Written By: Glenn Michaels, Op-Ed Writer
The Federal Housing Administration (FHA) saw its share of the mortgage market soar to 72% of all insured mortgages issued in 2008 and to 25% of the total origination market in 2009 as other lenders pulled back and FHA moved into one of the two roles it was designed to fill, as a counterforce providing access to credit when the private pulls back, typically because of economic stress. Since then that share has steadily declined and is back down to to around 15 – 17 percent.
Recently the National Association of Realtors Economist Commentaries says that with the recent changes in FHA’s mortgage insurance premiums it is worth reviewing the agency’s impact on the market. First the NAR says the unit volume as above is only one way to measure FHA’s market share.
It can be viewed as a share of:
Total home purchases
The mortgage market: purchase money mortgage; refinances, or the combined total, or
The market for mortgage insurance
Each of these measures can, can in addition be calculated by either dollar volume or unit count. The NAR says the is an important distinction as FHA’s other role to act as a source of funding for credit worthy borrowers who face limited access from private sources. Particularly first time, low income or minority buyers means its natural market is lower priced homes. In addition homes financed by FHA are strictly for the owner occupied primary residence market. No investment or second homes.
FHA annual mortgage insurance premiums that are paid monthly have declined .50% for terms greater than fifteen (15) years for cases on after January 26, 2015. FHA financing is now less expensive; will this result in more FHA financing?
I have noticed in the company where I am employed that all FHA cases that were pulled and not closed were pulled again on after January 26, 2015 to obtain the lower annual mortgage insurance premium.
The lower FHA mortgage insurance premium should result in an increase in the FHA market.
A thirty (30) year FHA mortgage with maximum financing was paying in addition to 1.75% upfront mortgage insurance premium a 1.35% annual mortgage insurance premium paid monthly for the life of the loan. Under the new rules, the borrower will be paying 1.75% upfront and .85% annually paid monthly over the life of the loan.
A purchaser of a $300,000.00 home with maximum financing would be financing $289,500.00 plus the upfront mortgage insurance premium of $5,066.25 which gives us a total loan of $294,566. The annual mortgage insurance premium paid monthly has been reduced from $325.69 in this example to $205.06, a savings of $120.63 monthly. If the borrower keeps the mortgage for the full thirty years the borrower will pay $43,426.80 less over the borrowers that closed on or before January 25, 2015.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.