FHA Loan Modifications Hurt Borrowers

On April 1^st of this year, the U.S. Department of Housing and Urban Development (HUD) raised the annual Mortgage Insurance Premium (MIP) by 10 basis points, hoping to strengthen the Federal Housing Administration (FHA) insurance fund and decease FHA’s market share. Moreover, as of July 3^rd, the annual premium no longer cancels at 78 percent loan to value (LTV).

Marianne Collins, executive director and COO of Ohio Mortgage Bankers Association, writes in In Contract magazine that these alterations may make FHA the “loan of last resort.” Monthly conventional Private Mortgage Insurance (PMI) doesn’t have an up-front premium the way FHA does. Additionally, PMI continues to drop off at 78 percent LTV.

A borrower with a 680 credit score and 3 percent down payment would pay much more for a FHA loan requiring a down payment of 3.5 percent than s/he would for conventional monthly private mortgage insurance. Conventional PMI will even be lower at a credit score of 660 and a 5 percent down payment. Due to the lower cost of conventional PMI when compared to FHA MIP, private mortgage insurance companies are “making a huge comeback.”

Collins adds that only borrowers in high risk situations (such as those with low credit scores and brief periods since foreclosures and bankruptcies) have a reason to consider FHA for their financing. This could lead to a high default rate, because higher credit scores are absent to balance out the portfolio. Finally, Collins argues that FHA should do the opposite of what it has implemented: it should reward good credit by offering an insurance premium lower than private mortgage insurance for borrowers with good credit. To view FHA loan requirements, click here. For an additional explanation of FHA mortgage insurance and its changes, watch the YouTube video below.

Distressed Properties Down as Market Recovers

This summer, supply of conventional homes has decreased while demand has increased. But what about foreclosures? According to In Contract magazine, the number of lender-mediated properties, commonly known as distressed properties (such as short sales and foreclosures), for sale in Central Ohio dropped by nearly 50 percent in the first three months of 2013. The inventory of distressed properties fell by 42.2 percent from the first quarter of 2012 to the first quarter of 2013. Meanwhile, distressed property sales increased by 19.9 percent. Perhaps more interesting, the number of closed sales for lender-mediated properties succeeded the number of new listings by more than 10 percent, meaning a good number of distressed properties that have been sitting on the market for awhile have been sold. Nonetheless, the sales mix is “shifting away from distressed properties and back toward traditional homes.” Supporting this claim is the that fact that the sales price of distressed properties has increased by 1.6 percent in the past year, while the sales price of conventional homes has increased by 4.2 percent (averaging $64,000 and $163,000, respectively).

These statistics speak to the market’s recovery, as Central Ohio has witnessed a very active market in the past couple of months. In fact, according the Housing Market Confidence Index released by the Ohio Association of REALTORS, 96% of Central Ohio REALTORS classify today’s market as “moderate to strong,” and all expect it to remain so over the next few months. Home prices and appraisals are largely believed to stay the same, or increase, in the year to come. Interested in buying or selling? Contact me--I would love to help.