FHA Mortgage Updates

As always the rules for the FHA Mortgage program like the Fannie-Mae and Freddie-Mac mortgage programs are always changing. Why do these mortgage programs change? In the case of the FHA mortgage program it’s about stemming losses and trying to be profitable. While Fannie-Mae and Freddie-Mac have gotten their mortgage houses in order with the best performing mortgage portfolios ever FHA is still a losing proposition. In my opinion it always will be because while Fannie-Mae and Freddie-Mac have tightened their mortgage guidelines FHA has not. Like they say the FHA Mortgage program is the current sub-prime. Maybe one day both the White-House and Congress will learn home ownership isn’t for everyone.

See here what American Banker has to say about the differences in the FHA mortgage program and the mortgage programs of Fannie-Mae & Freddie-Mac:

The mortgage securities business has become a shell game. Consider the disconnect in pricing of credit guarantees between Fannie Mae and Freddie Mac, on the one hand, and the Federal Housing Administration on the other.

One of the important differences in pricing between the government-sponsored enterprises and FHA is that Fannie and Freddie adjust their prices to some degree for risk while FHA largely charges fees that are flat across risk attributes. And although FHA has raised upfront and annual mortgage insurance premiums since the crisis, the all-in pricing for a GSE mortgage-backed security and a corresponding Ginnie Mae MBS (which is where most FHA loans end up) leaves FHA the clear winner for the riskiest pools. In that regard, we are merely shifting risk from one set of federally insured entities (the GSEs as wards of the state) to another. There does not seem to be any apparent rhyme or reason to this pricing — one more piece of evidence of the lack of cohesion in pricing in federally dominated mortgage markets.

Program Changes:

For the second time this year, the FHA is changing its mortgage insurance policies. Beginning in 52 days, some FHA loans will require FHA MIP for so long as the loan is active. Many more will require MIP for as many as 11 years. This is a stark change from today’s FHA policy which allows for FHA mortgage insurance cancellation after just 5 years. An FHA mortgage is a mortgage which is insured by the Federal Housing Administration (FHA), a self-supporting agency within the U.S. government.

A policy change will raise the cost of Federal Housing Administration mortgages for all new FHA-insured homeowners. Those that wait to buy or refinance will raise their long-term loan costs significantly.





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