Lenders asked FHA, the Federal Housing Administration that offers home buyers low-down mortgages, to lower their monthly mortgage insurance fee. The rationale behind the request was this:
1) FHA’s profits are up and the administration is operating comfortably in the black, and
2) FHA changed their rules so that the mortgage insurance fee is permanent and cannot be waived no matter how much equity the homeowner accrues. With a conventional loan, the mortgage insurance fee stops once the home owner has 20 – 22% equity; but with FHA, it lasts for the life of the loan.
In response to their request, lenders received a big, fat NO. Carol Galante, the FHA Commissioner, said the current fees are “absolutely necessary,” and that “now is not the time to roll back premiums.”
In the future, FHA hopes to launch a program that will further increase the quality of loans. This program will be paid for by a fee to the lenders.
I have to ask, if lenders receive a new fee from FHA, who do you think they are going to pass that additional cost onto?
Now that this FHA program (commonly called a first-time home buyer’s loan) carries higher mortgage insurance fees and permanent monthly fees, how much more will home buyers accept before they say “NO” to FHA and choose a conventional loan instead?
Currently, a conventional loan requires a 5% down payment instead of 3.5% down for FHA. But if the monthly fees (on top of the upfront FHA fee) grow too high, home buyers may well decide the extra time it takes to save for the larger down payment is worth the wait.
2 thoughts on “FHA Says “No” to Lower Fees”
I think that home buyers who have access to the 5% down will start utilizing conventional loan programs more often. The mortgage insurance on conventional loans is temporary and lower in costs than FHA.
Thank you for your comment, Jerry. I agree. I would also like to see more investors offer programs that differ from Fannie and Freddie, because competition in the marketplace is good for consumers.