, will see a 0.35-percentage-point jump in the annual insurance premium, effective June 1.
The F.H.A. announced these changes over the last several weeks; they reflect an Obama administration initiative to make refinancing easier and more affordable for the three million or so homeowners with F.H.A. mortgages. The reduction in refinancing fees applies to those borrowers who are current on payments.
Charles Coulter, the deputy assistant secretary for single-family housing at the Department of Housing and Urban Development, said the changes were intended in part to shore up the insurance fund, “while having a minimum impact on the borrowers’ payments.” The higher fees could add more than $1 billion to the fund through fiscal year 2013, HUD said in an announcement.
The F.H.A.’s market share has risen sharply in recent years as subprime lenders and others left the business during the housing crisis, or were forced out. F.H.A.-insured mortgages represented almost a third of all mortgages in 2011, and as many as 47 percent in the second quarter of 2010, according to HUD data.
From a recent low of 1.8 percent in 2006, F.H.A.’s loan volume grew to a high of 20.4 percent of all mortgage originations in 2009, and last year it insured 15.2 percent based on dollar volume, according to data from Inside Mortgage Finance, an industry publication. In the last three years, F.H.A.’s volume was about four times its levels of 2005 and 2006.
“That is tremendous growth in just five years,” said Terence Floyd, a vice president of People’s United Bank in Bridgeport, Conn. F.H.A. loans appeal to first-timers who otherwise could not afford to buy, he noted, adding, “They don’t have 20 percent to put down.”
Loans insured by the F.H.A. require only a 3.5 percent down payment for borrowers with a credit score above 580; those with a score of 500 to 580 need at least 10 percent down. Some lenders require higher scores. For instance, Somerset Hills Bank in Madison, N.J., looks for a score of at least 640 for an F.H.A loan, according to Jody Tobia, a senior vice president.
Mr. Tobia says he expects many borrowers to continue with F.H.A. loans despite the higher fees, because of the low down payment and the ability to wrap the upfront insurance fee into the initial loan balance.
While some lenders consider F.H.A. “the only game in town” for first-time buyers of modest means, there are other options. Some credit unions, including New York Municipal Credit Union, are offering mortgages with a 5 percent down payment, said Daryl Newkirk, a mortgage loan originator at the New York credit union. The loans are for single-family homes; buyers must have a credit score of 660 or higher. Mr. Newkirk said that about half the borrowers who come to New York Municipal Credit Union are looking for mortgages with down payments of 5 percent or less.
For first-time buyers, determining a maximum affordable monthly payment is key. F.H.A. mortgage insurance premiums are added into the principal, along with interest and escrowed taxes and insurance amounts. HUD estimated that the annual premium increase will add, on average, $5 a month to consumers’ mortgage costs. Some low-income buyers, however, may be eligible for grants or other assistance to cover some of their closing costs.