Will the Federal Housing Administration (FHA) require a bailout by the US Treasury? Well, to help avoid that, the FHA is changing some things. For one, new borrowers may have to pay 1.35% of the loan balance in mortgage-insurance premiums, up from 1.25%. For loans of $625,500+, the premium may rise to 1.6%, up from 1.5%.
To increase revenue streams long term, the FHA also is abandoning its practice of allowing borrowers to cancel their annual mortgage insurance premium payments when their loan balance drops to 78% of the property value. In effect, this will mean that borrowers who obtain 30-year FHA loans could be paying premiums for decades.
Is this a big deal? Clem Ziroli Jr., president of First Mortgage Corp. in Ontario, thinks it could encourage some borrowers with higher credit quality to "refi out" of their FHA loans and seek better deals in the conventional marketplace.
But Paul E. Skeens, president of Colonial Mortgage Group in Waldorf, Md., sees it differently. With fixed 30-year mortgage rates in the mid- to upper-3% range and virtually certain to increase — maybe significantly if the economy improves in the coming years — "Everybody is going to want to keep these loans forever," he predicts. "They're not going to want to refi."
You may wonder why we bother writing about FHA loans. FHA has loans for 1-4 units and multifamily (5+ units).
See the following:
1) 203(b) Mortgage Insurance (1-4 units)
Section 221(d)(3) and 221(d)(4) insures mortgage loans to facilitate the new construction or substantial rehabilitation of multifamily rental or cooperative housing for moderate-income families, elderly, and the handicapped. Single Room Occupancy (SRO) projects may also be insured under this section.
Section 207/223(f) insures mortgage loans to facilitate the purchase or refinancing of existing multifamily rental housing. These projects may have been financed originally with conventional or FHA insured mortgages. Properties requiring substantial rehabilitation are not eligible for mortgage insurance under this program. HUD permits the completion of non-critical repairs after endorsement for mortgage insurance.