Richard's Real Estate Thoughts: February 2012

FHA has announced another increase in their mortgage insurance premiums.

These premiums are charged to borowers as insurance against default. FHA is required to maintain a certain level of capital reserves to protect against losses, and a consequence of some of the recent economic problems has been that the capital reserve levels have fallen.

FHA feels that it is necessary for another increase in the insurance premiums to bring more capital into its reserve accounts.

The changes take effect in April 1, 2012.

This is the 3rd increase since October 2010, a 2.5X increase in the premium charge over the last 18 months.

This time the increase in the monthly premiums is accompanied with an increase in the upfront premium.

A subtle point in the news release is that "FHA will continue to permit financing of this charge into the mortgage."  Financing the upfront premiums for mortgage insurance has been standard practice for government lending with FHA, VA, and USDA Rural Development lending.

I am taking that to mean the question of not allowing the upfront mortgage insurance to be financed was discussed. It suggests that the possibility that in the future the option to finance those upfront premiums might no longer be available. 

FHA is considering also at possibly reducing the seller concessions allowed for a purchase. This change will have greater impact on families purchasing homes less that $100,000.

It looks like the push for tighter lending standards for government home financing programs will continue. FHA will still be a good home loan program option for many buyers, but it will be more expensive. Buyers should take advantage now of low rates and low home prices.