A letter from Mortgage Adviser Ed Gerety on FHA Mortgage Insurance:
I have attached below the FHA Mortgagee Letter (ML) that details the recent changes. I have highlighted the parts that summarize the impact to our borrowers. The bottom line is that the increase in the monthly MI of 5-10 basis points (bps) is the third such increase we have seen in the last two years, and by itself is not going to be catastrophic. On a $400,000 loan amount, it results in a monthly increase of $31 to $395.
The more significant aspect of the change lies in the new duration of time that MI will stay in place. By moving the duration from 5 years to 11 years, the borrower on that $400,000 loan will pay the $395 MI for a minimum of 72 additional months. That is an increase of $28,440 to the cost of owning the home. And that is only if the borrower has put at least 10% down. With less than 10% down, the MI stays in place for the life of the loan. On a 30 year loan kept to maturity, that equates to an additional cost of $118,500!
Of course, as long as they qualify under future criteria the borrower can always refinance once they have reached a home value and loan balance that would allow it, so they will probably not have to stay in the loan for 30 years, hopefully not even 11. But I would certainly hope if the government is going to make these changes in FHA mortgage insurance, that they would also extend the tax deductibility of mortgage insurance.
Is the Federal Housing Administration evil and greedy for doing this? No. They are smart. They are trying run a business. A business which currently is in pretty bad financial shape because they became the "go-to" mortgage product when Subprime went away. That's called "adverse selection". So we can't really blame them for trying to shore up their finances and become less frequently adversely selected for higher-risk loans.
Ed Gerety
Mortgage Advisor, MBA
Opes Advisors, Inc.
Santa Cruz's Premier Purchase Lender
133 Mission Street 831.600.1588 Direct
Suite 210 831.251.7880 Cell
Santa Cruz, CA 95060 866.662.9370 eFax
DRE # 01054371 | NMLS # 338608
OPES • n. (ōˈpes) /latin for wealth
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