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FHA Reminder – Up Front Mortgage Insurance

Remember April 5^th (this coming Monday) the up front mortgage insurance premium on FHA loans is increasing to 2.25% from the current 1.75%. As an example on a $200,000 loan the fee now would be $4,500 versus $3,500.

Therefore if you have any buyer with an offer out there that can be solidified into a contract this week do so and have your lender order the case number this week.

FHA Principal Reduction Program

You may have heard about Friday’s announced program to help people across the U.S. who are “underwater”. Here’s how the new program works and my thoughts on it:

How it works

A person can refinance out of their current loan (as long it’s NOT a FHA loan) to a new FHA 97.75% loan to value loan and the government will offer incentives to the current lender as long as the write down at least 10% or more of the principal on the current mortgage.

Let’s use an example to best illustrate how the program works. Assume we have a homeowner with a $200,000 mortgage on a property worth $150,000:

New base loan: $150,000 X 97.75% = $146,625 Base Loan Amount

Up front PMI: $146,625 X 2.25% (see above) = $3,299

Total new loan: $149,924

Total old lender needs to forgive?

Currently owe: $200,000

Proceeds: $146,625 - $5,000 in costs (example) = $141,625

Principal Reduction: $200,000 - $141,625 = $58,375

Will it work?

Very hard to say, here’s the rub, the program says it will utilize $14 billion to “incentivize lenders” to provide a principal reduction. Without knowing what the incentive is who knows whether the large servicers will participate. Will they reimburse the entire loss, 50% of the principal reduction???

Once again this is another program intended on curbing the continued onslaught of foreclosures especially in troubled states; the government has had good ideas in the past, their execution of their plans has been terrible so far so my guess is this does little; who knows maybe they will surprise us…