Fred Griffin: FHA MIP Causing Smaller FHA Mortgage To Become High Price Mortgage Loans

FHA MIP Causing Smaller FHA Mortgage To Become High Price Mortgage Loans

     The likelihood that Lenders will be able to continue doing Smaller FHA Mortgage Loans does not look very promising.  First Time Buyers and Low Income Buyers might not be able to purchase a home!

       The elimination of the MIP Cancellation that took effect last month, will force most First Time Buyers and Low Income Buyers into what is known as a High Price Mortgage Loan (HPML).  The Lender will probably NOT approve the HPML.

     The Federal Government has placed one more obstacle in the way of Home Ownership.  It is ironic that FHA - the Loan Program that was created to help Lower Income and First Time Homebuyers - may now prevent the Lower End Buyer from purchasing a home!

______________________________________

The recent FHA changes to the FHA Monthly Mortgage Premium (MIP), has create an issue that no one foresaw at the time the changes were written and implemented.  The new issue raised its ugly head when it was discovered the combination of the increase in the MIP in April along with the elimination of the MIP Cancellation at the beginning of June, have resulted in the FHA MIP Causing Smaller FHA Mortgage To Become High Price Mortgage Loans.

A High Priced Mortgage Loan (HPML) is defined as:

A mortgage loan with an Annual Percentage Rate (APR) that exceeds 1.50% of the Average Prime Offering Rate (APOR) on the date the interest rate is locked. This regulation was established by Regulation Z, and went into effective on October 1, 2009. The Average Prime Offering Rate is published weekly by The Federal Financial Institutions Council (FFIEC) and is available at http://www.ffiec.gov/ratespread/aportables.htm (see the Average Prime Offer Rates Charts below)


Example: If the FFIEC APOR was = 4.00% plus 1.50% = 5.5% which is the threshold. If the APR exceeds this number, the mortgage loan is considered HPML. 

With the recent change in the FHA duration for monthly mortgage insurance, some FHA insured loans (small FHA Loans) may exceed the APOR threshold.  If any loan exceed the APOR threshold, it is considered a High Price Mortgage Loan (HPML) whether it is a FHA or any other loan.  Once a Mortgage is considered a HPML, it is very unlikely a Lender will be be able to approve it. 

The reason why this has a significant impact on small loan amounts and not on large loan amounts, is because most of the loan fees included in the APR are fixed fees regardless of the size of the Mortgage.  So the fees reflect a higher percentage of a small loan amount than a larger loan amount.  The end result is smaller loans reaching a 1.50% of the loan much quicker than larger loans, therefore, falling into a High Price Mortgage Loan very quickly.

The likely-hood that Lenders will be able to continue doing smaller loans on FHA Mortgage do not look very promising.  So now lower end Buyers, which most of the time are First Time Buyers and Low Income Buyers, might not be able to purchase a home.  The increase in the MIP in April with the elimination of the MIP Cancellation at the beginning of June, will most likely cause properties First Time Buyers and Low Income Buyers were qualified to purchase into a High Price Mortgage Loans (HPML).

FHA MIP Causing Lower FHA Mortgage To Become High Price Mortgage Loans, is one more obstacle to Lower Income, and First Time Homebuyers.  Isn't it ironic, the Loan Program that was created to help Lower Income, and First Time Homebuyers to purchase homes, may now just be the cause of Lower Income, and First Time Homebuyers to not be able to purchase a home

NOTE: FHA streamline refinance loans that are NON CREDIT QUALIFYING (NO appraisal and income verification is required) do not meet the ability to pay requirements established by HPML, therefore are not eligible if HPML (APR exceeds threshold). 

This will most like include ALL FHA Streamline Refinance Loans that qualified under the guidelines for FHA Loans that Closed and obtained a FHA Case Number on or before May 31, 2009.

