As noted recently, Julian Castro, the HUD (Housing and Urban Development) Secretary, announced a rollback of the FHA (Federal Housing Authority)-required mortgage insurance premiums from .85% to .60%. The change was to be effective on January 27th. The decision to reduce the premium was made partly because, for the past two years, the FHA loss reserve fund exceeded the minimum threshold and is growing. For a $200,000 FHA insured loan, the quarter percent equals $500 annual savings for a homebuyer.
As you may know, the new administration put the rollback on “indefinite hold” pending review. Concerns exist that taxpayers might have to foot the bill if a sufficient number of insured loans “sour” with reserves inadequate to cover them. That was the case during the housing collapse in 2008 and the Treasury provided a bailout of $1.7 billion to the FHA.
Reasons for such concerns stem largely from the fact that FHA purchases require only 3.5% down payment and average credit scores for FHA borrowers are lower. As such, initial equity is limited and the credit profile is riskier than for conventional borrowers. In an economic/housing downturn, that homeowner segment would face the greatest potential risk. If confirmed as the new HUD Secretary, Dr. Ben Carson has pledged to a full review of premium structures with a mind toward maximizing benefit to potential homeowners but noting that the need to maintain a prudent fiscal approach remains. Only time will tell.
Joe Adamson NMLS #234559 BRE #01090504 Ofc: (408) 975-2400 x123 joe@mortgagemacic.com
Mortgage Magic NMLS #331340 BRE #01104088
