Cool Tools News Spool

Month: October 2014

  • FHA doing away with pre-payment penalty

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    For those with an FHA mortgage, an unpleasant surprise may await when they sell their homes. FHA charges interest one month at a time. That means even if the sale closes on the 15th of the month, FHA calculates the mortgage payoff through the end of the month. For a $200,000 loan balance, Uncle Sam is going to dip his hand into your seller’s pocket for another $400.

    FHA enacted this rule to protect investors who buy mortgage-backed securities, who currently have the right to demand full-month payments of interest even when a loan pays off at the beginning of a month.

    But this runs contrary to other government loan products and Fannie and Freddie mortgages. When the CFPB released its Qualified Mortgage rule, it labeled this practice a pre-payment penalty and instructed FHA to do away with it by Jan of next year for FHA loans to remain qualified mortgages.

    Well, not wanting to seem overeager, FHA will wait until the last minute to enact the change. Any FHA loan that closes after Jan 21, 2015 will prohibit this practice. When a borrower pays off the mortgage, the payoff will include only interest through the funding date.

    All I can say is finally. The industry has asking for this for years. The funny thing is that in its announcement concerning the change, HUD suggested it was only lender greed that caused these extra interest charges and that the change would “prohibit mortgagees from charging borrowers interest” after payoff. What a bunch of bull. You and I both know that this had nothing to do with lenders. It’s what FHA required. I wonder if our government ever will take responsibility for anything.

  • FHA says it won’t lower MI

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    A big issue of late for all real estate industry professionals has been the dearth of first-time homebuyers. Analysts have suggested a number of possible reasons for this from excess student loan debt to millennials’ unwillingness to make a commitment. Today, we’re going to discuss another possible reason: higher FHA mortgage insurance rates.

    In Apr, 2013, FHA raised its mortgage insurance rate for the 5th time since 2010. As we’ve discussed in the past, the changes have priced some homebuyers out of the market. NAR claims the higher rates prevented 125,000 and 375,000 renters from qualifying to purchase a home last year.

    The reason for the changes was simple. Due to lax loan standards during the last decade, the FHA Mutual Mortgage Insurance Fund was going broke. To shore it up, FHA figured it would raise prices. For homebuyers with good credit, the FHA MI rate is now more than double the rate offered by private MI companies. So, homebuyers who can cobble together a 5% down payment have moved over to conventional loans. Those who can’t are paying the higher FHA rate or sitting on the sidelines.

    Unfortunately, first-time homebuyers are those least likely to have down payment money, and recent analysis shows that the vast majority of FHA borrowers are first-time homebuyers. Thus, a logical conclusion would be that higher FHA MI rates are reducing the number of first-time homebuyers.

    FHA has indicated it has no intention of reducing its MI rates any time soon. The only relief we may see in the near term is a reduction for first-time homebuyers who receive homebuyer counseling. Longer term, industry pundits think FHA may finally reduce the rates once its insurance fund recovers to its Congressionally-mandated level. Watch for the FHA actuarial report later this year for FHA’s projection of when that will occur.