Notes From The Mortgage Insider

HUD recently announced that the annual rate for Mortgage Insurance Premium (MIP) will increase with case numbers assigned on or after 04/18/2011. The MIP for all loans will increase by 0.25%. This may not sound like much, but the following example shows how this increase can hurt potential home buyers.

Rachel and Bill are house-shopping and expect to buy a house some time in April. They are looking at a $400,000 price and will be financing the maximum allowable under FHA guidelines, making their base loan amount $386,000. If they can find a house and apply for a mortgage so that they are assigned an FHA case number by April 18 the monthly mortgage insurance will be $289.50. If the case number is assigned after April 18, the monthly MIP will be $369.92. That is an increase of $80.42 per month!

If Rachel and Bill are already at the maximum qualifying ratios using the lower pre-April 18 MIP, then in order to qualify after April 18 they would have to decrease their loan amount by about $15,000 (based on current rates) and make up the difference in cash at closing.

Of course, HUD is trying to collect enough in premiums to cover the overall risk of defaults by FHA borrowers. That risk is higher to the extent that their portfolio contains mortgages used to finance purchases with low down payments, which is typical for FHA loans. But an unfortunate consequence of this price increase is its negative impact on the housing market recovery.

Reminder - New Federal Reserve Regulation Z Compensation and Anti-Steering rules take effect this week. The new rules severely restrict our flexibility to formulate mortgage financing solutions tailored to our clients' specific financial circumstances. Instead the Fed has mandated a "one-size fits all" scheme that we must adhere to in most circumstances. Right now we are working hard on developing alternatives which have more flexibility but still fit into the limited space allowed by the Fed.

I wish I had uplifting and happy news to share! Maybe next week…..

Margie Hofberg, President, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. To be added to her weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com. Or just subscribe to RMC's blog right here!