FHA Fee Reduction On Hold

On Friday, the new administration suspended a 25 basis point fee reduction that the past administration announced on the 9th of January. NAR research estimated that the fee reduction would have benefited 750,000 to 850,000 homebuyers in 2017 whose mortgages were backed by the FHA. In addition, it would have opened homeownership to an additional 30,000 to 40,000 homebuyers.

annual insurance rate fha

It is important to note that the fee reduction has been suspended pending a review by the new administration and not eliminated. However, a wrinkle in the suspension of the fee change will have market effects. Typically, mortgage insurance premium (MIP) changes are set to affect mortgages that are endorsed by the FHA for insurance on a given date or after. However, this fee change was set to affect FHA-backed loans that close on the 27th or after. Thus, recent deals that are under contract and endorsed by the FHA would have benefited from the change as long as they settled on the 27th or later. Furthermore, under the TRID or Know Before You Owe rules that govern the settlement process, an eighth of a point (12.5 basis point) or more increase in yield on a mortgage is one of three reasons that a new closing disclosure (CD) and 3-day waiting period must be issued before settlement. In short, the impact of the 25 basis point fee change could cause a small number of settlements to fall apart or to be delayed to February.

Ken Fears, Director, Regional Economics and Housing Finance

Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.

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  1. To say that it would have helped so many folks you would have to assume that lending standards wouldn’t have changed to write ‘cleaner’ loans since the reserve balance is just barely above minimum requirements. Also by not making it effective until a future time makes it look as if the incoming administrations policies are hurting the average person. Simply a changed amount to politicize and polarize the public. Halting the rate to review and consider it’s full impact on markets is sound decision making being used rather than making people just feel good. Would I be happy to see the rate lower absolutely but doing so with supporting data is the wisest choice.

  2. Dave Anderson

    Seems our industry has become too dependent upon government actions/policies for our success. Why not address the other side of the equation–creating real economic growth where “real buyers” have the financial capacity to place a down payment and pay their own closing costs. Have we not learned from 2008 and the dire consequences of government directed social policy making home ownership available to those who can’t afford it? Government should not be creating winners and losers. That role should be reserved for our economy.

  3. Jane Johnson

    ANOTHER reason why buyers (and sellers) need a good Realtor. An experienced Realtor should be able to negotiate additional closing costs to make up for the hold on the rate cut. FHA loans currently allow up to 6% in seller concessions, which is very generous. If the hold on the rate cut determines whether or not someone can purchase a home, they may not be ready for home ownership. Buyers need to have a little cushion to deal with any unexpected repairs, even after a good inspection.