Posts Tagged ‘Federal Housing Administration’

P.M.I Days are back

Thursday, June 10th, 2010

With the housing market sliding down, people losing their jobs as well as credit ratings, it was a bit difficult to get private mortgage insurance last year. This led people to flock at the Federal Housing Administration.

They had no other option. PMI was not an easy task, and lenders were not offering mortgages to borrowers with down payments below 20 percent, except for those who had insurance. At that crucial time, FHA was the only body willing to back borrowers with credit scores below 680 or down payments under 5 percent. However, some mortgage companies today have loosened their standards and are willing to insure borrowers with down payments as low as 5 percent.

P.M.I Days are back

Although the PMI availability improves, premiums haven’t slid down from their ‘year 2008’ level. They remain at a comparative higher level. Today, a loan of $500,000 requires a borrower to pay $258.33 every month, which is 0.62 percent. Before 2008, the rate would have been 0.52 percent that makes $216.66 per month.

Coming to the conclusion – No doubt FHAs are popular among borrowers these days, but PMIs have certain beneficial characteristics as well. Individuals going for PMI directly save $11,250 on a $500,000 loan, which they would have been paying for the one-time FHA fee of 2.25 percent.

Many mortgage companies have already eased their PMI policy, how long will it take other market players to revise their policies too? Is it enough to improve the housing market or to pull down the premium rates to the ‘year 2008’ level?

Reference Link: http://www.nytimes.com/2010/05/30/realestate/30mort.html?scp=4&sq=mortgage&st=cse

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Posted in FHA Loans, Mortgage Industry, Mortgage Loan Applications, housing market, interest rates | 56 Comments »

FHA Loans – ‘to the Rescue’ or ‘to be Rescued’

Monday, April 26th, 2010

FHA-insured Loans, originated during the great depression by the Federal Housing Administration and are meant to secure lenders against defaulting borrowers. Whereas, they are also an answer to borrowers who have a less than perfect (below 720) credit score or are unable to handle a 10% – 20% down payment. All these traits of FHA loans quickly made them popular especially in the 2008-2009 financial climate.

In the year 2008, FHA loans have accounted for about 46 percent of all mortgage applications – almost half of all mortgages. In addition, Federal Housing Administration guaranteed 186,000 mortgages in June, 2009, a record number in its 75-year history.

In these days, individuals highly prefer them over conventional loans, since it only requires a 3%-3.5% down payment, while conventional loans entail a 10%-20%. However, interest rates on FHA loans are a little bit higher than conventional loans.

Some analysts pointed out that borrowers with FHA-secured loans now have an average credit score of 690, compared to 630 two years ago. In spite of this, a large number of borrowers are turning up late in their payments or even defaulting. Delinquent FHA loans, those 90 days or more late, jumped 62.1% in the past year to 558,944, or 9.4% of FHA loans, as of the end of January, according to agency statistics.  The FHA, however, insists its finances are sound. Its loan portfolio actually performed better than most mortgage products, according to David Stevens, the agency’s commissioner.

FHA loans are still a better option for lower income individuals to purchase a home that they would not otherwise be able to afford. However, if the number of delinquencies increases with such a pace, it is possible that taxpayers will eventually have to bail out the agency. My question here is: How can the Federal Housing Administration work out a suitable strategy to reduce defaults and late payments, and maintain healthy equity/collateral ratios against lent money at the same time?

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Posted in FHA Loans, Mortgage Industry, housing market | 8 Comments »