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).
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 email@example.com
Frederick Griffin, Licensed Florida Real Estate Broker
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effective January 2019
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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.