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Government-insured mortgages are about to get more
expensive.
The Federal Housing Administration, which is the largest insurer of low-down
payment mortgages, announced Wednesday that it will raise premiums by 10 basis
points, or 0.1%, on most of the new mortgages it insures.
Translation: A borrower opting for a 30-year, fixed-rate mortgage who puts 5%
or more down will now pay an annual insurance premium of 1.3% of their
outstanding balance. And someone who puts less than 5% down will pay a premium
of 1.35%.
The agency said it will also raise premiums for borrowers with jumbo loans --
or loans of $625,000 or more -- by 5 basis points, or 0.05%, and increase the
minimum down payment requirement on these loans to 5% from 3.5%.
FHA said it will require most buyers to pay insurance premiums for the life
of their loan. A policy that was put in place in 2001 allowed borrowers to
cancel premium payments once their debt fell below 78% of the principal balance.
One exception will be for borrowers who put more than 10% down at the time of
purchase.
Additional new policies include a requirement that any mortgage for an
applicant with less than a 620 credit score and debt-to-income ratio above 43%
must be underwritten manually. Lenders who want to issue loans to these
applicants must be able to adequately document why they decided to approve the
loans.
The agency also decided to put new restrictions on reverse mortgages, no
longer permitting retirees to take such large, upfront payments.
The changes are an effort to reduce the agency's exposure to risky loans and
bolster itsfinancial reserves, which
have been depleted due to high delinquency rates from the mortgage crisis. The
agency did not say when the new rates will take effect.
Last spring, FHA increased both premiums and upfront costs
on mortgages. Such hikes make it tougher for mortgage borrowers
-- especially first-time purchasers who can't afford the large down payments
most private lenders require today, according to Jaret Seiberg, a Washington
policy analyst for Guggenheim Partners. "They are the ones most likely to turn
to the FHA for credit," he said.
And that could have a negative impact on the housing market overall. "You
can't have a healthy housing market without a constant influx of first-time
buyers," said Seiberg.
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