With the Stimulus Plans we’ve made in the past few years, bailing out everything from Banks to the Auto Industry – it’s kinda surprising that Congress has a ZERO tolerance for helping FHA stay afloat. You see, FHA not really a lender – it’s just a giant insurance program. It makes sure that Banks don’t go belly up because of all the foreclosures – giving the bank approximately 25% if the borrower goes into default.
Understandably, FHA has been right on the edge of not having enough money in it’s Insurance fund to pay out all of the claims they are getting for several years. The FHA recently announced that it is facing another huge deficit, and it begs the question of weather we will see Congress finally decide to help FHA with some kind of Bailout. If they do, it will be the first bailout in FHA’s History… but frankly, very few people watching the moves Congress is making believe that will happen.
Barring some kind of help from Congress, we could see a much HIGHER FHA PMI rates in 2013 to make up the deficit.
In fact, to meet a balanced budget with the current deficit – FHA would need to increase their “monthly” FHA PMI rates from 1.3 to 2.05% – which is a several hundred dollar increase per month for our average FHA Home Loan borrower in North Carolina.
Additionally – FHA Announced that it is changing the DROP Off Period – meaning in 2013 FHA PMI will be on the loan for the LIFE of the loan is you make less than a 10% down payment. But, many first time home buyers, and those who need flexible underwriting terms are drawn to the FHA Home Loan Program in North Carolina because it’s the easiest way to qualify for a home.
Congress originally set FHA up to help get Homeownership working again in the 1930’s… we can probably relate to some of the problems facing the mortgage industry at the time.
Unlike Fannie Mae and Freddie Mac – the FHA Home Loan Program was set up as an Insurance Agency. Congress created a vision of an agency that would be self-funded and work just like other Mega Insurance Companies in the United States. FHA does not receive “public tax funds” and gets all of their premiums from lenders. The Banks then collect those fees from the FHA home buyers.
Until recently, FHA PMI rates didn’t move that much – premiums stayed pretty flat. Recently, however, foreclosures have forced FHA “to raise FHA PMI rates every time somebody sneezes!”
Underwater FHA PMI Insurance Fund Reserves
The way it is set up – FHA is expected to keep $2 in reserves for every $100 that is has insured. As of November 2011, it held just 24 cents per $100 insured. One of the options that Congress has, which would not be a Bailout, would be to change these reserve levels.
The FHA Insurance Reserve fund gets audited on a regular basis – and over the past four years, FHA has been forced to raise FHA PMI rates 4 times to maintain its $2 reserves level. Now, the gates are opening for FHA to raise its PMI again in the next few months. They are also changing the program so that once you have FHA PMI on your loan – it will never, ever go away (as long as you have a FHA loan and you make less than a 10% down payment).
To be clear – if left to the House of Representatives, FHA would be forced to raise it’s FHA PMI rates by ALOT, and then… well that would not be good for housing.
If their hand is forced, and it appears a taxpayer-funded “rescue” is necessary, it would not require congressional action. Funds would come directly out of the existing U.S. Treasury Department at the discretion of President Obama and Treasury Secretary Timothy Geithner.
The Rumor For FHA Streamlines
We’ve heard from MANY folks who want an FHA Streamline Refinance, but did not meet the “arbitrary” June 2009 deadline to participate. The RUMOR that these folks are hearing is that the “June” date is going to be extended.
We have NO confirmation of this, however, since President Obama does not HAVE to go to Congress to get additional funds for FHA – it could be in the works… it’s more LIKELY, however, that the FHA PMI rates are going to go UP, since FHA already announced that is going to happen in 2013.
FHA Streamline Refinance RATES are really, really, really low… If you are considering a FHA Streamline Refinance with no appraisal – our suggestion is call us! Steve and Eleanor Thorne 919 649 5058 we will be glad to give you our BEST information and advice!