FHA Mortgage Insurance Premium Hurting Pool of Home Buyers

The Federal Home Administration is being accused by the National Association of Realtors of making the costs of their mortgage insurance too excessive which has effectively eliminated hundreds of thousands of consumers from the home buying pool.

HUD’s strategy of repeatedly raising the FHA MIP is lowering the amount of low-to-moderate income borrowers from buying a home. The Housing Affordability Index is around record highs and has moved higher due to record low interest rates and low housing prices. However, with rising mortgage insurance costs, a large chunk of that affordability disappears, transforming homebuyers into looky-loos. FHA mortgage financing is the one great opportunity for “borderline” prospective home buyers to obtain mortgage financing. HUD’s MIP pricing system is depressing that chance and slowing down the real estate recovery in many parts of the country.

“Attaining homeownership has grown to be much harder with today’s FHA mortgage insurance premiums,” the association said. “In 2014, FHA fees constitute almost 20% of a monthly mortgage payment. For example, with a $150,000 loan, at 4.5% interest, the mortgage payment is 13% greater today than it was in 2008.”
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The association mentioned that the rate in 2010 was just 0.55% , and in 2014 the mortgage insurance premium is 1.35% which is 80 basis points more. The 80 additional basis points put approximately 1.45 million to 1.65 million renters outside the safe debt-to-income ratios for the purchase of a home in 2013, the NAR said.

Moreover, FHA loans are so meticulously analyzed, that the documentation conditions on their own, substantially diminish the risk, and probability of defaults and foreclosures. The Dodd-Frank law which brought QM (Qualified Mortgage) has forced lenders to lend more responsibly contributing to less borrowers missing payments or worse, going into foreclosure meaning a lot fewer actions to go into the MMI fund to make a lender whole when a loan defaults.