If you’re planning to buy a home with a low down payment, you need to be aware of some important but virtually unpublicized price changes underway in the mortgage market.
If you’ve got good but not great credit, such as a FICO score in the mid to upper 600s, you’re going to get hit with higher fees on a conventional (non-government) loan with a low down payment. Count on it. On the other hand, if you’re part of the credit elite — your FICO score is 760 or higher — congratulations: You’re in line for an unexpected discount on fees, despite making a tiny down payment.
What’s going on? Put simply, the mortgage insurance premiums on loans eligible for sale to giant investors Fannie Mae and Freddie Mac underwent a shake-up this month. Applicants with lower scores and smaller down payments got whacked.
To illustrate: According to one mortgage insurer’s rate sheet, the buyer of a $400,000 house with a 660 FICO, a 3 percent down payment and a fixed rate of 4 1/8 percent would have paid $2,359 a month in principal, interest and mortgage insurance before the premium changes took effect April 4. Today, the same borrower would be charged $2,495 a month — $136 more a month, $1,632 more a year. But a borrower with a 760 FICO seeking the same size loan with a rate of 3 7/8 percent would now be charged $162 less per month — $2,002 vs. $2,164 — because of the pricing revisions.
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Did you know a homeowners association could have an impact on whether you can buy a condominium with a government-backed loan?
As of 2009, both the Federal Housing Administration and Department of Veterans Affairs require a condominium’s homeowners association to be approved before a buyer can get a loan for a home in that complex.
“A lot of condo boards still don’t realize this has happened,” said Andrew Fortin, senior vice president of external affairs at Associa, a community management association. “It’s not a hard process, but it’s a very technically challenging one. The burden is on the association.”
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Amid improving but still somewhat lackluster existing-home sales numbers for March, the National Association of Realtors (NAR) called for the Federal Housing Administration (FHA) to make more changes to its programs in order to help more first-time buyers enter the market.
Though existing-home sales increased over-the-month by 5.1 percent to an annual rate of 5.33 million in March, nearly erasing February’s disappointment, the same problems that have plagued the housing market in the last six months to a year are persisting—affordability and tight inventory, according to the National Association of Realtors’ (NAR) Existing-Home Sales Report for March 2016 released Tuesday.
“Closings came back in force last month as a greater number of buyers—mostly in the Northeast and Midwest—overcame depressed inventory levels and steady price growth to close on a home,” NAR Chief Economist Lawrence Yun said. “Buyer demand remains sturdy in most areas this spring and the mid-priced market is doing quite well. However, sales are softer both at the very low and very high ends of the market because of supply limitations and affordability pressures.”
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It will apparently surprise some in Washington that, had the FHA not used the single-family mortgage insurance program to subsidize Homeowners Equity Conversion Mortgage, it would already have surpassed the 2% minimum statutory capital requirement mandated by Congress.
The Federal Housing Administration has made net transfers of $4.3 billion since fiscal year 2010 to the HECM financing account “to cover the increase in expected losses” in the reverse mortgage program.
Instead of confirming that the FHA’s flagship program has weathered the worst financial crisis since the Great Depression at no expense to the American taxpayer, the actuarial review of the Mutual Mortgage Insurance Fund for fiscal year 2015 offers the misleading impression that the forward portfolio’s all-important capital ratio is still below 2%.
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The Federal Housing Administration (FHA)’s Mutual Mortgage Insurance (MMI) Fund, Home Equity Conversion Mortgage (HECM) program, and the Agency’s mission were the focal points in Principal Deputy Assistant Secretary Edward Golding’s testimony before the House Subcommittee on Housing and Insurance on Thursday.
The hearing, titled “The Future of Housing in America: Examining the Health of the Federal Housing Administration,” was the sixth on the topic in the House Subcommittee on Housing and Industry during the 114th Congress.
The capital ratio of the MMI Fund sat at 0.41 percent, less than a quarter of its 2 percent minimum required by Congress, for Fiscal Year 2014. For FY 2015, that number shot up to 2.07 percent, even after the FHA took some heat for lowering the MMI premium by 50 basis points in January 2015.
“FHA’s Mutual Mortgage Insurance Fund bore the strain of the Great Recession, falling below its required capital reserve and eventually taking a mandatory appropriation in 2013,” Golding said in his testimony on Thursday. “However, FHA’s focus on risk management, increasing revenue, and program improvements resulted in the ratio returning to 2 percent in 2015. This achievement was the result of FHA’s prudent policy changes, and an ability to work with Congress to pass stabilizing legislation and quickly implement program changes over the course of several years.”
