“Buying a home has always been about more than owning a roof and four walls. It’s about investing in savings and building a family and planting roots in a community.”
That was the message that President Obama relayed in his January 7 speech on housing and homeownership in Phoenix, AR. His speech announced some significant improvements to mortgage loans backed by the Federal Housing Administration (FHA).
“We’re going to start this week laying out some of the agenda for the next year. And here in Phoenix, I want to talk about helping more families afford their piece of the American dream, and that is owning their own home.”
To those means, Obama announced that FHA mortgage insurance premiums would be reduced from 1.35% to .85% on both purchase and refinance loans with FHA Case Numbers originated after Jan. 26, 2015. The upfront mortgage insurance premium (UFMIP) will however, remain at 1.75%.
The White House estimates more than 800,000 homeowners stand to save on their monthly mortgage costs from the reduced MI premiums. They also predicted that 250,000 potential buyers will enter into homeownership over the next three years as a result of the changes.
CoreLogic estimates the change will benefit FHA borrowers with an average of $80 per month, or $900 per year, in mortgage insurance premium savings – nothing to scoff at for the average American homeowner.
The President’s measures are undoubtedly designed to address problematic homeownership numbers radiating from the flagging first-time buyer market. A demographic whose supposed indifference to ownership has started to cause some consternation among those that watch that kind of data. The numbers do present a potentially market-damaging trend. In fact, first-time buyer participation limped into 2015 accounting for a meager 33% of the overall homes sold. That is the lowest market share since 1987 and down from 47% in 2009 and 50% in 2010.
The 2009 and 2010 spike should be considered an outlier, however. Those numbers were buoyed by an $8,000 Federal tax credit for first-time homebuyers. That tax credit expired in June 2010 and the first-time buyer participation numbers have generally trended downward ever since. The 33% share in 2014 falls below what the National Association of Realtors (NAR) considers healthy. They prefer to see new buyers accounting for at least 40% of the overall homes sold.
A Mortgagee Letter released by the Department of Housing and Urban Development has some good news for borrowers currently in the process of getting a loan. Mortgage Lenders will temporarily be allowed to cancel FHA Case Numbers issued before that date. Specifically the letter states: “To allow mortgagees to obtain the reduced annual MIP rates contained in this ML for loans in process with active FHA Case Numbers, FHA will temporarily approve cancellation requests for active FHA Case Numbers within 30 days of the effective date of this ML.”
What that means is if you are in the process of getting an FHA loan, you do not need to pay the existing higher mortgage insurance. Your lender can cancel the current case number and re-issue again after January 26, so that you can get the lower rate.
Despite the overwhelmingly positive response from the housing market and sane members of Congress, there’s still one injustice that has emerged from the FHA changes.
HUD shafted Hawaii. The new MIP will not be available for Section 247 loans, which are specific to the Hawaiian Islands.
Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.
