August 9th, 2010 7:57 PM by Christopher Terry
The Senate just passed HR5872 and HR5981. These bills give FHA the authority to raise the monthly mortgage insurance premium charged to borrowers utilizing an FHA insured loan. FHA says these rate increases are necessary because of increased loan defaults caused by the foreclosure crisis.
Originally, all FHA case numbers pulled on or after September 7, 2010 will have an increase in the MMI (monthly mortgage insurance) premium from .55% to .85 - .90%. But because there was a concern about lender being prepared for the change HUD has postponed it until October. The bills also give FHA the authority to raise the MMI is as high as 1.55% (although this has not happened yet).
So let’s look at the numbers:
So what does this mean?
If you are a first-time home buyer and are using an FHA loan program your purchase power will be diminished, in other words, what you will be able to afford will be less. If you are on the fence about making a new home purchase there maybe no better time than now.
If you are a homeowner and thinking about selling and your home is best suited for a first-time home buyer, after September 7 you might find that there are even fewer potential home buyers for your home. As mortgage lending continues to tighten, it squeezes more and more buyers out to the market place further perpetuating the foreclosure crisis.
There is much that can be done. Lenders, including Fannie Mae, Freddie Mac and FHA, who were so quick to lend when times were good are now feeling forced to tighten, in my opinion, too tight, to stay capitalized. The pendulum swung to far one way, now swings to far the other.
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