FHA changes could drive borrowers to conventional loans

by Kelli Rogers23 May 2013
Changes to FHA mortgage insurance premiums could see more borrowers move into conventional loans, an industry professional has said.
Ryan Nelson, a mortgage lending officer and branch manager at Academy Mortgage, has told MPA FHA requirements for borrowers to continue paying annual premiums for the life of their mortgage could see an up-swing in conventional loans.
“It used to make more sense to do FHA, but now it makes more sense to do conventional,” said Ryan Nelson, a mortgage lending officer and branch manager at Academy Mortgage. 
The trend toward conventional has already started after several increases of FHA mortgage insurance premiums in the last three years, the most recent in April, Nelson said.
Effective June 3, the FHA will require borrowers who take out a new FHA loan with an LTV ratio greater than 90% to pay the MIP until the end of the mortgage loan term or for the first 30 years, whichever comes first. Previously, once the loan was paid down to 78% of the original value of the house or after five years, whichever came later, the borrower would no longer be required to pay the MIP.
These new requirements are needed to strengthen the solvency of the mortgage insurance fund, but it will also affect the loans recommended by lenders, Nelson said.
“We really have to look at doing what’s best for the client,” he said. “If mortgage insurance if going to remain forever on FHA after June 3, we’re going to try to refinance our customer to some kind of conventional loan product.”