 

*******************************************************************************

 Info about the author:

George Souto NMLS# 65149 is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

 

Frederick Griffin, Licensed Florida Real Estate Broker    850-545-1901

 

Tallahassee Florida Metropolitan Area

Exclusive Representation for Buyers and Sellers 

Call Fred  850-545-1901

 

 Realtor logo       HUD Logo Fair Housing

 

 

Frederick Griffin, Licensed Florida Real Estate Broker    850-545-1901

 

Disclaimer:  Nothing in the above blog article is to be construed as legal advice, tax advice, or financial advice.  For legal advice see an attorney.   For tax advice or financial advice see a tax attorney, certified public accountant, or other qualified professional.

 

Comment balloon 15 commentsFred Griffin • July 01 2013 01:54PM

Comments

What a mess! I hope somebody on the federal level will fix this but I will not hold my breath...it will kill a person! They have once again made a mess of things.

Posted by Sussie Sutton, UTR TEXAS Realtors - Rep for buyers and sellers. (UTR Texas Realtors) over 4 years ago

All of this is truly a big mess.  It is so difficult for the younger people to be able to get loans!

Posted by Christine OShea (RE/MAX Realty Select) over 4 years ago

Fred, I have read more than once that FHA wants to reduce its percentage of loans - this is one way to do it but not what they had in mind. If buyers can find the extra 1.5% they can do conventional, or htere is USDA. Clearly our current lawmakers don't have the foresight that our Founding Fathers did or our founding documents would not have lasted this long.

Posted by Sharon Alters, Realtor - Homes for Sale Fleming Island FL (Coldwell Banker Vanguard Realty - 904-673-2308) over 4 years ago

The irony is unbelievable!  It does seem the focus has changed.  It is all about politics any more. Have a great 4th!

Posted by Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC, ... a small office, delivering big service! (Waters Realty of Brevard, LLC) over 4 years ago

Happy 4th of July, Everyone! 

    The Constitution is only 6 Pages Long.   Obamacare, Dodd-Frank, and most other Federal Government Regulations are THOUSANDS of Pages in length.

Posted by Fred Griffin, Licensed Florida Real Estate Broker (Fred Griffin Real Estate) over 4 years ago

Wishing you and your entire family a Happy 4th of July and may you have excellent weather to celebrate!

Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) over 4 years ago

Hi, Barbara-Jo!  A Happy 4th of July to you, too!

Posted by Fred Griffin, Licensed Florida Real Estate Broker (Fred Griffin Real Estate) over 4 years ago

Hi Fred, it will mess up the real estate industry and the economy.

Posted by Kwee Huset, Venice Florida Homes For Sale (Kwee Huset Realty) over 4 years ago

Fred, FHA really tripped themselves up. I can imagine that more changes may be coming down the pike going back the other direction.

Posted by Debbie Reynolds, Your Dedicated Clarksville TN Real Estate Agent (Platinum Properties) over 4 years ago

Good morning Fred - what a mess! In an attempt to make things more secure, they've gone and made it impossible.

Posted by Wayne and Jean Marie Zuhl, The Last Names You'll Ever Need in Real Estate (Hallmark Realtors) over 4 years ago

Fred,

I'm concerned about this too! The pendulum is about to swing again and it isn't going to be good I'm afraid.

Posted by Patricia Feager, Selling Homes Changing Lives (DFW FINE PROPERTIES) over 4 years ago

Fred, sounds like a case of one hand not knowing what the other is doing! 

Posted by Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES, Florida Waterfront and Country Club Living (Tropic Shores Realty - Ich spreche Deutsch!) over 4 years ago

Thanks for sharing this blog, I would have otherwise missed it.

Posted by Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional, Palm Harbor, Dunedin, Clearwater, Safety Harbor (Charles Rutenberg Realty) over 4 years ago

Fred, not good news for a lot of buyers or sellers for that matter.  I really don't see this as a positive step forward for the real estate world.

Posted by Nick T Pappas, Madison & Huntsville Alabama Real Estate Resource (Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Huntsville AL) over 4 years ago

Fred, our high prices have rendered FHA financing an insignificant portion of our market since the 1970s, so I don't expect these changes to affect my marketplace.  But I can empathize with your frustration with bureaucrats screwing everything up because that seems to happen with every facet of society.

Posted by Lloyd Binen, Silicon Valley Realtor since 1976; 408-373-4411 (Certified Realty Services) over 4 years ago

Participate