Today's Mortgage Rates

The Federal Housing Administration has found itself in a position where it needs to raise revenue or cut expenses in order to survive. In an effort to raise revenues, the House Financial Services Committee has passed a bill that would substantially raise the amount a borrower pays for FHA monthly mortgage insurance – from the .55% that is required today to 1.5%.

This wouldn’t be the first time that FHA has raised the insurance premiums for an FHA loan, but it usually seems like in the past they have raised the UFMIP (up front mortgage insurance premium) and not the monthly MI (mortgage insurance). Nonetheless, the proposed raise in FHA insurance could make getting an FHA loan a lot more expensive in the near future if the bill makes it through the full House of Representatives and Congress.

Should the insurance hike pass, what it means to the homeowners trying to get a loan is that it will be harder to qualify because of the increased costs. Higher insurance costs will increase the monthly payment and result in the ability of a borrower to finance a home because the increased debt ratio calculation. A higher mortgage payment while making the same money each month will result in it being more difficult to qualify for a mortgage.

There are other important changes to the FHA program in the bill as well such as FHA holding lenders more accountable for bad loans as well as increasing the authority of FHA to pull the approval of FHA approved lenders. While these items are also important to the FHA borrower, they just don’t seem (to me at least) to have as big of an impact on the ability of an FHA borrower to get a loan as higher insurance fees.

Because in today’s world – more than ever before – people are trying to stretch their dollars as far as they can.

If you are wanting to buy a home and finance the home with an FHA loan, chances are that your lender may have mentioned a “FHA 90 day flip rule”.

Some lenders have a rule in place that they will not lend you money for an FHA loan if the home you are buying has been bought (usually by an investor) within the last 90 days – who is then turning around and selling the home to you.

And not to confuse the issue too much — but even though there are some lenders who won’t loan you money for an FHA loan if the property has been bought in the last 90 days already… some lenders will loan you money for an FHA loan in this situation.

As long as you aren’t buying it for more than 120% of what the previous owner paid for it.

Oh, and now to really confuse you — some lenders will loan you money for an FHA loan even if the home has been bought within the last 90 days and you are paying more than 120% of what the previous owner paid for it.

Which leads me to the question: is there really such a thing as a FHA 90 day flip rule?

I guess it depends who you ask.

And if one lender tells you that there is such a thing and that they can’t loan you money because of the rule, don’t give up! Just go find another lender who will loan you money on an FHA loan in this situation.

When house prices drop, falling values have ripple effects on the economy. Jobs are lost, credit becomes difficult to obtain and people are forced to make tough decisions regarding what monthly bills they can afford to pay.

And increasingly, it appears as if many people are opting to not pay their mortgage — whether by choice or necessity.

According to the Wall Street Journal, people who have an FHA loan are defaulting on their mortgage at consistently higher rates.

Loan defaults crossed the 9% mark in December, ending the year at 9.12%, up from 6.82% one year earlier and 8.94% at the end of November.  Through 2009, the agency had insured 5.8 million loans worth $752.6 billion, or a 24% increase from one year ago.

This number really doesn’t surprise anyone – FHA has made a number of significant moves to increase revenue at the agency, including:

• Changing FHA down payment and credit score requirements
• Investigating lenders with higher than average default numbers
• Reducing allowable seller concessions for new FHA loans
• Raising mortgage insurance premiums

But according to the WSJ article, that may not be enough:

The FHA appears to be outrunning that problem for now. Last week, the Obama administration’s proposed budget said the agency would generate enough revenue from new business to generate a $6 billion overall profit, even though losses in 2011 are expected to hit $19 billion, up from $8 billion last year. The FHA, which has seen defaults rise sharply on loans that it guarantees, doesn’t make loans but instead insures lenders against losses.

Whether or not the moves that FHA has made will be enough to avoid a complete overhaul of the FHA system, I suspect that over the summer many things may change — including the FHA loan program. I have heard talk of getting rid of Fannie Mae and Freddie Mac and if this happens, I suspect there will be a complete overhaul of how housing in America is financed.