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Everybody knows that congressional Democrats and Republicans can barely agree on anything. Yet in a rare and fleeting moment of unanimity in the House of Representatives, they recently approved legislation that could expand purchase prospects for thousands of people looking to buy their first home.
By a 427-0 vote, the House passed the Housing Opportunity Through Modernization Act, co-sponsored by Reps. Emanuel Cleaver II (D-Mo.) and Blaine Luetkemeyer (R-Mo.) Among other provisions, the bill would force the Federal Housing Administration to ease rules and restrictions that have essentially turned the agency’s once-vibrant condominium-unit financing program into a minefield for would-be purchasers, condo associations and lenders.
The FHA is the government’s principal agency for helping consumers buy affordable homes. It does not lend money itself but instead insures mortgages made by private lenders. FHA requires a down payment of as little as a 3.5 percent on loans it insures, allows more-flexible debt-to-income ratios than most other mortgage sources and tends to be more lenient on applicants’ past credit problems. As a result, FHA has long been the go-to mortgage source for young, first-time buyers, many of them minorities. The condo-unit financing program was especially attractive because in most markets condo units cost a median 20 percent to 30 percent less than single-family detached houses.
In a hearing on Thursday before the House Financial Services Committee, Edward L. Golding, Principal Deputy Assistant Secretary of the Department of Housing and Urban Development (HUD) said that the value of the Federal Housing Administration’s Mutual Mortgage Insurance (MMI) Fund has improved by $19 billion in the last year. The Fund fell into negative territory during the housing crisis, battered by poor performance of its guarantee portfolio.
Golding said the Fund increased from $4.8 billion in FY 2014 to $23.8 billion in the most recent year, a total of $40 billion in growth since 2012. The Fund, which is required by Congress to maintain a capital ratio of 2.0 percent, has improved since 2012 from a negative 1.44 percent to a positive 2.07 percent. Further, the Independent Actuary’s 2015 review predicts that the Fund will finish 2016 with a ratio of 2.77 percent.
Golding said the underlying fundamentals of the FHA portfolio are strong and show positive performance in credit quality, reduced delinquencies, and higher recoveries on distressed assets. The early payment delinquency (EPD) rates are typical of the better credit quality of new business. The EPD give an early warning of problems, measuring the rate at which loans experience delinquencies in their first 90 days. The EDP rates for FY2010 through FY2015 vintage loans are less than 20 percent of those for the 2007 and 2008 vintages.
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The long arm of the government is tough to elude, even if you are the nation’s largest home lender.
Wells Fargo stunned the mortgage industry Wednesday by tentatively agreeing to pay $1.2 billion to resolve civil claims by the Justice Department and other federal agencies that it originated shoddy loans insured by the Federal Housing Administration.
The proposed settlement could prove a bellwether for other banks that have outstanding investigations of FHA loans including PNC Financial Services Group, Regions Financial and BB&T.
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Wells Fargo & Co., the largest U.S. home lender, agreed to pay $1.2 billion to resolve claims related to its Federal Housing Administration mortgage practices.
The agreement includes loans made under the program from 2001 to 2010, the San Francisco-based bank said Wednesday in a filing. Because Wells Fargo had to add to legal costs, the firm lowered its 2015 earnings by $134 million, or 3 cents a share, to according to the filing. The firm said in January that they earned $23 billion, or $4.15 a share, last year.
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The Federal Housing Administration (FHA) is cutting the cost of insurance on loans for certain multifamily assets.
FHA overseer the U.S. Department of Housing and Urban Development (HUD) announced several premium cuts on Thursday for properties that support affordable housing and energy efficiency. FHA estimates that the cuts to the annual and upfront insurance premiums will boost loan volumes by $400 million for affordable and energy-efficient apartments, and spur the rehabilitation of an additional 12,000 units per year.
HUD said it is trying to improve rental affordability in the face of rising rents. In 2014, more than half of renters spent 30 percent of their incomes on rent, and more than a quarter spent half their income, HUD said in a news release. Each year the U.S. loses more than 300,000 affordable-housing units, the agency said.
“Families across the country are struggling through an affordable-housing crisis,” said HUD Secretary Julian Castro, who announced the changes at an affordable-housing complex in Columbus, Ohio.
“By reducing our rates, this administration is taking a significant step to encourage the preservation and development of affordable and energy-efficient housing in communities large and small,” Castro continued. “This way, hard-working families won’t have to make the false choice between quality or affordable housing.”
For all its apartment programs, FHA had commitments totaling $9.96 billion in fiscal 2015 (October through September), which was down from a peak of $17.1 billion in 2013, but significantly higher than the 2001-09 period, the agency has reported.
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