|FHA Fee Increase Hits April 1st||| Print ||
|Thursday, 15 March 2012 14:44|
Real Estate Reality
By Carl Medford, CRS
Special to the Forum
Back in the days when mortgage money flowed freely, no one considered that the end of the world as we know it might not be that far off. Then came June, 2005.
Unbeknown to anyone, the market roller coaster crested at its highest peak and began its descent. Slowly at first, but quickly gathering speed, it roared down the back side, wiping out market gains and, as excessive speed blew off the wheels, sowed devastation on its way to its ultimate crash.
To add injury to insult, 2008’s plummeting property values triggered the subprime lending collapse. As private lenders were driven out, there was no longer money to keep the market afloat.
Everyone was impacted — owners, investors, banks… even the mighty Federal Housing Administration (FHA). Not a lender, the FHA functions as an insurer, charging lenders and borrowers a fee to guarantee mortgages. With low limits, FHA-backed loans were largely unknown in the Bay Area.
In an effort to ease the crash and bring funding back to the market, the feds boosted the lending limits to Bay Area levels. Since then, FHA loans have become a staple for first-time buyers, making up a significant percentage of local loans. In fact, FHA now insures more than one third of home purchases nationally.
Did I mention the FHA was affected by the crash? As insured property values fell from the sky like Superman covered with Kryptonite, the FHA lost billions of dollars, mandating a government bailout. Still not out of the woods, the Federal Housing Administration insists it needs additional funds to get itself back on its feet. Thus the increase in fees as of April 1, 2012.
“Timing isn’t good,” declares John Dutra, with RPM Mortgage. “Seems like every time we get a break, some governmental agency steps on the brakes.”
Case in point: the local market appears to be turning. Buyers are out in droves. Fee increases could actually slow the market.
On April 1, up-front premiums are increasing to 1.75 percent of the loan. A $300,000 loan will see fees jump from $3,000 to $5,250. Since this is built into the loan and amortized, there won’t be any upfront affect. It will, however, increase monthly payments by $25. It will also reduce someone qualifying for a $300,000 loan down to $297,000. Doesn’t sound like much, but in this crazy market, it could actually be the difference between getting the home you want… or not.
Carl Medford is a licensed Realtor with Prudential California Realty in Castro Valley. This article is sponsored by the Central County Marketing Association at www.ccmgtoday.com