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FHA premium cut may not be that big of a deal

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Mortgage Professional America | 08 Jan 2015, 08:47 AM Agree 0
Many in the industry have praised the move to lower premiums, but some remain skeptic about how much of an impact the cut will have on the housing market.
  • Bill S. | | 08 Jan 2015, 09:45 AM Agree 0
    Analyst Jay McCanless of Sterne Agee does not know simple math. The MIP on a $100,000 mortgage with 1.35% annual equals $111.64 monthly. At 0.85% it's $70.29. That's a savings of $41.35, not $25. Now look at a $200,000 mortgage and tell me there's no impact!
  • John The Mortgage Guy | | 08 Jan 2015, 09:50 AM Agree 0
    That analyst obviously doesn't understand FHA mortgage insurance. A .5% drop in mortgage is larger than $25 per $100k. It is in fact $41.67 per $100k. Which on homes in many areas can be a savings of well over $150 per month. And not to mention this will also allow people to look at homes that they normally wouldn't be able to based on the old mortgage insurance #'s. All things being equal (taxes etc) potential homeowners increase their buying power, without increasing the payment, by about 7%.

    I say thats a win/win and should help out. With lower FHA mortgage insurance they are now on par with conventional MI rates at the higher LTV's.
  • brichards513 | | 08 Jan 2015, 10:21 AM Agree 0
    The other point that has not been mentioned here is that there will be a significant number of current FHA borrowers who were shut out of a streamline refinance due to the increase in the monthly MIP. With this reduction - there should be plenty of additional streamline clients who didn't qualify the due to the 1.35% MIP in the past. Not to mention the streamline opportunity for even recent buyers who would want to capitalize on the reduction in monthly payment that the lower MIP would allow in conjunction with lower rates that are available now versus 6 to 12 to 18 months ago.
  • Zfloat | | 08 Jan 2015, 11:16 AM Agree 0
    FHA should have never increased the monthly premium in the first place. Present value of a dollar means it's worth more now than later. Why didn't they leave the .55 premium alone in the first place and just raise the base financed premium to 2.25%. The impact on their financials would have been more immediate and the consumer wouldn't have been so affected.

    As well, keeping the premium for the life of the mortgage is highway robbery and if the president really want's to help he should make it go away at a fair equity position of, say.........70%. In the old days it was the life of the mortgage too, but mortgages were smaller and premiums were as well.
  • Kwloan | | 08 Jan 2015, 01:12 PM Agree 0
    Is there any mention of making the MIP cancel-able after 5 years again? That MIP for life is brutal for borrowers.
  • Tom W | | 08 Jan 2015, 04:24 PM Agree 0
    Bill S - I'm not sure an $85/month savings is a motivating factor for someone to buy a $208,000 home; with rates at 3.5% why haven't they purchased a new home yet? Its a nice savings for borrowers who can't qualify for a conventional mortgage, but they are still paying MI for the life of the mortgage if they put less than 10% down compared to a conventional mortgage where it falls off in just over 8 years. I really don't think this will have a any impact on new originations; both purchase and refinance.
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