Increase in FHA Fees are Sinking Deals
Increase in FHA Fees are Sinking Deals. Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net
The Federal Housing Administration’s rate increases in mortgage insurance have caused buyers to walk away and transactions to fall through, according to the National Association of REALTORS®’ second Survey of Mortgage Originators, which includes questions to lenders about the impact of changes to the FHA program. In recent years, FHA has increased its premium structure as a way to make up for the 2 percent capital reserve ratio it’s required to keep but lost when many loans went sour during the housing crisis.
The rise in FHA fees is also pricing some buyers out of the market. Lenders surveyed by NAR report that 5.7 percent of originations were lost because of the increase in FHA fees. That would correlate to about 200,000 to 250,000 home sales lost, according to NAR estimates.
What’s more, 68.4 percent of mortgage originators indicated that they had clients who chose not to buy or who put off buying indefinitely due to the increase in FHA mortgage insurance rates. However, originators say a large percentage of clients who sought FHA funding were able to explore other low down payment government programs, through agencies such as Veterans’ Affairs and the rural housing service. Only about 42 percent of originators said they were able to shift their client from FHA funding to conventional financing with private mortgage insurance, according to the survey.
In a letter to FHA Commissioner Carol Galante in the spring, NAR President Steve Brown wrote that FHA fees are increasingly sidelining buyers, with the fees now making up nearly 25 percent of a monthly mortgage payment. On a $150,000 loan at 4.5 percent interest, he noted that the mortgage interest is 13 percent higher today than it was in 2008. Also, he estimated that in 2013, between 125,000 to 375,000 potential buyers were priced out of the market because of FHA’s high insurance premiums and mortgage insurance requirements.
“Higher fees at the FHA have had an impact on affordability,” writes Ken Fears, NAR director of regional economics and housing finance, at NAR’s Economists’ Outlook blog. “While some buyers were able to shift to other more affordable programs, many consumers were shut out of the market for ownership.”
Source: “Lenders Note Impact of Higher FHA Fees,” National Association of REALTORS®’ Economists’ Outlook Blog (July 25, 2014)
