Last updated on August 29th, 2018
In another effort to buoy the flagging housing market, the Obama administration announced today that it would essentially be removing the upfront mortgage insurance premium on streamlined FHA refinances.
So homeowners who currently hold an FHA loan, looking to refinance into another FHA loan to lower their mortgage rate, will pay just 0.01% in upfront mortgage insurance premiums.
This represents a huge discount compared to the 1% upfront premium currently charged.
The annual mortgage insurance premium will also be slashed in half to 0.55%, which together with the upfront premium reduction is estimated to save the average FHA borrower roughly a thousand dollars annually.
In order to qualify for the new program, your FHA loan must have been originated prior to June 1, 2009.
The Obama administration believes about 2-3 million FHA borrowers will be eligible to benefit from this initiative, but only time will tell how many are really helped.
Are Future Homeowners Eating the Cost?
While this is great news for those who currently hold FHA loans, it makes you wonder if future homeowners will wind up paying for it.
Last week, the FHA announced that it would be raising upfront mortgage insurance premiums from 1% to 1.75%, beginning in April.
Additionally, the agency said it would raise the annual mortgage insurance premium by 0.10 percent for loan amounts under $625,500, and 0.35 percent for loans between $625,500 and $729,750.
The measures were taken to meet the congressionally mandated minimum for the FHA’s Mutual Mortgage Insurance (MMI) fund, which has been depleted thanks to all the recent losses on bad loans. It is expected to boost the fund by $1 billion through fiscal year 2013.
So essentially first-time homebuyers and other current homeowners who do not hold FHA loans will pay a premium to take out an FHA loan.
It seems like a bit of a shift in wealth, though it will likely result in fewer new homeowners going to the FHA for mortgage financing, which is probably the end goal.
The FHA exploded in popularity in recent years as subprime lending fell by the wayside, but the agency bit off more than it could chew. So this is likely a bid to return to a more normalized mortgage market funded by private capital.
[FHA loan vs. conventional loan]
Still, it seems a little unfair for those who don’t hold FHA loans, regardless of what good it may do.
But if you have an FHA loan, this is a great time to inquire about a streamline refinance to lower your mortgage rate and your monthly mortgage payment, without being subject to steep closing costs.
Reviewing Servicemember Foreclosures
The White House also announced that it will conduct a review of all servicemembers foreclosed on since 2006 to identify any wrongdoings.
Those found to be wrongly foreclosed on will receive compensation equal to a minimum of lost home equity, plus interest and $116,785, paid for by the nation’s top loan servicers, who were involved in the National Mortgage Settlement.
Additionally, those who were wrongfully denied a refinance will be refunded any money lost as a result.
And those who were forced to sell their homes for less than the mortgage balance due to a Permanent Change in Station will also be provided with some form of relief.
Finally, the major loan servicers will pay $10 million into the Veteran Affairs fund, which guarantees funding for the VA loan program, and certain foreclosure protections will be extended to prevent future failings.
About the Author: Colin Robertson
Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.