FHA announced its insurance premium increases, mortgage rate
increases, down-payment percentage increases, and the reversal of its
cancellation policy as functioning and applicable on April 1, 2013.
In a press release statement during the last week of January
2013, the Federal Housing Administration (FDA) and the Department of Housing
and Urban Development (HUD) announced that insurance premiums for FHA-backed mortgages
will increase by 0.10%, particularly for loans below $625,500 and 0.35% for mortgages
above. Up Front Mortgage Insurance Premium (UFMIP) are also planned to increase
to 0.75%.
The FHA is considered the biggest source of mortgages with
low down-payments in the U.S.; with just 3.5% of the principal loan while most
mortgage lending companies take anywhere from 5-20% of the principal loan—especially
the non-government companies. FHA’s affordable house financing has allowed
homeownership for thousands of Americans over the years; even those belonging
to a modest income bracket with bad credit history are able to benefit from
FHA’s financing assistance.
As all good things come to an end, the FHA’s services may
already be nearing its end now that it is starting to gain back equity from its
losses over the years. Loan insurance fees are currently being set to increase,
and qualifications for the services will be a tad tougher now that they are
intending to give the service to applicants with better credit history. FHA’s latest
intended plan is prepared to increase its mortgage rates and insurance
premiums, meaning that they are moving away from their traditional market
customers.
One broker from Huntington Beach, California, Dennis C.
Smith of Stratis Financial Corp. admitted his thoughts that the FHA is on its
way to losing business with its new plans of increase. As several brokers and
experts in the housing industry share Smith’s thoughts, FHA admits that they
are not aiming to increase the market, but that, at the moment, it is their top
priority to protect their business. To do that, they need to gain back equity
by cutting losses, and they have keenly decided that the moves they are making
are the steps to reaching that goal.
The intended increase in premiums and mortgage rates are
going to commence on the first of April 2013—no joke here. By 2011, the FHA had
already taken two premium increases. The one to be in effect on April this year
is their third, successive movement to increase insurance premiums. Borrowers
with debt-to-income ratios that go above 43% and credit scores lower than 620 are
going have mandatory manual underwriting, starting June 3rd this
year. Another big change is the rescinding of its cancellation policy to
borrowers who reach a loan above 78% of the principal loan. They believe that
this policy played a big role in their losses, thus the need to change it.
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