One of the downsides to the mortgage crisis has been the reduction in options that are now available to first time homebuyers. Fannie Mae and Freddie Mac have basically eliminated all their zero down payment loans as well as their 3% down options. The best program going now is USDA but under the USDA program your home needs to be rural and there are also income restrictions. So, what’s left? FHA. FHA use to be a great option. Prior to 7/14/2008 the down payment was 3%, the monthly mortgage insurance was .5%, and the upfront fee was 1.5%. Now, the down payment is 3.5%, the monthly mortgage insurance is 1.35%, and the upfront mortgage insurance is 1.75%. On a $200,000 mortgage that is an increase in the monthly payment of $144 a month! That’s a ton of money. Plus the borrower would have to come up with an additional down payment of $1000. Well, The Community Home Lenders Association (CHLA) wants FHA to reduce the monthly mortgage insurance and get the first time homebuyer market going again.
Their recommendation is to decrease the monthly mortgage insurance to .75% and decrease it to .5% if the borrower successfully completes a counseling session pre-approved by the Department of Housing and Urban Development (HUD). To offset the reduction in revenue because of the lower monthly premium, the group proposed to temporarily increase the upfront fee to 2%. The group also proposed that as FHA’s financial status improved to meet its 2% reserve requirement for its Mutual Mortgage Insurance (MMI) fund, then the annual premium should be reduced to .5% for all borrowers.
What a great idea! If the housing market is going to recover then the first time homebuyer has to get involved. The options are currently weak and FHA needs to step up to the plate. Lets hope CHLA will help convince FHA to make some changes.