Any borrower who will be obtaining FHA financing for their home were happy to learn that they will soon receive a break on their monthly mortgage payments. The Federal Housing Administration, the government insurer of low down-payment home loans, is reducing the annual mortgage insurance premium by 25 basis points, which it says will save FHA borrowers an average $500 this year – many of whom use JMAC’s brokers for home loans.
Money is money, and $500 certainly will help the average FHA borrower. HUD, who oversees the FHA, and the FHA pointed out that the reduction in insurance premium was due to the improved financial condition of the FHA’s insurance fund. The FHA's insurance fund was a major player in the housing bailout, offering borrowers the only low down-payment option available. JMAC’s broker’s borrowers can put as little as 3.5 percent down on a home with a mortgage backed by the FHA. HUD officials said the reduction is likely to lower the cost of housing for approximately 1 million households who are expected to purchase a home or refinance their mortgages using FHA-insured financing in the coming year.
Our brokers also know that in the last year the FHA has seen competition from Fannie Mae and Freddie Mac which rolled out low down payment programs. Although their volumes have not been high, the programs still represent an alternative – also, at this point, financed by taxpayers. In 2008, at the height of the crisis, nearly one-quarter of new loans were backed by the FHA. That is now down to about 1 in 6. The housing bailout, however, put the FHA in the red for several years, but strict underwriting and numerous premium hikes totaling 150 basis points, pulled it out.
The FHA spread the word that its insurance fund has gained $44 billion in value since 2012, and its capital ratio has been above the required 2 percent level for two years. The “why” may be lost on the clients of JMAC’s brokers, overshadowed by the “how much will it help me?” discussion. Which is fine, especially when it helps our broker’s borrowers financing a new home.