FHA to increase mortgage insurance premiums one quarter of one point

The Federal Housing Administration is increasing its annual mortgage insurance premium one quarter of one point on all 15-year and 30-year mortgages backed by the agency.
The hike is in response to a congressional mandate that gave the FHA permission to increase premiums and keep its insurance fund liquid. The higher premiums also were outlined in President Obama's 2012 fiscal budget, which estimates the FHA will insure $218 billion in loans during the 2012 fiscal year.

The changes will effect loans issued on or after April 18.

Once the change takes place, the monthly insurance premium paid on a 30-year, fixed-rate FHA-insured loan will increase by $33.
On loans with amortization terms greater than 15 years, the FHA's annual mortgage insurance premium will increase to between 110 and 115 basis points. For loans with amortization terms of 15 years or less, the annual premium is set to rise between 25 and 50 basis points.
After the transition, a borrower holding a 30-year, fixed FHA-insured loan valued at $163,000 will be paying $151 per month in premiums, compared to $118 under the current rates.
"After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA’s capital reserves and help private capital return to the housing market,” said FHA Commissioner David Stevens in a statement. "This quarter point increase in the annual MIP is a responsible step toward meeting the congressionally mandated 2% reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments."
The FHA also has relaxed some of its refinancing rules, declaring in a letter Monday that borrowers no longer have to be employed to get a streamlined refinancing.
In addition, the agency said on simple-rate refinancings where borrowers pay for their own closing costs with cash or higher rates, income and asset information is no longer required, which allows the refinancing to be completed with an abbreviated loan application. The changes go into effect 60 days after the official release of the FHA's letter on Feb. 14.
Meanwhile, tighter lending rules remain in place for refinancing loan holders, with the FHA stipulating that closing costs cannot be financed for a simple rate without an appraisal.
The agency also said in order for homeowners to qualify for a refinancing, the monthly cost of their new loans must save them at least 5% or more. In addition, a borrower must be current on the loan a month prior to the refinancing.

Large housing inventories to be sold at deep discounts in 2011

Foreclosure filings and completed foreclosures will reach record levels this year, after lenders exhaust alternatives such as mortgage modifications, according to DBRS.
Analysts expect increased losses to residential mortgage-backed securities, as a result, because large inventories of foreclosed homes will be sold at deep discounts. The ratings agency also expects the federal government to continue calling for large-scale loan modifications in 2011. This will now affect loans such as option adjustable-rate mortgages because most of the delinquent subprime mortgages have already been modified.
DBRS projects delinquency trends to continue climbing this year, as negative home equity persists, home prices remain down, unemployment stays high, and many borrowers have trouble refinancing due to tightened underwriting standards.
Analysts said the number of REO properties could double over the next 12 months to 4 million from 2 million, and it will take at least one to two years to sell those homes, further hindering recovery. DBRS said servicers may turn to short sales and some government programs more often this year to sell these distressed properties.
Analysts pointed to the "first look" program the Department of Housing and Urban Development rolled out in September as one option. The program gives local nonprofits or borrowers a chance to bid on a house at a 1% discount of the appraised value before investors.
More regulatory reform will come to mortgage servicers in 2011, analysts said, "as the industry tries to recover from the revelations that were brought about over the last few months including robo-signing foreclosure affidavits, wrongfully foreclosing on military families and the inability of servicers to prove in court that they owned the mortgage loans."
Servicing fees are likely to increase because lenders and servicers need to find ways to pay for additional staff and increased litigation costs, while compensating borrowers for errors, according to DBRS.

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