One fee goes up (probably, depends on FHA bureaucrats), and one comes down (ditto).  Monthly mortgage insurance (which the Post calls an “annual fee” for some reason) rises from an annualized .55% of the loan to .9%, with the FHA having authority to take it to 1.5%.  But the up-front mortgage insurance fee (UFMIP), which had been 1.75% and is now 2.25%, will come down to 1%.  The net change is measurable, about $40 more per month on a typical mortgage in Utah, so the fees are being “raised” in that sense, but more importantly, they’re being shifted.

And why?  Glad you asked.  Whatever the stated rationale for the change in fees, the effect will be to increase the competitiveness of FHA loans vs. conventional financing, by decreasing the UFMIP to 1% and increasing the monthly MI, FHA loans will more closely match their conventional counterparts, but with just a 3.5% down payment requirement, FHA will now have an even clearer advantage in the marketplace.  Borrowers were skittish (and rightly) of paying a whacking 2.25% of the loan amount in UFMIP.  The number for a $200,000 mortgage in Utah is $4500, and that’s a massive and visible addition to your closing costs when shopping for a loan.  Under the new rules, it would be only $2000, a much more manageable number.  Then the fee increases are hidden in the monthly payment.  Presto!  Much more palatable to the consumer, and more money for the FHA.

Expect the changes to take effect around October 1.

Markets: Retail sales came in weak today, and last month’s number was revised downward, so stocks are losing ground, and bonds are moving higher. We have now gained back everything we lost last week, though we aren’t quite back to where we were the week before. Up and down in the same range is a sign of a market bottom. Be forewarned.

Analysis: Heard on Twitter: “Silently cheering for bad economic news is what you do if you’re looking for lower mortgage rates.” @tylerosby It’s kind of sad, but it certainly is true. I try not to hope for bad news, but when it comes, I don’t feel as bad as I otherwise might. These days, though, I genuinely hope that the economy improves, because although there is a “benefit” to mortgage refinancers and purchasers (and, let’s face it, to me) from bad news causing rates to drop, the REAL benefit to us would be if the economy revived and people started working and earning again. Remember, you make a whale of a lot more money having a decent job than you do shaving .25% off your mortgage rate. Any raise you might get would dwarf the money you’d save from that tiny a decrease in your rate.

I think we have the signs of a rate bottom here. We’ve been bouncing around in this general range for over a month now. Everything points to rates moving higher from here.

Currently, we’re sitting between 4.75% and 5%, depending on the loan and the program.

Since the news is all over the map this morning – trade gap is widening, WalMart missed its earning target but raised its earnings guidance going forward, jobless claims dipped unexpectedly, the Bank of England (Fidelity Fiduciary BANK!) cut its rate to 5%, American Airlines isn’t apparently an airline any more – and traders have no idea what to do, I thought I’d give everyone a paragraph on FHA loans.

The Federal Housing Authority (FHA) has a class of loans that it guarantees. The FHA doesn’t make loans itself; instead, it guarantees them to the banks that do make them. Since the loans are guaranteed, the rate is usually lower than what you’d get in the open market (not always true), and that’s a good thing. Additionally, FHA loans do not have rate penalties for cash-out refinance, and that’s a VERY good thing for consolidators. FHA loans will go up to 97% loan-to-value (LTV) without penalties to the rate, and that is now the best deal in the market, and has no prepay penalties, and will accept loans from people with iffy credit. Sounds great, right? Well, there are a couple of drawbacks. One is that FHA loans carry monthly mortgage insurance, and you’re going to pay it for 5 years unless you refinance out of it, no matter what your LTV is. After 5 years you can get rid of it if your balance is below 78% of the value of the house established when you did the loan. Another is that there are no provisions for any sort of stated income – it’s full doc or nothing, and the debt ratios are very strict, which means self-employed people usually have a hard time getting these loans (because we have such great accountants). That’s bad, but what’s worse – much worse – is the Up Front Mortgage Insurance Premium (UFMIP – you think I could make up acronyms like this? Of course that’s for real), which tacks on 1.5% of your loan amount to your closing costs. Remember that low interest rate? UFMIP adds about .5% to it because of the additional amount you have to borrow. So, bottom line, it’s a good tool for some, but not the magic bullet for mortgage woes.

Probably more than you wanted to know. The market’s flat. We did get a dip yesterday as the market priced in the news that Washington Mutual will no longer be wholesaling loans through mortgage brokers, but we’re a lender AND a broker, so we don’t care. We’ll just use our own money. The 30-year fixed is pricing in at 5.75% at the moment for good credit borrowers. Don’t expect a great deal of movement today. Kind of refreshing, actually. It’s been like the floor of the Chicago Board of Trade here the last few weeks.

Cj

P.S. If you find this information useful, pass it on and let me know
(chris@thechrisjonesgroup.com) who else you know that would like to
receive it. We’ll put them on our list.

A word on FHA loans: the market currently seems perfectly happy to structure itself so that the government takes all the risk. Until a month ago, I was still of the opinion that FHA loans were a bad deal for the consumer much of the time. They carry mandatory mortgage insurance, and they also have an up-front fee of 1.5% of the loan amount tacked on to the closing costs. The tradeoff is that the rate is usually about .25% lower. Most of the time, that wasn’t a very good trade. Recently, however, credit restrictions have tightened to such an alarming degree that for a large number of borrowers there simply is no alternative. We offer FHA loans, and we’ve been funneling more and more of our borrowers into them, especially those needing to consolidate debt. That’s a trend I see continuing all this year.

Cj

P.S. If you find this information useful, pass it on and let me know who
else you know that would like to receive it. We’ll put them on our list. chris@thechrisjonesgroup.com